Productivity Key to Economic Turnaround

April 17, 2003
Turnaround story of American Axle highlights Manufacturing Week keynote address

American manufacturing is in a slump, that's certainly no secret. The recovery timetable is unclear given the many globally influenced uncertainties that weigh upon businesses and the economy in general.

Despite it all, manufacturers should not lose track of the dominant element in a sound manufacturing base: plant productivity.

So says Richard Dauch, chairman and CEO of American Axle Manufacturing (AAM), one of the keynote speakers at last month's National Manufacturing Week in Chicago. "Without a doubt, the U.S. economy has hit a soft spot of lackluster spending," said Dauch in his NMW remarks. "But ask manufacturing people what the key to our economic future is and you always get the same answer: productivity."

Dauch should know what it takes to succeed. "Just three days ago [March 1, 2003], AAM celebrated its ninth anniversary," he announced. The company was formed as a result of Dauch leading a buyout of some of GM's hemorrhaging axle, forging, and driveshaft plants. "We started with five U.S. plants that were bleeding red ink," he said. "Now AAM is a multibillion dollar multinational, and we've been profitable every year of our existence."

According to the U.S. Commerce Dept., the manufacturing sector was the largest contributor to economic growth and creation of wealth during the past decade. "Not retail, not wholesale," stressed Dauch. "It's manufacturing."

Dauch believes most manufacturing companies judge performance, at some level, by measuring labor productivity--in most cases, some measure of real output per hour worked. Dauch is proud of the achievements his company has made. "In 1994, it took AAM approximately 11 hours to generate $1,000 in sales," he said. Today that number has dropped to 5.5."

His address detailed his company's approach. At the very core of AAM's productivity drive is investment in its workforce. "At AAM, every associate annually receives approximately 50 hours dedicated to education and skill-set development," reported Dauch. "Our initiatives include on-site training provided in partnership with colleges and universities. We offer classes in everything from basic mathematics to applied automation to CNC computer instruction."

Dauch reported progress on this front, progress he considers critical to the productivity successes. "In 1994, the average associate was approximately 50 years old and had an education level of less than a sophomore in high school," he said. "Today the average is 39 years, with an education level near that of a sophomore in college."

This commitment to skill-set development is, and always will be, a critical component of AAM's strategy, he said. "It is not thriftable when times get tough," he vowed.

Dauch is also quite proud of the investments made in infrastructure and machinery. He held up his 90-year-old Detroit plant as an example. "Five-cut, wet-cut machines will be replaced with state-of-the-art machines that feature two-cut, dry-cut technology. When all is said and done, 50 new machines will do the work of 500 old-technology machines," he marveled. "And the quality is world-class. Our gears and axles are built like a fine Swiss watch: with precision."

Safety and ergonomics also play into the investment in productivity. "This dry-cutting method provides an oil-free work environment, eliminating oil spills and smoke generated during the machining process," said Dauch. "Ultimately, the parts are cleaner to handle and the elimination of cutting oil adds a cost advantage."

He also stressed the need for technology to drive sales--particularly new product sales. "In 1994, only 3% of our new sales were based on new product technologies of the previous four years," he said. "In the years since, we've transformed our product portfolio to nearly 80% new high-tech products. AAM sets the pace with leading-edge, world-technology products like our net-shaped forgings, electronic-controlled differentials, power transfer units, chassis modules, and aluminum axles."

He's quick to point out, however, that this is not all the result of just the engineering and IT functions. He points to inventory management, logistics improvements, warranty value, and overall equipment effectiveness.

"I could not be more proud of what the men and women of AAM have done and are doing," he said. "We are making a lie of the gnawing notion that the American workforce, especially in an inner-city environment, cannot cut it in this global economy."

But it all relates back to productivity, he said in closing. "Even though the economists may differ, it is clear to that a leading portion of the battle for improved productivity takes place right on the plant floor," he argued. "Individually, we must cultivate innovation in ways that make us more productive in years to come. Collectively we must facilitate the development of the talents of the American workforce, so that every individual has the same opportunity to become more productive."

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