Industrial evolution
It's hard to believe that Gibbard Furniture of Napanee, Ont., and Brazil's Campo Largo car engine factory occupy the same planet — or the same century.
Gibbard has been making fine furniture in the Eastern Ontario town for 170 years. Fathers and sons and daughters have worked in the rambling mill, including three generations of McPhersons, who acquired the business in 1940.
Owner Bruce McPherson Sr., in his early 80s, still makes use of a woodworking machine, called a double-end tenoner, that dates back to at least the 1930s. “It's the old workhorse,” he says of the machine, which is deployed as a backup to newer technology.
Eight-thousand kilometres to the south, the thinking is entirely different. The highly advanced Campo Largo factory was built by BMW AG and DaimlerChrysler AG just eight years ago, and is already superfluous to their needs.
Russian and Chinese auto makers are sniffing around. If the Chinese have their way, the entire factory will be dismantled piece by piece and shipped to Chongqing, where its sophisticated technology would help turn out an all-Chinese car by 2008.
It's clear the concept of the industrial factory has travelled a long distance from the original Gibbard mill built on the Napanee River in 1835. It has evolved from landmark to movable factory without borders. The plant is no longer a fixed location, but a collection of equipment and processes that is just as mobile as money and labour.
The latest incarnation, emerging in the Third World, is the disposable factory built to focus for five to six years, or less, on a new and untested product. When that task ends, the factory's dedicated tooling can be quickly taken apart.
This short factory lifespan is a response to the economics of rapidly growing countries, such as China and Vietnam, where labour is abundant but capital may be scarce. By building a factory with simple construction and for a fixed time span, rather than for the ages, a company can minimize investment risk and set-up time for a new, untested product.
The thinking is “why invest hundreds of millions of dollars in fixed assets?” says Amyn Merchant, a New York-based vice-president with Boston Consulting Group, who studies the concept and sees huge savings compared with heavily automated plants in North America.
Mr. Merchant sees the disposable factory as an emerging model for industries from pharmaceuticals to auto parts. It is the latest twist in an evolution that began with the industrial revolution, which drew labour from the countryside to work in dark satanic mills.
These mills evolved through Henry Ford's assembly line of the early 20th century to Japanese production systems and computer-controlled automation.
Now the auto industry is being revolutionized by the idea of a flexible factory where a number of car models can be built on a single platform. Model changes can be accomplished by simply reprogramming the robots.
But the problem with flexible production in developing countries, Mr. Merchant says, is the expensive engineering involved. These plants often end up with high fixed cost structures. But by building disposable factories with simpler construction and technology, companies can get by on 20 to 30 per cent of the investment cost of a fully loaded flexible plant in North America.
Another cost-saving option is moving part or all of factories around the world, and that has a long tradition.
Richard Evans, chief executive officer of aluminum giant Alcan Inc., has seen this happen time after time — Alcan once moved a rolling mill from Oswego, N.Y., to Brazil. Rival Alcoa Inc. is moving a mill to China from the United States.
While electronic controls in mills become ever more advanced, the basic design of housings, bearings and rolls remains much the same, Mr. Evans says. These are big structural parts that are expensive to manufacture, and require long lead times. The economics can favour transporting parts from an obsolete site to a new plant.
An aluminum producer can save 20 to 25 per cent of the costs of a new mill by dismantling an old one and reusing its big components, he says. It may not sound like a lot but on a $100-million investment, it adds up to $25-million.
Not all factories are equally mobile. It is easier to move a packaging factory than a rolling mill, he says, and don't even think about packing up an entire smelter.
But the disposable factory is a new wrinkle, and it seems like a harsher form of capitalism. When plants are designed with a five-year lifespan or they can be packed up and moved halfway around the world as needed, people can become disposable as well. But Mr. Merchant of Boston Consulting Group sees hope for older factories that are closing in North America being redeployed in this new way.
They have the advantage of being close to North American markets, but he says they have to scale back operations, and rely on multiskilled labour to do fairly straightforward tasks — and for shorter periods.
Rather than thinking about a plant producing one product for many years, he says, manufacturers need to be nimble in grasping the next wave, and moving quickly to exploit it. As soon as this new production becomes standardized, it may shift to Asia where costs are lower. That means adapting again to the next new thing.
That is the exact opposite of how Gibbard Furniture has done business for the past 170 years, and Mr. McPherson is not about to change, even though he too is feeling the heat from China.
As long as a solid core of customers still wants to buy his premium cherry and mahogany furniture, the factory will stay put, he says, and so will his aging tenoner. |
