Last July we told you about a duel at NAM, where the Hunter/Ryan bill divided the larger "manufacturers" (primarily outsourcers) and the small domestic manufacturers. The bill would allow manufacturers to petition the government for relief under trade laws due to foreign governments subsidizing their currencies… obviously aimed squarely at China. The small manufacturers were in favor, but the large ones, fearing a trade war that could disrupt their globally outsourced supply chains, were against it. In October we updated you on the story, with the news that NAM’s executive committee voted not to endorse the bill, basically siding with the small number of large company members against the wishes of their smaller company members that form the majority.
As we pointed out both times, neither side really gets it. The large company outsourcers are chasing cheap labor to China and beyond, and the smaller companies want external subsidies and barriers to provide a shield against supposed "competitive burdens." Neither wants to do what is really necessary for long-term global competitiveness: look internally to remove waste.
The latest issue of Manufacturing & Technology News brings us the latest scoop. The disenfranchised smaller company members of NAM, lead by steel company Nucor, are creating a coalition with farmers and labor officials in an attempt to influence trade policy. As one of the farm members put it:
"We are people who are getting off our asses and are doing something," says Fred Stokes, a Mississippi farmer and executive director of the Organization for Competitive Markets, which is spearheading the initiative. "We’re building a coalition of manufacturing, agriculture, services, labor, consumer interests, environmentalists and Archie Bunker regular Americans who give a damn about the country and who will come together and say we are doing it wrong. There is an argument to be made that we need trade, but there is nothing that we can produce in this country that somebody somewhere else can produce cheaper, so the question is, what are we going to do?"
Those of us in the lean world can think of a couple dozen things Mr. Stokes can do, but we’ll answer his question later. The large company outsourcers and NAM execs probably also have a couple ideas what he can do, but I won’t distract you with speculative visual imagery. But I bet I know what Mr. Stokes wants: trade barriers and subsidies.
Mr. Stokes is very familiar with subsidies. Farm subsidies will suck $190 billion (with a "b") out of the economy over the next decade. Additionally the artificial price supports create situations where American consumers pay multiples of the going global price for some staples, like sugar, which alone costs us $2 billion a year more than it should. The subsidies lead to overproduction, which leads to dumping, which makes it impossible for farmers in poorer countries to compete. It’s that regulation balloon again… push it in on one side and it will pop out out in another, often unexpected spot.
It’s pretty easy to keep on making the same crop year after year, ignoring the global market, and relying on subsidies and price supports to stay afloat. Your biggest problem is probably trying to find a grain elevator that isn’t already filled up thanks to all the other subsidized farmers. Just like it’s easy to keep on making the same sprockets and gears and motors, keeping your head in the sand and hoping the government will help keep you in business by shielding you against competition.
Fortunately there are successful companies and individuals in both industries, lead by courageous and visionary people who believe there must be a better way. Farmers have found success by identifying and exploiting market niches with specialty crops. Some are even diving into lean manufacturing methods.
Back to answering Mr. Stokes’ question about what he, and farmers and protectionist-minded manufacturers can do now. Take a look around you. Look at the companies that are succeeding in the U.S., who aren’t making excuses or looking for the government to distort their market. Realize that what they are doing is looking inside, at their internal processes. They have leveraged lean tools, culture, people, and leadership commitment to reduce their wasteful convoluted processes. In doing so they have reduced their costs by far more than the so-called "competitive burdens" are worth. These are companies of all sizes and technologies. And yes, they include some foreign companies operating very well on U.S. soil, like Honda and Toyota. By reducing their costs they are able to compete, globally, based on delivering customer value.
Mr. Stokes and his friends can daydream about operating as an island, while the global market grows up around them. Like it or not, geographic barriers are falling. The internet, entrepreneurial highly-educated people worldwide, and increasing global capital wealth are creating highly competitive companies – feeding strong markets – worldwide. Globalization has already arrived. They can try to ignore or distort it… and fail. Or they can learn to compete to capture part of the pie.
