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Flexible companies change to stay put
[April 11, 2006]

Flexible companies change to stay put

(Washington Times, The (KRT) Via Thomson Dialog NewsEdge) Apr. 11--BRADFORD, Pa. -- Zippo Manufacturing, a small-town company owned by the same family since it was founded in 1932, is hiring.

Zippo insists on making its iconic lighter, with a trademark rectangular shape and a distinctive slip-click shut, in the U.S. It is starting a production line for a new pocket lighter aimed at cigar aficionados and pipe smokers, and it plans to move manufacturing of a multipurpose lighter, used to light candles and grills, from China to Bradford, Pa.

"Made in the U.S.A. is the primary strategy -- long term, it is to make everything here in Bradford," said Gregory Booth, president and chief executive of the privately held company.

While many U.S. manufacturers continue to struggle, there are still healthy American companies that make products on U.S. soil, including Zippo and other icons of American manufacturing. Many more companies make products in which American consumers seldom consider the label, including machine tools, medical equipment, combat vehicles and precision components for computers.

U.S. manufacturing limped along for three years, with industrial output declining in 2001 and growing only slightly the next two years.

In 2004, the manufacturing sector grew 4.8 percent, the strongest performance since 2000, and last year, manufacturing output rose 3.8 percent. U.S. companies are making more than ever before.

"Manufacturing is coming back," said Al Frink, assistant secretary for manufacturing and services at the Commerce Department.

President Bush asked Congress to create Mr. Frink's position, informally dubbed "manufacturing czar," in January 2004 amid concerns of a sectorwide crisis and criticism that administration policies were failing a once-vital sector of the economy.

Mr. Frink is charged with helping manufacturers become more competitive by listening to their concerns and advocating for changes that would reduce regulatory and other costs, increase investment in research, better train workers and help companies export.

Mr. Frink, who founded and ran a California carpet manufacturer before joining the administration, acknowledges that the outlook for U.S. industry appeared bleak for a time and that some companies will falter.

"If you do things the way you have always done ... if you are unable to reinvent yourself, those will be the casualties," he said, offering the kind of commentary that has led alternately to praise and criticism in the business community.

But he doubts the U.S. will be displaced as a major manufacturer.

"I think America sometimes needs to be pushed against a wall before we show our best side. But I trust America's spirit of competitiveness and that our country doesn't like being No. 2," Mr. Frink said.

Zippo's main product has been essentially unchanged since the 1930s. The "windproof" pocket lighter is an elegant rectangular box, usually chrome-plated brass. There are 22 parts. It has a lifetime guarantee.

That consistency is one source of the company's good fortune, making the product recognizable across generations. Soldiers have carried Zippos from World War II through the Iraq war, and the Zippo flame has lit cigarettes, brightened dark passages and set off explosions in scores of movies.

But the main function of the lighter is as an accessory for smoking, a health hazard and a habit in steady decline across the U.S. for almost a decade.

So Zippo has had to cut costs -- sometimes by simple steps such as reducing the amount of polish used on each lighter -- and innovate through marketing and creation of new product lines. Zippo's sales are up about 30 percent since 2000, today reaching roughly 12 million units a year worldwide, Mr. Booth said.

U.S. sales are buoyed by a hot collectors market, supported by the company's "Zippo Click" collectors club and a concept center that creates 600 designs a year -- each a new addition to the collectibles market.

Overseas sales are helped by relentless marketing of the lighter as an iconic American luxury good, on display next to Gucci and Prada. Japan is the biggest overseas market, worth 2.8 million lighters a year, and China is growing at a 30 percent clip to about 1 million lighters in 2005.

And Zippo is introducing new products, focusing largely on flame.

One new entrant is a "blue-flame" lighter that runs on butane, set to debut in 2007. The butane fuel eliminates the lighter fluid smell in traditional models and is meant to appeal to smokers of expensive cigars who have complained about the odor. The production line will add about 105 new workers to a payroll of about 740 employees.

Another product, already on the market, is a multipurpose lighter for grills and candles -- made in China.

"We were very concerned about that," said Mr. Booth of the venture into a hub of low-cost manufacturing, where the company image as an American stalwart could be eroded.

