September 2009

Embracing cost-effective measures in the face of the economic downturn

By Brad Heath

Sitting amid the corporate giants on the dais at the Progressive Manufacturing Summit this June should have been a humbling experience. On my right was an executive from Dow Chemical, and to my left were representatives of Cisco Systems and General Dynamics.

My organization, VirTex Assembly Services grosses a small fraction of the revenue of those companies.

Yet given the topic-"Defining the Way Forward: Strategies for Navigating through Troubled Times"-and the performance of our employees over the last year, I felt as if we could speak as authoritatively as anyone else could on the topic.

I had no idea two days later we would win Progressive Manufacturer of the Year for our work on a project that made us a more cost-efficient manufacturer.

The project is the Cooperative Global Competition Initiative. For several years, we have watched our customers leave the U.S. in favor of cheaper labor when the need for more products increased.

The theory was the cost of labor overseas would ultimately trump the logistical and other costs associated with transporting the product back to the U.S.

Along the way, however, these customers gave up flexibility when it came to lead times and the ability to respond to fluctuating demand.

Nevertheless, we were willing to watch this trend play out, until last year when the ruggedized laptop we were building for one of our customers was selected to be private labeled by a Fortune 50 company. We were determined to find a way to keep the business.

In order to keep this business, we knew we had to be competitive in price, while at the same time offer a level of agility that our customer could not get overseas. We enlisted the help of our customer in defining a new business model that would offer the delivery times the OEM expected in its highest volume products from other suppliers for a custom niche product that would be much more sporadic in demand.

There was no existing business model in our industry for this, so instead we turned to Toyota's principles of lean manufacturing and supplier partnerships. Working in tandem with our customer's supply chain group and with full open book pricing, we identified the mix of local, domestic, and offshore partners who were the best choice for each assembly component. We then selected suppliers with an emphasis on total cost of acquisition rather than price quote alone. Shipping cost, lead-time, and cost of capital were all a part of the model.

We developed a web-based, paperless documentation and tracking system, which enabled full product traceability. This project helped us grow revenue by 58% in 2008, while improving manufacturing cycle times by 25%.

We shifted to a four-day workweek. This idea actually came from the employee base. By initiating a staggered workweek, we were able to save energy costs. It also helped insulate our employees from rising fuel and energy costs.

We embraced university labor. Last year, we started working with the University of Texas having their graduate level engineering students take on projects for us. These were students well trained in lean manufacturing, who were able to evaluate and recommend new and innovative ways of doing things.

We cut operational expenses. We re-examined things like our dumpster hauls, and number of dumpsters. By implementing the principles of reduce, reuse, and recycle, we realized we could save thousands of dollars a month by reducing the amount of the times the trucks needed to come by our plant in a week.

We reused materials. We began examining the process by which we receive materials and ship product and realized that rather than disposing of some packaging materials, we could move them over to the shipping area and use them again.

The key is a company and employee attitude to saving money for our customers and ourselves. Shared goals and objectives allow everyone to function as a team and be more successful. To make this process effective, it does not matter whether you are a giant like Dow, General Dynamics, and Cisco, or a much smaller company.

ABOUT THE AUTHOR

Brad Heath (bradh@virtexassembly.com) is the chief executive and founder of VirTex Assembly Services, Inc. (www.virtexassembly.com), an Austin-based provider of electronic manufacturing services.