Barry "aka the Hillbilly" says
Kevin,
I do agree with most of what you said here. However, I do think that NUCOR Steel has done a lot of things right over the years. They basically created the mini-mill and they cut out a lot of wastes in the process of steelmaking. Ken Iverson did a lot to advance the technology of steelmaking and management. I also know that several years ago, not even NUCOR was making money on a ton of finished Steel. The Finished product was selling for only $ 50 – 100 a ton more than the Scrap (raw materials). I also think that it is possible for a country like Russia or others to dump.
The very valid question is whether NUCOR actually promotes overproduction. I don’t know how much of NUCOR’s lean thinking was organically produced over 30 years and how much of it came from looking at how companies like Toyota operate. Maybe someone out there could answer that question?
I do know that NUCOR owns a Building and fastener operation and uses its own products for those purposes.
And I am not arguing that they couldn’t be leaner, but compared to the model that the US Steels and the other Integrated’s operated under for years, NUCOR is lightyears ahead.
Is there a leaner Steelmaking operation out there anywhere ????
Jeff says
Barry, be careful with the presumption of “dumping.” Remember all the early lean stories, where U.S. companies would go to Japan assuming that they couldn’t compete because the Japanese were dumping? Almost invariably they came away, very scared, realizing that they had really figured out how to manufacture at such a low cost. The WTO provides a good remediation for real dumping… and the creation of artificial trade barriers as the U.S. has found out.
Barry "aka the Hillbilly" says
Jeff,
You are of course right, but notice I said possible. I believe a lot of people have the presumption that dumping is impossible. I am not naive enough to believe that it is not within the realm of possibilities. Also, I think I remember several WTO cases involving steel in the past where dumping was found to be the case.
I worked in the steel industries for over 10 years. I have been in Integrated mills in Korea, Japan, and the US. I worked for both a US based Mini-mill and an Integrated Materials company in Japan.
Steel is an interesting industry that does have certain special characteristics such as national security. Many foreign Governments have been involved over the years in the building of Integrated facilities all over the world. It takes certain sizes and types of plate to build tanks and ships, etc. Having to rely upon non domestic sources during a time of war is something that governments think about.
But I don’t think a Partnership with the Steel makers is something the Big Three think about at all. They just follow their Purchasing play book. Buy it at the Best landed cost. Who cares if it rots out in seven years, thats beyond the warranty. I just read an article yesterday in Automotive News in which Takeo Fukui (Honda Pres). discussed the partnership that Honda has with Nippon Steel. The Japanese Auto folks and the Japanese Steel Industries have had partnerships for development and improvement for over 40 years. Those relationships have even followed them to the States as many Japanese Steel producers have set up joint ventures with US companies. Although some have fled back to Japan recently.
It is interesting to note that Taiichi Ono had a lot of trouble convincing the Japanese Integrated’s that the Toyota way was something that they should embrace.
Steel is a highly engineered material and many of the new mini-mills and galvanizing lines are real marvels. I have been through plants that can turn scrap metal into 40 ton hot band coils in under 4 hours !!!
NUCOR has been a real leader in the advancements and the scaling down of the processes so that much of the waste could be removed. Ken Iverson at NUCOR was a no nonsense kind of guy. He didn’t believe in layers of Management, so NUCOR had very few. He didn’t think executive perks were good for morale, so there weren’t many, no fancy company cars. No big Corporate suites, just a small rented office in Charlotte. Ken said most of the stuff that is assumed to be reguired by MBA type Managers isn’t necessary at all. I am sure he would not have approved of Mr. Fields million dollar weekend corporate jet rides to his home in Florida. (Another article in this weeks Automotive News)
NUCOR has been a group of real risk takers. They fully expected that about half of what they tried would not work. They never let anyone tell them that it couldn’t be done. Many times it has been NUCOR who has done something first on a production scale.
I may be somewhat biased, but knowing what I did about NUCOR, it caught my attention about five years ago when they were losing money. I thought how could that be possible. That was when the imported steel was selling for $ 50 a ton over what scrap steel was selling for here in the States. It was during this same time that the Japanese reevaluated their US partnerships and some of them decided to get out. The final result was a consolidation in the world wide Steel industry. NUCOR was able to purchase many nearly new Minimills here in the US for 10 cents on the dollar. NUCOR is bigger and stronger now because they had the resources at the time to buy those mills.
