Bear with me here – this is a story with a happy ending. It just starts out like the same old nagging about manufacturers who spend so much time groveling before Wall Street that they never get around to running their plants.
Manufacturing in Tucson, Arizona has been pretty tumultuous since NAFTA came to life. It has been something of a revolving door. Tucson, you see, is about an hour away from the border and it is the closest big city to prime maquila territory in northwestern Mexico. Over the last fifteen years, a lot of companies moved their headquarters to Tucson and some of their manufacturing operations. Most did not stick around for very long.
You see, there were two kinds of companies that came to the border: Those that are good at chasing cheap labor and those that aren’t. The good ones left when they figured out that Chinese labor at a dollar a day was a better deal than Mexican labor at a dollar an hour. The bad ones simply failed. Either way, there has been a lot of churning.
Weiser Lock was there. They were bought by Black and Decker in 2003. B&D promised at the time that they had no intentions of moving Weiser Lock. Of course, in 2004 they did just that. To quote Black & Decker’s 2004 Annual Report:
"Ongoing restructuring actions taken by the Corporation will result in the transfer of production from the United States to low cost facilities in Mexico and China." (Here’s the good part) "Such closures and/or production transfers may result in deterioration of employee relations at the impacted locations or elsewhere in the Corporation."
I wonder if they put that last part in there because they think Wall Street is too dumb to figure that out on their own; or maybe the SEC requires it because they think Wall Street is that dumb; or maybe management is so dumb that they saw this is as a brilliant insight worthy of sharing with Wall Street; or maybe – forget it – It doesn’t matter.
To get back to the story, it came true. "Employee relations at the impacted location" went to hell in a handbasket when Black & Decker tossed all of the old Weiser Lock folks out on the street. I guess all of this is part of Black & Decker’s ‘Lean/Six Sigma’ program. I noticed they had a "Master Black Belt" out on the college lecture circuit last week – probably explaining how to make a lot of money buying companies, closing plants, and having work done in "low cost facilities", albeit it with "a deterioration of employee relations at the impacted locations or elsewhere in the Corporation."
But I promised a happy ending, and here it is: The old Weiser Lock facility, in which Black & Decker could not see how to Lean/Six Sigma their way to profitability, has been bought by Pella – the window and door folks. They are not there as a jumping off place to get cheap labor. They are there to have another facility close to the regional demand for their high quality products through their strategic partner, Lowes. Pella has been quietly getting very lean for over a decade, and is on every significant list of the best companies to work for. The Pella is privately owned and they make a ton of money. Cutting deals that result in "a deterioration of employee relations at the impacted locations or elsewhere in the Corporation" is not part of the Pella management equation.
Tucson is already home to Raytheon’s leanest plant. With Pella moving into Tucson in a big way, the revolving door of publicly held companies using Tucson as a doormat in their endless pursuit of cheap labor may stop spinning so fast. (Raytheon is publicly held, but defense is different. They are stuck with American plants and American workers whether they want to or not. The taxpayers would get a little irate if Raytheon outsourced Tomahawk missiles to China)
The moral of the story is this: Be it GM, Delphi or Black & Decker, a company that is owned by Wall Street cannot seem to stop worshiping at the alter of the DuPont ROI model (in which cash and inventory are interchangeable and people are variable costs to be jerked on and off the payroll at will) long enough to become a world class manufacturer. A company like Pella that is privately owned, could care less about 10K’s or the opinion of some analyst in New York who doesn’t know the difference between a milling machine and a surface mount machine. They only care about cash, and see excellent people executing very lean processes as the greatest assets of all.
So all of you mayors out there trying to woo manufacturers into building in your small town, if the company is privately owned, promise them the moon. If they are publicly held, make sure you get cash up front before you put in a new stoplight to accommodate them.