July 1988 The Roemer Report

Foreign-Owned Auto Plants Under Cost Pressures

It was hardly a surprise when Volkswagen of America finally threw in the towel at its troubled plant in New Stanton, Pennsylvania. It's a shock, though, to read that some Japanese-owned U.S. plants may also be slipping onto the endangered list. How could this happen to plants that are both new and highly automated? They are being hit by the downward spiral of the dollar and an expected decline in U.S. auto sales. It costs almost twice as much as it did three years ago to import Japanese plant equipment and big-ticket components like engines and drive trains. One irony is that "domestic content"-long sought by U.S. unions and some lawmakers-is now making more business sense. Honda and other Japanese automakers, for example, can be expected to cut costs by producing more assembled components here and increasing their U.S. sources. Meanwhile, the Big Three U.S. automakers are preparing for tougher times by closing older plants and shoehorning production into the most efficient units. Despite these cost­ cutting measures, there's a growing feeling that the U.S. still has more assembly plants than the future auto market might support. This means that the auto supply market should become even more competitive and cost-conscious. By the early 1990s, production capacity on U.S. soil should be approximately 15 million units. Demand is projected at just 12 million units.

THE DIMENSIONS OF TRUCKING QUALITY: Despite all the talk about quality as a competitive edge, few outfits know how to go about competing on a qualitative basis. Here are eight critical quality principles identified by David R. Garvin in a recent issue of Harvard Business Review: (1) Performance. This is one of the easiest quality goals to achieve because performance standards are readily measured. Don't let matters of taste cloud the performance evaluation of your product or service. Set stringent objective criteria. (2) Features. These are the "bells and whistles" of products and services. Flexibility is often the key here since many customers judge the quality of features according to how many options are available. (3) Reliability. Simply stated, this standard refers to the probability of service malfunctions within a given time period. Remember: The more costly downtime or repairs are, the more important reliability becomes. (4) Conformance. This is the degree to which your service meets established standards---otherwise known as "specs." It is tied to workmanship. (5) Durability. Technically, this is the amount of use a customer gets from a product or service before it deteriorates beyond repair. Establish clear standards for the life span of your products or services. (6) Serviceability. How easy is it for customers to get their service problems resolved? Consider such factors as speed, courtesy, and technical competence. (7) Aesthetics. This standard is the most subjective. It refers to the sensory appeal of your service. (8) Perceived quality. This, like beauty, is in the eye of the beholder. Only your customers can rate you on this dimension.

THE WORKPLACE REVOLUTION: The American workplace is undergo­ ing a startling transformation and the trucking industry will be greatly impacted by these changes. Jeffrey Hallett identifies several of the most strategic of these changes in his book, Worklife Visions. (1) Workplace Uncertainty. Today 20% of all people change jobs each year, 10% switch careers annually; and one-third of all jobs today will be obsolete in four years. Granting job security is impossible. Employment security now comes with the stipulation that you are prepared for multiple and evolving careers. Learning how to learn will be a skill of unsurpassable value...for both individuals and organizations. (2) New Em­ ployment Standards. Most people will work in small companies. Only 5% of the 5:5 million companies in the U.S. have more than 50 employees. Approxi­mately 6.3 million new jobs were created between 1979 and 1984. However, employment at Fortune 500 companies declined by over 2.0 million. (3) Information Creation. Informa­tion available to U.S. organizations is now doubling every 2 1/2 years. As a result, 90% of the information that will be available to your workers in 2007 does not exist today. (4) New Job Entrants. People aged 16 to 24 will drop as a group from a total of 25 million in 1981 to 20 million in 1995. Not only will there be fewer young people entering the work force, but because of the demographic and other factors, it is estimated that 80% of new employers in the year 2000 will be minorities, women or immigrants.

