Manufacturing Is in Flower

By John S. DeMott

After years of neglect, America's factories are taking on afresh allure

"Nothing runs like a Deere," goes the slogan of the world's largest maker of farm equipment. These days, industrial engineers are changing that to "Nothing runs like a Deere factory." In its new plant on the northeast edge of Waterloo, Iowa, Deere is using computer-controlled assembly techniques to turn out a score of tractor models, bearing as many as 3,000 options, without costly plant shutdowns for retooling. The factory seems to be making a difference in Deere's profits. While sales rose slightly because of a strengthening farm economy, earnings during the last three months of 1983 were $2 million, vs. a loss of $28.5 million a year earlier. The company credited the improvement largely to "increased efficiency and cost reductions in North American manufacturing operations."

As modern as it is, though, the Deere factory can hardly compare with the frontier-breaching printed-circuit-board plant of AT&T Technologies in Richmond, Va. There computers receive complex instructions from a dozen Bell Laboratories design centers scattered throughout the U.S. The instructions are then used to turn out on demand a limitless variety of circuit boards containing hundreds of parts. The operation is so smooth that AT&T can change designs overnight without interrupting production.

The Deere and AT&T plants represent the new pizazz in American manufacturing. Long U.S. industry's neglected stepchild, subordinated to finance and marketing, the process of making products is suddenly coming into its own, commanding more and more attention from company executives. Firms are pouring money into new manufacturing facilities and stocking them with such advanced equipment as computer-driven robots, lasers and ultrasonic probes. Last week the Commerce Department reported that U.S. business plans to spend $344 billion on new plant and equipment this year, up 12% from 1983. That is the biggest annual increase in 17 years.

The renewed focus on manufacturing is far from voluntary. It was forced on corporations by two withering recessions in the past decade and an influx of cheaper and frequently better-made foreign goods. It was prompted too by sluggish productivity. While U.S. factories still outproduce those of any other country in the world, the average annual increase in productivity has slipped to less than 2% since 1973, down from 3% in the two decades after World War II. In Japan manufacturing efficiency has been increasing 7% per year, while in West Germany it has grown more than 4%.

A large part of the new U.S. investment is going not into construction of new plants but into improving manufacturing technology at old ones. In Louisville, for example, General Electric has invested $38 million to modernize an outdated dishwasher factory. Central computer panels, sometimes monitored by just one person, check the full range of production and part supplies. The manufacturing process is carried out with a precision that cuts down on waste of materials like sheet steel, plastic and rubber hose. Controls can be quickly reprogrammed to make any of 15 dishwasher models.

In California, Apple Computer is turning out its new Macintosh machines in a $20 million factory in Fremont that has even experts astonished. Several weeks away from completion, the plant will be able to produce a Macintosh, with its 450 parts, every 27 seconds, or 500,000 a year. All of this will be done by just 300 workers, only 200 of them in production; labor accounts for 1% of the cost of making the computer. One of the keys to the increased productivity is cutting the time spent handling materials. Parts arriving at the factory are placed on conveyor belts that carry them to storage. Then, when they are needed for assembly, an operator has only to push a button to transfer them to the work station, either by moving belts or by vehicles guided by wires embedded in the floor. In some cases, robots attach parts to circuit boards.

General Electric's division that makes locomotives has been weakened by recession and plunging sales. But rather than abandon the business, GE gave an antiquated factory in Erie, Pa., what General Manager Carl Schlemmer calls an "electronic heart transplant." Cost: $500 million. Giant computer-driven arms and machine tools help the factory turn out locomotives in a fraction of the time once required. A 2,500-lb. motor frame that took 16 days to build can now be done in 16 hours. By 1986 GE could be making about 800 locomotives a year, up a third from current levels.

The new interest is spreading to the classroom, where studies about the factory floor have traditionally not been popular. At the University of Massachusetts in Amherst, for example, two-thirds of new engineering faculty are in manufacturing, and enrollment in their courses has risen 50% in two years.

At Carnegie-Mellon University in Pittsburgh, a course on manufacturing management is required for an M.B.A., and other courses are offered in robotics and manufacturing strategy. In the belief that dirty hands can enrich minds, students venture to shop floors in the Pittsburgh area and serve as field consultants. A total of 15% of Carnegie-Mellon's 1984 business graduates plan to go into manufacturing, vs. 1% three years ago. The university will soon offer a new degree, a variation of a master's in engineering, says Associate Dean Robert Atkin. It will be equivalent to an M.B.A.

IBM has also helped turn classroom attention to the new manufacturing. Last summer it donated $50 million in cash and equipment to 20 colleges and universities to improve long-neglected programs in the field for both engineers and businessmen. Said Chairman John Opel at the time: "There can be no factories of the future unless there are universities of the future educating those people now."

With a $2 million grant from IBM, and more money from other companies, Stanford has set up the Institute for Manufacturing and Automation. More than 1,000 executives and students, including almost the entire 600-member enrollment of Stanford's business school, packed an early-March conference on manufacturing. The theme: "We can make it."

American manufacturing at one time needed no such pep rally. Modern manufacturing was born in America, principally in Detroit's auto industry. The idea of combining moving assembly lines with standardized parts was first used by Henry Ford in car production and quickly adapted for a wide array of mass-produced, affordable consumer goods. Manufacturing as it evolved in Detroit was nothing less than the driving force of American economic bounty, say the Harvard Business School's William J. Abernathy, Kim B. Clark and Alan M. Kantrow in their 1983 book Industrial Renaissance.

