Manufacturers make more without hiring

Productivity: Stung by foreign competition, U.S. companies pursue efficiency and flexibility to prosper with the same work force.

April 18, 2004|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Allison Transmission's cavernous factory floor in White Marsh hums as Lamont Thomas oversees a team assembling a gear shift signal, the brains of a transmission. Workers must assemble more than 50 detailed parts - but Thomas doesn't fret about the possibility of leaving a part out. Cameras snap images of each kit before it reaches the assembly line, and if a piece is missing, a red beacon flashes an alert.

At Pace Inc.'s electronics plant in Annapolis Junction, Dee Ruleman leaves her daily shift with the satisfaction of having made an entire soldering product from start to finish. Before, she used to repeat a single task for weeks on end. At Wright Manufacturing in Frederick, workers can set up and break down production equipment faster than ever - and make more lawnmowers in less time.

Changes such as these - from reconfiguring assembly lines to cross-training workers, to installing expensive new technology - are pumping up productivity at manufacturing plants across the country. That means companies have been able to ratchet up output with the same number of, or fewer, workers.

Extraordinary growth in productivity might prove to be a hidden contributor to America's current economic dilemma - soaring corporate profits accompanied by weak job growth.

Better, faster

The "jobless recovery" is a subject that angers workers, perplexes economists and is fodder for politicians in a presidential election year. It's also a situation that has been 20 or more years in the making.

Re-engineering of production lines and quality-control systems, to better compete with Asian manufacturers, and the recent advances in micro-technology and computerization underpin the current quandary.

It is a story of the sometimes unforeseen results of good intentions: To counter the growing threat of cheap-labor imports, U.S. companies focused on becoming better and faster - and didn't need as many workers to do it.

Eventually, fatter profits and growing demand should lead to more hiring and higher wages, economists said. Last month American businesses added 308,000 jobs, the fastest rate of growth in four years, raising hopes for a hiring upturn.

"Based on historic patterns, it should translate into new jobs and better raises, and we think 2004 will be the year we start seeing this," said Anirban Basu, an economist with Optimal Solutions Group LLC, a Baltimore consulting firm.

Productivity for the nonfarm business sector soared an astonishing 9.5 percent annualized rate in the third quarter, before settling to a rate of 2.6 percent in the fourth quarter. The annual rates of 4.4 percent and 5 percent for the past two years are well above long-term historical averages.

The gains in manufacturing are even greater, with increases of 10.1 percent and 4.8 percent in the third and fourth quarters, respectively. Manufacturing productivity rose 5.1 percent in 2003 and 7.2 percent in 2002.

Some of the gain is a natural consequence of the recovery, economists said. Companies that pared work forces during the recession are filling increased demand without hiring.

"You're getting more out of what you've got, not by investing in people or machinery, but because there's more capacity to use what you have, " said Richard P. Clinch, director of economic research at the Jacob France Institute at the University of Baltimore.

But the relentless competition from low wage-paying nations will continue to pressure companies to keep making gains, economists said.

"There is greater need for businesses to improve their productivity than ever before," Basu said. "We have never had to compete as directly and as vigorously with less developed countries."

Pace, a 120-employee company, sells soldering equipment used to assemble and repair electronics, mostly through distributors. In the late 1990s, increased competition from Asia tightened the vise on domestic manufacturers, including Pace.

Stung by the technology downturn in 2000, the company gradually laid off about half its work force, much of it in sales. Within the past year, the last of Pace's U.S. competitors packed up and moved offshore in search of cheaper labor.

"We were in a changing market environment and likely to face stiff pricing competition from products manufactured overseas. And people were expecting rapid deliveries," said Paul Dunham, Pace's president and chief operating officer.

Changes

Starting in 2000, the company adopted the tenets of lean manufacturing, a process first used by Toyota. Now, the company builds products to meet actual customer demand, rather than in batches based on a sales forecast - really a guess.

Managers grouped workers in teams, or cells, of up to seven and began cross-training them, teaching them to build an entire product in one cell as well as to build products in different cells.

They also began using software that tracks, day by day, how quickly the company uses raw materials.

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