After the consolidation, with a reduction in competition, the Steel Manufacturers have more leverage than they did in the past. The company I use to work for in Japan has had record profits in the last five years.
The Mittal group has gotten to be enormous, and China has expanded capacity rapidly. The Big Three now face a much more consolidated industry and don’t have the clout to demand price concessions like they did in the past.
But the real question that is of interest to me is could NUCOR be leaner. Do they in fact support overproduction. Did Ken actually know about the Toyota Production System when they were building NUCOR, or was it their own independent thinking. I most certainly think they could be leaner, but I also know that there are certain hurdles in Steelmaking. They tend to be technical in nature. Maybe someone out there knows?
Karen Wilhelm says
My uncle owns and operates a dairy farm in the middle of Nebraska homesteaded by my great-grandparents. Prices for milk are so low that all he can see to do is increase production. Some years ago he sank $200K (I don’t know what that would be now – half a million?) into an automated milking parlor. He and his sons could move 200 cows into the barn twice a day, hook up the milkers, and work on all the other things they needed to do – check the cows for mastitis, disinfect everything that needed disinfecting, and whatever else needed doing. The cows had tags in their ears read by sensors that delivered feed formulas tailored to each cow. Everything was designed to be easy to clean after the cows moved out. Meters told him how many pounds of milk each cow produced. He grew his own corn for feed. The stalks and corn were chopped up and blown into giant plastic bags as silage. Having grown up during the depression, waste was anathema.
The milk coop’s truck came every other day to pick up tha gallons and gallons of milk. The whole milk infrastructure was in place.
After all this capital investment, he didn’t have many options for alternate crops. I have often wondered how he could convert his milkers to produce goat milk or goat cheese, but he wouldn’t have the same processing or shipping facilities available.
Another uncle was hoping a potato chip factory was going to move to the area so he could convert from corn to potatoes.
This part of Nebraska was semi-arid, so their options were further limited.
Despite all these problems, and the competition of commercial farms, my uncle still thought the government should end all its subsidies. He believed they just made matters worse.
Barry "aka the Hillbilly" says
I can appreciate your Uncles plight Karen. I grew up on a farm and we nearly starved trying to make a living on a smaller Dairy in the 1960-1970’s. Dad got a job at a local manufacturer and also ran the Dairy. The best thing that happened to us was a Tornado. It destroyed our dairy, barn, and many of the cows. The insurance payment finally ended the misery.
I don’t know the answer to the farm question. It might be interesting to see what would happen if the Farmers just took a years vacation. I remember that Dad told me they sold white corn in the early 1940’s for $2.31 a bushel. While corn is up recently, the price has went down a lot over the last 60 years (considering inflation). You’d be hard pressed to say the same about a Ford F-150. The domestics have also managed to turn the Truck into a $ 50,000 monster with a luxury interior and convinced people that they need them. We didn’t have a truck that looked anything like today’s and we got our work done.
I also know that because of soil and environmental conditions, you can’t grow things very well in some parts of the world. The slash and burn practices I have read about in South America don’t seem like a particulary good way of localizing agriculture to me.
The world is strung out on a supply line of food coming from a few countries. In the event of some eco crisis, there could be a lot of people in trouble. I suppose if the chips were down, I’d take food over oil any day !
While some of the farmers have been converting to organic and other ways of farming, I don’t know that everyone can get in on the game ?
I suppose one solution would be what the Hillbilly’s came up with (Ky, Tenn, Virg). They figured out that Tobacco wasn’t the real cash crop and it didn’t take’em long to make the switch. As a matter of fact, I just read this week, that they had been doing so well that according to one account it is now the largest Cash Crop in the USA. KY, Tenn were only outranked by California in production : ) And as far as I know the Hillbilly’s aren’t asking for any subsidies from the Government at all : ) They have somehow figured out a way to be very competitive with the Imported products.
Just shows what you can do if you look for creative solutions I suppose.