Focus groups, however, indicated that American consumers wouldn't mind the China label on that particular product, Mr. Booth said. And it wasn't financially feasible to build the new item in the U.S. until the market had expanded, allowing larger production runs and lower costs per unit.

Still, Mr. Booth said the company plans to bring the multipurpose manufacturing in 2007 to Bradford -- a city with fewer than 9,000 residents that is neither on a major interstate nor particularly close to a major city. The family-run company is in part committed to the area, he said. But it is also committed to its own survival. Mr. Booth said Zippo can prosper in the U.S. by constantly reducing costs, as well as squeezing more production and better quality out of each worker.

"We're certainly going against the grain," Mr. Booth said from the company's art deco office building.

U.S. manufacturers produce about 12 percent of all economic output, a declining portion as services make up more of the economy.

Many industries do not dominate globally, while some manufacturers have closed or continue to struggle because of fierce foreign competition, costly government regulations or their own bad management.

Manufacturing employment, meanwhile, has tailed off from a peak of 19.6 million in 1979 to 14.2 million. But the workers are producing more goods, by value, than ever before.

"The productivity story in manufacturing is the real one," said Thomas J. Duesterberg, president and chief executive of the Manufacturers Alliance/MAPI, a public policy and business research organization in Arlington.

Manufacturing output reached a new high in 2005, surpassing the previous high-water mark set in 2000. The U.S. Bureau of Economic Analysis in December said manufacturing added more than $1.4 billion in value to the U.S. economy. In 2005, industrial production continued to climb, Federal Reserve numbers show.

The U.S. still is the world's leading manufacturer. The manufacturing sector alone would rank as the seventh-largest economy in the world, said Commerce Department spokesman Matt Englehart.

The performance reflects a growing economy, but also the strength of companies that survived a downturn and adapted to better compete in the U.S. and abroad.

Machine tools -- the equipment used in factories to make goods -- is an industry that was dominated by U.S. companies through the 1970s, but that ceded ground to overseas competitors and all but bottomed out in the 1990s.

"Our industry did not innovate. The survivors learned a lesson, and those that survived that downturn are thriving not only in the U.S. but in international markets," said John B. Byrd III, president of the Association for Manufacturing Technology, the trade group for the machine-tool industry.

Automatic Feed Co., in Napoleon, Ohio, builds machines that handle coil and sheet steel for the auto industry. It competes against German and Japanese manufacturers with 10 times the company's $40 million in annual sales by constantly improving efficiency and offering new equipment with the latest technology, said Kim Beck, company president and chief executive.

"It's hard for an American company to be the cheapest. So what are your other options? You have to have a technologically competitive edge," he said.

That is especially important when trying to sell machines that cost $2 million to $5 million each to customers that include DaimlerChrysler, Ford, General Motors, Toyota and Nissan.

"The Japanese want to buy Japanese equipment, because it is easier for them to speak and communicate and travel. The Germans feel the best machine tools in the world are German. So we have to be the best in the world at what we do no holds barred," Mr. Beck said.

"Does the name 'Made in America' help you? I don't think so," he added.

One foreboding sign for the machine-tool industry, ironically, is the rise of China as a major customer. Mr. Byrd said China is the globe's major customer for advanced machine tools, a phenomenon that could make it the most efficient, not just the lowest-cost labor, manufacturer.

U.S. companies are running to stay ahead of low-cost producers, sometimes with mixed results. But even some companies in the most besieged U.S. industries are refusing to pick up and leave.

Allen-Edmonds Shoe Corp. still makes leather shoes at its factory in Port Washington, Wisc. U.S. footwear manufacturers shipped $2 billion in goods in 2004.

Maple Landmark builds wooden toys in Middlebury, Vt. U.S. toy, doll and game manufacturers in 2004 shipped $3.5 billion in goods.

Cotton-sock imports from China, through October, rose 643 percent from the same period last year, although some U.S. sock manufacturers say they are holding steady.

"China has some definite competitive advantages because of its labor force and domestic subsidies that make it impossible to compete pricewise. But domestic manufacturers have the advantage of quick deliveries" in the U.S., said Charles Cole, owner of Alabama Footware in Fort Payne, Ala., a manufacturer of tube and sport socks that are sold in Target, Wal-Mart and other major stores.