INSIDE THE AUTOMATION REVOLUTION: The Commerce Department predicts an 8.9% increase this year in plant and equipment outlays. This forecast reflects the view of many industrial analysts-that American manufacturing is entering a new phase of automation. Indeed, the Claremont Economics Institute recorded a 30% rise in per-worker output across all manufacturing sectors during the past five years. This suggests that the impact of increased automation-first felt most keenly in the automotive industry-is now becoming apparent even in tradition-bound industries. It also implies that U.S. manufacturing, long labeled "sick," may merely have been chronically slow. But what is making the current speed-up possible? Most experts agree that America's enduring economic health-featuring low inflation, a softer dollar, and rising consumer demand has enabled many companies to invest more heavily in automation. In addition, labor shortages in some regions have forced manufacturers to become more efficient. CIM (computer-integrated manufacturing) is the answer. A total approach to automation, CIM forces enterprises to take a new look at the way they do everything-from ordering and processing inventory to calculating return on investment. CIM also goes hand-in-hand with today's emphasis on "zero-defect" production.

WHY THE INDUSTRIAL ERA ISN'T OVER: Mark Twain once quipped, "Reports of my death have been greatly exaggerated." The same might be said by leaders of heavy industry. During the past several years we've been inundated with reports on the imminent demise of the industrial era. Hail the dawn of the service economy, we were told. It's the vital new way that our nation will generate wealth. However, a quick overview of what's really happening in our country reveals that such is not the case…Heavy industry is enjoying a powerful resurgence. During the past five years, manufacturing productivity has increased by more than 4% per year. Real net exports jumped $30 billion in 1987 and should climb at an even sharper rate this year. True, the service sector is booming, too-but as a dividend of manufacturing, not as its replacement. In truth, manufacturing supports the service sector in two key ways: (1) by providing new technologies, and (2) by raising our overall standard of living through higher wages. Service industries employ more people than manufacturers not because they are better managed, but rather because they are less efficient and thus demand more manpower. Manufacturing is on the edge of a major comeback, and new opportunities are emerging for trucking companies.

RETENTION MARKETING: It costs five times as much to acquire a new customer as it does to retain a current one. Yet, most marketing efforts today still focus on the customer acquisition...few carefully manage the retention. Retention marketing efforts include: (1) Managing the Turnover. Look at the number of customers who leave you in a year's time and divide it by your number of new customers to develop your turnover ratios. Measure, trace, track and identify turnover reasons. A high level of customer switching is often an indicator of weak product or service distinction. (2) Customer Contact Audits. Retention marketing focuses on every customer interaction. Each contact actually adds or subtracts from your customer's willingness to continue the relationship. Evaluate mail, phone. refund, collection complaint handling and informational communications from your customer perspective. (3) Fine Tuning Retention Listening. A passion for customer listening and feedback can pay huge dividends in retaining customers. Identify key satisfaction areas that are critical to the purchasing decision. Ask your customers frequently..."How are we doing?”...“What could we be doing better?"...and "What are we doing well?"

REDEFINING YOUR CUSTOMER-SUPPLIER LINKS: Nature teaches us that specialized organisms become extinct when the environment changes and they do not. It's a lesson that similarly applies to today's business environment. Your ability to creatively adapt your organization will be heavily influenced by the customer-supplier relationship. Here are some key elements in the area of business partnering that benefit both the supplier and the customer: (1) The traditional buyer/seller relationship is obsolete. This involves one party attempting to secure the lowest possible price, the other striving for the highest possible margin. The elimination of the semi adversarial buyer/seller relationship creates two companies working toward one goal. A shared goal unlocks opportunities through a new combination of abilities and resources. Partnering gives new meaning to a customer focus. Sensitivity and responsiveness improve significantly. A customer and supplier that deeply understand their end-user's business become a nimble, flexible dynamic team. (2)The Partnership Mind-Set. Partnering is a state of mind. It is a realization that efficiency you can achieve on your own, but it takes dedicated partners to be effective in a rapidly changing marketplace. Both supplier and customer are now in the business of enriching the other, not getting rich at the other's expense.