American Dragon: Winning the Global Manufacturing War Using the Universal Principles of Fewer, Faster, and Finer

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AMERICAN DRAGON

Winning the Global Manufacturing War Using the Universal Principles of Fewer, Faster, and Finer

Michael McKeldon Woody

Copyright © 2016 Michael McKeldon Woody.

Associated logos are trademarks and/or registered trademarks of Michael McKeldon Woody.

All rights reserved. No part of this book may be reproduced, stored, or transmitted by any means—whether auditory, graphic, mechanical, or electronic—without written permission of both publisher and author, except in the case of brief excerpts used in critical articles and reviews. Unauthorized reproduction of any part of this work is illegal and is punishable by law.

ISBN: 978-1-4834-4576-2 (sc)

ISBN: 978-1-4834-4577-9 (hc)

ISBN: 978-1-4834-4575-5 (e)

Library of Congress Control Number: 2016901238

Because of the dynamic nature of the Internet, any web addresses or links contained in this book may have changed since publication and may no longer be valid. The views expressed in this work are solely those of the author and do not necessarily reflect the views of the publisher, and the publisher hereby disclaims any responsibility for them.

Lulu Publishing Services rev. date: 03/01/2016

CONTENTS

Acknowledgments

Introduction The American Industrial Revolution

Chapter 1 Fewer, Faster, and Finer—Exploit Weakness

Chapter 2 The Tale of Two Companies—Living in the Best and Worst of Times

Chapter 3 The Enemy Within—Extinguish the Fire

Chapter 4 The Making of Less—Producing Fewer

Chapter 5 The Speed Merchants—Moving Faster

Chapter 6 The Best in Class—Manufacturing Finer

Chapter 7 The Power of We—Building Great Teams

Chapter 8 A Small Price to Pay—The Role of the Consumer and B2B Buyer

Chapter 9 The Power to Persevere—Government Must Lead, Follow or Get Out of the Way

Conclusion: The Recession-Proof Business The Recession-Proof Business

Endnotes

For my wife, Joanne,

who kept this dream alive

There is a tide in the affairs of men,

Which, taken at the flood, leads on to fortune;

Omitted, all the voyage of their life

Is bound in shallows and in miseries.

On such a full sea are we now afloat,

And we must take the current when it serves,

Or lose our ventures.

—William Shakespeare

Julius Caesar, Act 4, Scene 3

ACKNOWLEDGMENTS

Some of the company names in this book have been changed because the owners or managers of those companies wished to remain anonymous. Why? Because they either currently sell into China or hope to eventually sell into China, and they fear being blackballed. Even one of the major publishers who expressed interest in the manuscript asked if I could tone down the China rhetoric because they sell a lot of books in China. These incidents only confirmed the importance of American Dragon’s message, so I thank the reluctant for the extra motivation.

As a combination of personal history and how-to book, American Dragon is a bit of an anomaly. When I started down this path, I wasn’t sure if balancing these two approaches in a business book would even make sense, much less be readable. A number of people were kind enough to look over my drafts, some conversant in manufacturing and/or the promotional products industry and some not. All provided reassurance that I was on the right track. Their encouragement kept me writing and revising.

Patricia Slonina Vieira read my first draft and provided support very early in the process. Kent Gladding, an investment professional, read one of my final drafts and reassured me that a layperson could understand both my descriptions of how and why offshoring occurred and the somewhat Byzantine nature of the promotional products distribution network. Steve Yukel went over my final draft with a fine-tooth comb, a critically important task given that I had lived with some sections of the text for over three years. Mark Gilman, Wayne Roberts, and Gene Geiger, promotional products industry veterans, confirmed my recollection of how and why promotional products were offshored. Rick Brenner’s extensive background knowledge on the Consumer Products Safety Improvement Act was essential to my explanation of the importance of the finer principle. I imposed on a new friend, Fr. Bill Miscamble, to look at a near-final draft, and he served as my third-base coach, waving me home.

