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From the Desk of Jack Healy

The American Management Gene Pool

By Jack Healy, Director, Manufacturing Advancement Center, [email protected]

A recent newspaper headline read, “Bike Maker Huffy files Chapter 11: Failure to Manufacture Overseas.” The article details how Huffy continued to make bicycles in the USA and “was late in going to China.” Sadly, this is yet another ill-informed news article that plays on the now popular and growing belief that you can no longer profitably manufacture in the U.S.

Let’s take a closer look at the story. Until the first part of this year, Huffy described itself as a “bicycle, basketball, backboard, retail services company.” It had expanded its reach much further into the sporting goods industry through Gen X sports acquisitions in such categories such as golf, snowboards, skateboards, in-line skates, hockey, and snow ski’s. Contrary to the newspaper headline, Huffy was certainly more than a bike manufacturer.

Notably, Huffy sold off these new divisions earlier this year. The company cited liquidity issues, significant operating losses associated with portions of the company’s former Canadian operations, increasing public company costs, and mounting legacy costs associated with discontinued operations as major factors in its decision to seek the protection of the bankruptcy court. Notice there was no mention of manufacturing in any of this.

Contrary to the newspaper report, Huffy did make the decision to manufacture in China back in the late 1990’s. The company now imports its products from Taiwan and China. Recently, Huffy reported that bicycle sales increased by three million units in calendar year 2003. Not bad in a down year. But in doing so, Huffy also saw a drop in gross margin of $2.3 million. The impact of Wal-Mart and China have produced a 46% decline in the average retail invoice price for bicycles since 1996. With the ever-increasing costs of metals, it is hard to imagine if there is any profitability left in this industry, regardless of where the product is manufactured.

The headline for that newspaper article should have read, “Huffy Operating Losses

Cause Chapter 11: Decline of Market Profitability Adds to Losses.” Let’s leave manufacturing out of it.

The Management Gene Pool
Today’s global marketplace is ruled by constant pressure to squeeze more profit out of existing assets. This provides continual challenges to manufacturers around the world. Companies that produce traditional products for cyclical markets must innovate or they will go out of business, regardless of where they manufacture their products.

Over the years we have all seen companies with large brand names like Huffy utilize profits from the core franchise to support other, less than successful ventures. Often, they arrive at a point where the inevitable collapse in earnings leads to the loss of the franchise and it’s brand names. Somehow the public interprets this loss as related to manufacturing and not to the low “management gene pool” that resides in the executive suite.

Some of the most successful manufacturing enterprises in the U.S. are the Japanese automotive manufacturing transplants. Toyota, for instance, has announced that it will feature its newest factory in Alabama in a print ad campaign. The company is looking to publicize the growth of its U.S. operations; 190,000 jobs were created, including dealers and suppliers. Toyota , unlike most U.S.manufacturers, wants to emphasize that their investment, along with respect for local communities and the environment, will continue over the long term.

We need more manufacturers like this. It is no small wonder why Business Week magazine recently recognized “Lean Manufacturing,” first introduced by the Toyota Motor Corp. in the 1950’s and 1960’s, as one of the great innovations of the last 75 years.

Who’s to Blame?
Despite this affirmation, IndustryWeek magazine recently pointed out that 46% of manufactures surveyed by the Manufacturing Performance Institute admit to having made no progress towards world class manufacturing and “are not even trying to improve.” No wonder such manufacturers are feeling left behind.

This takes us back to my previous point…How much of the contraction of the U.S. manufacturing base is attributable to the poor management gene pool — managers whose solution is to outsource everything and when that does not work to blame the high cost of manufacturing in the U.S.?

The reason that the Huffy news article was so significant to me is that it was the first newspaper article I read while returning from Cincinnati where I attended the annual Association for Manufacturing Excellence Conference. This Conference featured over 80 presentations about successful Lean Manufacturing initiatives with over 20 plant tours and various workshops. I had just seen all manner of opportunity for manufacturing in the U.S. when I read this ill-informed article that says we can’t improve our operations.

The Association for Manufacturing Excellence conference will move to New England in 2005. Any manager interested in creating a new manufacturing improvement initiative for their company should not miss this event. There is no better value for the money and the payoff is tremendous. If you are in manufacturing, you owe it to yourself to go. We already have enough people in the other “gene pool.”

If you are interested in working the MassMEP to implement a lean manufacturing program, please contact Michael Prior, Senior Project Manager, (508) 831-7020, [email protected].


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