Continuous improvement efforts that started in 1997, coupled with a re-engineered supply chain, helped Master Lock reverse a declining business and reassert itself in the U.S. marketplace with double digit sales growth. In the process, Master Lock replaced its rigid vertical integration with a model that includes offshore product outsourcing, flexible assembly operations in Mexico and a new central distribution center.
The company identified several primary goals for its re-engineering project and met them all, says Greg McCormack, vice president of operations for Milwaukee-based Master Lock. "One of our key objectives when we started this project was to provide products faster and more economically to our customers, and we are doing that," he says. "The acceleration of product through the supply chain has increased considerably, and our lead times have come down significantly. On an historical basis, we have been able to cut our manufacturing backlog almost in half-and that's not a result of lower sales-it's because we have faster speed through the supply chain."
The new outsourcing competency enables the company to take innovative product ideas, such as its new line of steering wheel/airbag locks, and work with vendors to more quickly and economically bring those products and ideas to market. "We didn't have a competency in new products, for the most part, but our network in Asia and the assembly operation at Nogales, Mexico, allow us to now get those new products to market much faster."
Another critical goal was to more quickly respond to changes in market conditions with flexible manufacturing and distribution, McCormack explains. "We have a common cellular manufacturing approach in Mexico that allows us to shift labor back and forth from one focused factory to another. Now, as volumes and forecasts change, we can blend our manufacturing labor across those changes while keeping costs in hand."
Flexibility also is built into the new distribution center at Louisville, Ky., which is operated by GENCO. At the Louisville facility, orders are turned within 24 to 48 hours 98 percent of the time, compared with an average four- to five-day turn at Master Lock's former operation in Milwaukee. This improvement gives Master Lock a considerable edge in the retail market, says Mark Gams, vice president of logistics. "The sales cycle for a major customer selling hardware is over the weekend-they sell most of their stuff from Thursday night through Sunday," he points out. "Our re-engineered supply chain enables that customer to count up what was sold over the weekend, order it from us on Monday, and have it replenished before the following Thursday, which sets them up for another weekend of sales. That's a powerful competitive mallet."
And Master Lock needed a powerful competitive weapon. In 1996, the 75-year-old company owned by Fortune Brands, served three market segments in the U.S. and Canada: commercial customers, retail outlets and locker lock customers. Approximately 95 percent of its product line was manufactured and assembled with union labor in a 750,000-square-foot facility that also housed the company's distribution center and was adjacent to the company headquarters. The remaining 5 percent-mostly low-end brass and cable lock products-were acquired from Asian vendors.
"In mid-1996, it became apparent to us as a company that we had some significant issues in our retail business," recalls McCormack. "We were supplying a line of very similar products to our mass merchant retail customers, but were steadily losing market. We had a fairly stagnant product line, a high cost base that put us at a huge disadvantage compared to the imports, and there was very little differentiation between our products and the knock-offs coming into the market from Asia." Many of the company's products were becoming commoditized, and the value differential between Master Lock products and the competition was not widening, he adds. Consequently, consumers were finding it hard to differentiate between products.
The picture was bleak because there weren't a lot of short-term options, McCormack points out. The company had focused most of its effort within the Milwaukee facility on trying to take out costs by investing in high-speed capital equipment and automation, but that was a pretty expensive proposition for commodity products that were being knocked off by a flood of Asian imports.
Master Lock responded not with any type of comprehensive review, but with a significant price cut across a majority of product lines just to try to get to a more level playing field with the imports. The price cuts, which took effect in the first quarter of 1997, triggered further reactive moves to minimize the erosion of margins and profitability. "There was immediate pressure to change the source of supply across many of the product lines to try to get the margins back up, and we began to explore the outsourcing of a lot of our commodity product lines that were being produced in Milwaukee," says McCormack. "We also decided to look at establishing manufacturing operations in Mexico."
The company early in 1997 initiated talks with the United Auto Workers, which ran the union shop in Milwaukee, and launched two project teams, one to look at outsourcing, the other to focus on Mexican manufacturing and assembly. Accordingly, a three-person outsourcing team used the internet, worked with sister companies, attended trade shows and backtracked competitors' products to locate potential suppliers in Asia. A separate team focused its sights on the maquiladora industry and initiated talks with government representatives in Mexico.
While the one team explored the operational aspects of establishing an operation south of the border, other senior managers focused on which functions were leading candidates for any such move. One of the first decisions was that manufacturing would stay put.
"Our parts manufacturing in Milwaukee was fairly automated, so we didn't see a huge advantage in moving parts manufacturing," says McCormack. Master Lock continuously had invested in parts manufacturing equipment, and the Milwaukee facility had high-speed presses, die-casting operations and automated equipment for making lock bodies and for bending and forming and machining shackles. "Almost every component that we made -including all of our key and cylinder manufacturing operations-was produced through some kind of automated work center, and we thought that level of automation provided a pretty competitive base."
|"Where we didn't have a competency, we looked at outsourcing that product or moving it to where we would have an assembly competency in Mexico." |
Mark Gams of Master Lock
Timely, incisive articles delivered directly to your inbox.