Thank you, Michele Bell at the Advertising Specialty Institute, for access to old archives on the promotional products industry. A nod to Sarah Butler for helping me ramp up the American Dragon social media machine. To Pat and Michael Snell—we didn’t make it happen this time, but you made me a better writer and our paths will cross again. To my friend Brandon Mackay, for his support and for the story that remains untold.

There were several books I encountered along the way that served as both inspiration and motivation. Chief among them are:

Re-Made in the USA—Todd Lipscomb’s account of his journey that led to the creation of www.madeinusaforever.com.

Strategic Capitalism—Richard D’Aveni’s warning of the strategic threat that China’s form of capitalism represents, and how the United States should respond.

The Long Tail—Chris Anderson’s seminal book on the effects of technology on product demand and distribution was essential to my explanation of the fewer principle.

Factory Man—Beth Macy’s history of the Bassett Furniture empire shows that one person can make a difference.

Producing Prosperity—Gary Pisano and Willy Shih make the case that without manufacturing, we lose our capacity to innovate; and if we cease to innovate, what remains?

Finally, a tip of the hat to Harry Moser’s Reshoring Initiative, the Made in America Movement, USA Love List, Makers Row, the Job Shop Company, and so many other organizations that continue to relentlessly trumpet the importance of US manufacturing.

INTRODUCTION

The American Industrial Revolution

It is a little-known fact that the American industrial revolution was started by a copycat—a brilliant one, but a copycat nonetheless. To evade British law, he wore a farmer’s costume and clandestinely boarded a boat headed to the newly formed United States of America.

It was the late eighteenth century, and the industrial revolution in England was running full throttle. The textile industry at that time was driven by the water-powered spinning machines used to convert cotton into yarn, which eventually became fabric. But the lion’s share of the raw cotton used in British textile mills happened to be imported from US cotton farmers. The British government, in order to prevent US companies from hijacking the spinning machine technology and setting up similar mills, passed laws forbidding their textile workers from traveling to America.

A young Samuel Slater, after working as an apprentice in a textile mill for seven years, envisioned a life in the New World. So he donned his farmer’s disguise and snuck aboard a ship to the United States, bringing with him the technology that would spark the American industrial revolution. With a booming population, plenty of land for expansion, and a wealth of natural resources, the United States eventually became the manufacturer to the world, churning out the commodity products that everyone wanted. By the end of World War II, our standard of living was the world’s highest.

But then the war-ravaged economies of Europe and Asia recovered. Germany and Japan, aided by the Marshall Plan, ramped up their own manufacturing capabilities. High-quality German and low-priced Japanese products began to enter the United States. Economists were teaching that globalization is good. They calculated that importing lower-priced goods from overseas would drive our living standards ever higher. The number of trade deals multiplied, and US tariffs were lowered.

In 1989, two hundred years after Slater’s journey, manufacturers from China were visiting US trade shows and factories, researching the hottest products and how they were made, then taking the manufacturing know-how home and using reverse engineering to make those products at one third the price. How? By paying extremely low wages to workers toiling in often dangerous working conditions, and paying little heed to environmental pollution. Faced with competition from these lower-wage countries, US manufacturers responded by making ever cheaper products, often sacrificing quality in the process.

Meanwhile, US-based multinationals, brands, and big-box retailers began offshoring production of goods to the lowest-cost country. Bangladesh outbid China for the privilege of making the world’s T-shirts in sweatshop conditions that were outlawed in the United States a century ago. India, Vietnam, Pakistan, and others entered the manufacturing fray. The United States passed NAFTA, and then, at the turn of the new millennium, China, with US support, entered the World Trade Organization (WTO). Over the next decade, six million US manufacturing jobs were lost. And I was part of the problem.