World War II brought the biggest production challenge ever. In five years, from mid-1940 to 1945, Detroit's automakers and others produced 300,000 warplanes, including 16,000 heavy bombers in 1944 alone, 6 million guns, 600,000 trucks, 50,000 tanks and 4 million engines. Shipyards turned out 5,200 vessels, and the time for making a Liberty ship, a freighter, was cut from 244 days to 42. William S. ("Big Bill") Knudsen, who resigned as president of General Motors to head the war production effort, rightly said that the country "smothered the enemy in an avalanche of production."

But within a generation, postwar Japanese factories, most of them built from scratch, were turning out cheaper and better peacetime goods. Possibly only in airplanes did U.S. manufacturing remain supreme. There management was quick to adapt to changing conditions. The industry was using computer-assisted manufacturing more than a decade ago. Last week Boeing officials said they will start talks with three Japanese firms to consider building a commercial airliner for the 1990s.

But what had happened elsewhere in U.S. manufacturing? Overconfidence born of success, say the authors of Industrial Renaissance. The "once troublesome problem of production" seemed conquered. World War II proved that America could make anything fast, and there seemed to be no challenge left. So in the 1950s and '60s, the best and the brightest in business turned away from manufacturing, considering it just work for mechanics, and drifted into more glamorous fields like theoretical research. The factory, says Carnegie-Mellon's Atkin, lost good people because of "noncompetitive salaries, unclear career paths and Podunk locations."

Plant managers were stereotyped as apathetic 9-to-5ers, eager to escape their factories, jump into Winnebagos and guzzle beer. By the 1960s deterioration was evident. Says Harvard Business School Professor Wickham Skinner: "American manufacturing was getting soft. Morale declined, top talent went elsewhere, and those who were left lost their clout with top management. Manufacturing managers were lions on the factory floor, but they were pussycats in the boardroom."

By 1980 Detroit, which had taught the world how really to make things, was in ghastly condition. Crushed by recession, foreign competition, high interest rates and skyrocketing gasoline prices, the four domestic auto companies reported losses of $4.2 billion that year. At the time, Harold ("Red") Poling, executive vice president of Ford's North American automotive operations, said, "The perception is that we can't compete with the Japanese. We have got to turn it around."

And so they did, pointing the way to a revolution in manufacturing. The companies began a $70 billion capital spending program to build better cars and trucks. Detroit equipped itself with elaborate computerized devices to perform hundreds of tasks like precision welding and alignment of doors and fenders. Auto executives consulted with the gurus of manufacturing and quality: W. Edwards Deming, J.M. Juran and Philip B. Crosby, a Florida-based consultant whose 1979 book, Quality Is Free, sits on many Detroit desks (see box).

Armed with their advice, the auto industry set out to drive responsibility down through the ranks, allowing employees to have more say in what they are doing. In Japan, manufacturing defects are caught by workers, who are encouraged to stop the line and correct them. The idea is to make a car ready to ship and sell by the time it rolls out of the plant and to make every worker an inspector.

An ardent supporter of that concept is Douglas Fraser, former head of the United Auto Workers, who has long contended that U.S. workers are the best in the world. They will deliver peerless quality, he believes, but only if management asks it of them. Honda's experience with U.S. workers in its American plants bears that out. Workers at Honda's plants in Marysville, Ohio, do work that is as good as or better than that at the company's plants in Japan, say Honda executives. Car buyers, especially those on the West Coast, have yet to be convinced. Honda caters to that important market by selling only Japanese-built vehicles in California.

Detroit's factories are getting their workers closer to what they are making. At the plant where Pontiac builds its stylish Fiero, Manager Ernie Schaefer has eliminated one rank of supervisors, forcing responsibility on line workers. The pressure is on, he says, "to do it right the first time." At a Buick plant in Flint, Mich., a worker monitors the reliability of springs on a computer screen, rejecting those that do not measure up. Says Utilityman James Adkins: "I like it. It makes my job easier."

The idea is being embraced everywhere. At Maytag's factory in Newton, Iowa, employees do more than keep pace with assembly lines. A single worker may build an entire washing machine subassembly. Then he checks his work with a stethoscope and stamps his ID number on the product. Says Vice President Sterling O. Swanger: "Quality is everyone's business at Maytag."

Nonetheless, critics charge that manufacturing still lacks the kind of great innovators who set up the original American system. Harvard's Skinner says that many manufacturers are "housekeepers but not yet architects." More strategic thinking, more top talent and more development, he says, are needed. Detroit auto executives take exception to that. They insist they are no longer second to Japanese manufacturing in any way. "There is no manufacturing gap," says Ford President Donald Petersen. Echoes GM President F James McDonald: "There are no differences in the process. Most of the technology everyone uses was developed here."

American manufacturing is still less than it could be, or must be if U.S. factories are to regain world markets. Says Hewlett-Packard President John Young: "A strong manufacturing sector is central to this country's ability to compete. We shouldn't point to our surplus in services and convince ourselves that probably everything is going to be all right. Manufacturing is the base that creates many of those services." For U.S. manufacturing, investors, politicians and plain citizens, that is an important nuts-and-bolts lesson. --By John S. DeMott. Reported by Paul A. Witteman/Detroit and Adam Zagorin/New York

With reporting by Paul A. Witteman/Detroit, Adam Zagorin/New York