Mr. Cole's company employs about 75 workers, down from 105 three years ago, and makes 36 million pairs of socks a year.

"The sock industry has kept up with the latest technologies to stay efficient. By adding more modern equipment we have been able to produce the same with less people," said Mr. Cole, who also leads the Domestic Manufacturers Committee of the Hosiery Association, an industry trade group.

That means a declining role in the community for industries that once defined entire cities. But it also is a means of survival.

Mr. Cole said that as a family-owned company, Alabama Footware is determined to stay in Fort Payne.

But China and other locations with low manufacturing costs are a constant temptation for other U.S. companies.

"We owe it to our customers and our shareholders to make certain we are manufacturing in the U.S. -- rather than Asia -- not because we are Asia-phobic," said Wayne Fortun, president and chief executive of Hutchinson Technology, a Hutchinson, Minn., company that makes suspension assemblies for computer hard drives.

"We believe it appears as if the approach we are taking is the right one," Mr. Fortun said, although the company regularly reviews its options.

Hutchinson stays competitive by constantly upgrading its product and refining its precision manufacturing process for the more than 16 million assemblies a week that come off production lines. The assemblies, which sell for 85 cents each, have only four parts but require 170 steps to make. They are a kind of spring that keeps an arm floating, at a distance smaller than a human hair, above a memory disc that spins faster than 5,400 revolutions per minute.

"The way we have chosen to compete is through absolute relentless pursuit of excellence and continuous improvement," Mr. Fortun said.

That includes advances in engineering and more automated manufacturing to better-functioning human resources and accounting departments.

The strategy so far has worked. Hutchinson has hired 1,400 workers in the past year and now employs about 5,700, including some 700 engineers.

Still, it's not time to relax.

"You never win, you never say the job is done. You have to recognize that every day, your competitors get up and try to figure out how to eat your lunch," Mr. Fortun said.

Still other industries rely on unique conditions in the U.S.

The Pentagon is the world's largest buyer of weapons and other defense-related products, with procurement spending pegged at $78 billion for 2006, making the U.S. the premier market for defense contractors like Northrop Grumman Corp. and General Dynamics.

U.S. food companies, like Hershey Foods and Tyson Foods, are some of the biggest manufacturers in the country. They are helped by Americans' healthy, and sometimes not-so-healthy, appetites -- and spending on food that reached $943 billion in 2004.

Welch Foods Inc., based in Concord, Mass., sells 63 million to 64 million cases of grape juice a year in the U.S. (a case is 192 ounces). It's enough to post $578 million in net sales last year and employ almost 1,400 people.

"We are still a relatively small company, but we have done well over the years with a fairly high-quality line of products," said Jim Callahan, a company spokesman.

Americans also buy more medical services and products, like artificial joints made by Biomet Inc. and DNA analysis equipment from Idaho Technology, than in any other country. Medical device manufacturers shipped $68.3 billion worth of goods in 2004.

"It is an industry in which you have physicians and engineers working together. The majority of innovation is coming from the United States because of that collaboration," said Mark Leahey, president of the Medical Device Manufacturers Association.

Possis Medical, based in Minneapolis, adapted and miniaturized an industrial technology into a narrow catheter that sucks blood clots out of arteries.

The company tapped a ready pool of talent -- Minneapolis is a hotbed of medical research and is home to Medtronic, the world's largest medical technology company -- and found doctors ready to try out new devices.

"Five years ago, we were a science company. Now we are a manufacturing company. We are profitable and successful in our market," said Jim Gustafson, Possis' vice president of research and development.

In Bradford, Zippo's production line appears decidedly low-tech, with noisy machine presses stamping brass sheets into shape and workers polishing, inspecting and stacking lighters by hand.

But closer examination also shows lasers engraving new designs and a computer-controlled chrome-plating process.

Some employees have boomboxes playing rock 'n' roll, others have cigarettes perched in ashtrays at their work stations -- smoking is allowed at Zippo.

The employees, who average about $15 an hour before health, pension and other benefits are figured in and who do not belong to a union, say they take pride in making an American product and are confident in the company's future.

"The stuff we make is better than Japanese stuff, so I don't think we have to worry about [competition]" said Maria Rensel, a Zippo welder. "It's a good place to work, and we make a good product."

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