These Chinese pens are not a threat, I remember telling my sales rep, Ron, at a 1992 trade show in Dallas. Shaking his head, Ron quickly shepherded me over to the pens that one of our competitors was importing from China. He picked up a pen to show me how poorly made this nonbranded pen was, offered at half the price of our finely crafted, lifetime-guaranteed Quill pens. The Chinese import was light as a feather—not a good thing for a quality metal pen—with a matte finish thin enough to rub off. The mechanism for projecting the pen’s point was creaky, and instead of writing smoothly, it felt scratchy.

At that time, I was vice president of international sales and marketing at the Quill Company, a US writing instrument manufacturer based in Providence, Rhode Island. Quill, a textbook example of a small family-owned company, produced a quality product that served a niche in the expanding promotional products market and grew steadily throughout the 1980s. By the early 1990s, sales were still trending up, but our growth had leveled off. At the time I attributed this largely to the 1990s’ recession, but Ron disagreed.

He took me down another aisle to a different competitor selling a Chinese pen identical to the one I had just seen. Now I understood: the China manufacturer was selling the same pen to multiple US importers using long production runs. Those long runs and mediocre quality standards allowed them to sell at much lower prices than Quill. Ron warned me that these pens were eating into our market share. Still, I was certain that no buyer would opt for such a poorly made product from China over a US-made product with a lifetime guarantee—even at half the price. I was dead wrong.

By the time I started my own consulting business ten years later, the triumph of China imports was so resounding that I had acquiesced in the inevitability of US companies sourcing in China. I actually encouraged it to clients and to audiences at presentations throughout the world.

Then in 2006 I stumbled onto a small company in the textile business, Trans-Tex LLC. This company provided me with an opportunity for a rematch with my old nemesis, China, with an entirely different result. During the worst economic environment since the Great Depression, this small manufacturer in an old-school industry had battled and beaten the imports by implementing the three simple principles of fewer, faster, and finer.

1. Fewer means shorter, more-customized production runs.

2. Faster means quicker production lead times.

3. Finer means higher-quality, safer products.

These principles are effective because they attack the increasingly glaring weaknesses in the China manufacturing business model: steadily rising prices, geographic distance, poor grasp of US product safety guidelines, the threat of intellectual property theft, and an emphasis on long production runs of commodity products.

As I began reading about other companies exploiting these weaknesses to successfully compete with imports, I realized that they, too, were relying heavily on the principles of fewer, faster, and finer. It became apparent that other struggling US manufacturers, battered by the flood of low-cost imports and believing that all is lost, would benefit from these stories. So I wrote this book to coach and encourage us to keep fighting the good fight.

How important is this battle? As we struggle to rise from the ashes of the worst economic downturn since the Great Depression, an unemployment rate that peaked at 10.8 percent has now dropped below 6 percent. Think we’re out of the woods? Not a chance. Wage levels remain stagnant, with increases driven more by state governments raising minimum pay than by a strong job market and increasing productivity. The Wall Street Journal noted that wage growth for hourly wage earners remains tepid, and the share of Americans participating in the labor force (62.6 percent) matches the lowest reading since 1977.¹ Many prospective workers have simply given up their job search.

There is a chorus of voices that say that the state of manufacturing in the United States is fine and that we are simply more productive and need fewer workers to produce the same results. Yes, our manufacturing sector is more productive. But this is little solace to those whose jobs have been lost not to automation, but to offshoring. According to some estimates, over two million US manufacturing jobs have been exported to China alone since the turn of the century. And although we are more productive, our position as the world’s leader in manufacturing output is slipping. Since 1990, China has passed France, Italy, the United Kingdom, Germany, and Japan, and is bearing down on us. Some say that China has already passed the United States in manufacturing output.²

Keep in mind that the loss of our manufacturing base also leaves us vulnerable to strategic threats. Why? Because manufacturing drives innovation and innovation drives manufacturing. If we lose the capacity to manufacture, even in basic industries, we will lose the capacity to innovate. As the MIT Task Force on Innovation and Production succinctly puts it, the loss of companies that make things will end up in the loss of research that can invent them.³ And that loss means the loss of millions more jobs and a gradual decay in our quality of life and ability as a country to counter strategic threats. Recreating those manufacturing capabilities, once lost, is difficult, if not impossible.

In their book Producing Prosperity, Gary Pisano and Willy Shih describe industrial commons as webs of technological knowhow, operational capabilities, and specialized skills that are embedded in the workforce, competitors, suppliers, customers, cooperative R&D ventures, and universities and often support multiple industrial sectors.⁴ They go on to explain that when an industrial commons erodes, the foundation for future innovation is damaged because it is more difficult to design new products or improve existing products when the manufacturing environment is a continent away from research and development. Reshoring an industry is not as simple as opening up a factory to build a particular product.

The manufacturing of a product does not occur at one building or even in one company. Typically, a chain of vendors exists that supports a manufacturer in construction of the final product. Manufacturing is a sequential process involving a number of different types of companies. When we lose all or most of the pieces of that chain to other countries, reshoring the manufacturing of that product is almost impossible unless we reshore all or most of the components in that chain.

Apparel is a good example. The manufacturing channel for apparel includes brands, designers, contractors, yarn producers, fabric manufacturers, cut and sew operations, and packaging companies. To cost-effectively bring apparel manufacturing back to the United States requires that all of these elements be reshored in geographic clusters that can efficiently compete with overseas sources.

Isabelle Benoit is the owner and founder of Bullet Blues Custom Apparel, a boutique apparel company that manufactures all of its clothing from US-made fabrics and accessories. She grew up not in the cornfields of the Midwest or the streets of Los Angeles, but in Southwestern France. When she came to the United States and decided to start Bullet Blues, she was determined that her line would be totally made in the United States of America. Why? Because as she was coming of age across the Atlantic, Isabelle had always admired the quality of US-made product. More importantly, her business model and company name are a tribute to the US soldiers who rest in the graves at Normandy.

Her main challenge as a start-up was finding quality fabric and accessories (buttons, zippers, etc.) manufactured in the United States. Fabric manufacturing had emigrated overseas, taking with it the cut and sew operations and accessories manufacturers, as well as the contractors who pulled the entire package together. Although she overcame this obstacle over time, eventually designing a product line composed exclusively of US-manufactured fabrics and accessories, it took her months to locate vendors. The apparel manufacturing supply chain that existed in the United States forty years earlier had virtually disappeared, and Isabelle, a small business owner with a dream, was forced to cobble one together.

To use a sports metaphor, it is time for us as a nation to protect our home court. The United States remains the world’s largest economy, and marketplaces are evolving in ways that favor manufacturing companies in close proximity to their customers that can deliver smaller quantities quickly and that understand the importance of providing safe, reliable products. If you are a small to midsize US manufacturer and you implement the principles of fewer, faster, and finer, you will position your company to win back customers who made the decision years ago that they would buy from overseas countries based strictly on the fact that they offered the lowest price per piece.

This book was not written to bash our overseas competitors. Its aim is not to denigrate factories in other countries or the people who work in those factories. This book is about people like Isabelle Benoit who follow their dream of starting a business with the goal of labeling their product Made in the U.S.A. They are my team. I wrote this book in hopes of coaching them and their companies about how to tackle a tough competitor and beat them at their own game. That’s not xenophobia. It’s showing my support and encouragement for the home team, Team U.S.A.

As an entrepreneur or business owner, if overseas manufacturers have taken your US customers—even in a basic manufacturing industry—this story is proof that you can take those customers back. The principles of fewer, faster, and finer are driving success at Trans-Tex and many other companies, and they will help you win, too.

CHAPTER 1

Fewer, Faster, and Finer—Exploit Weakness

Without strategy you cannot control your opponent.⁵

The Art of War

Imagine if you could replace a garden hose connector by simply pushing the rubber hose into the new connector and having it lock into place with a leak-proof seal. Then imagine that you could fix a leaky connection in your basement plumbing in exactly the same way, with no tools—and that you