Above: Sara Lee
employees pay close attention to detail
as they monitor and audit fabric running through the printing process
Lean and Alive
By 'deverticalizing' and
focusing on technology,
traditional industries are weathering the global storm
By Heidi Russell Rafferty
Facing
new competition in an evolving global market, Sara Lee Corp.
streamlined and refocused its operations in May 2000, trimming its
portfolio of businesses to three core areas of apparel, foods and
household products.
The strategy seems to have worked. Eighteen months later, Sara Lee,
now divested of operations that didn’t meet its mission, is poised
to survive in a dynamically changing economy that has leveled many of
its competitors, particularly in the apparel industry. The
corporation, with operations in Winston-Salem, is relying on
technology to improve its products, such as a new seamless bra that
stores can’t keep on the shelves. It is also clinging to those
products that have proved successful with consumers over the years,
says Peggy Carter, vice president of corporate affairs in
Winston-Salem.
“Obviously, we have had the same challenges as everyone else with
the retail environment being somewhat soft. That has affected our
business lines, but as a result of this reshaping, we think we are
well-positioned once the market turns around,” she says.
“We stay very focused. We know what we do well and think we do it
better than anyone.”
It’s a byproduct of staying one step ahead at all times, says Jim
Davis, vice president of domestic manufacturing for Sara Lee
Underwear.
“Much of our success is a direct result of product innovation and
quality,” he says. “Here in our Winston-Salem manufacturing
facility, we have developed new, proprietary technologies in every
step of the process to reduce our costs and improve quality.”
“We have re-designed existing knitting machines to improve
efficiency and invested in state-of-the-art equipment in both
finishing and cutting to handle new and more innovative fabrics. The
Stratford Road plant is probably one of the most advanced finishing
and cutting facilities of its kind in North Carolina.”
The story echoes throughout other companies that make up three of
North Carolina’s prominent manufacturing industries — textiles,
apparel and furniture — and that are facing unprecedented global
competition. Although companies are laying off employees and closing
down plants in favor of moving operations abroad, industry watchers
say all is not lost. In fact, as long as these companies are prepared
to reposition themselves and rethink their missions, they will
continue to be major players on the world stage and contribute to the
state economy.
“Yes, there is light at the end of the tunnel,” says Jack Morgan,
spokesman for the American Apparel and Footwear Association in
Washington, D.C. “It is essential that companies have to compete in
a global economy. The way to do that is partner with domestic and
offshore facilities that will produce goods that will meet consumer
demands. Consumers want value, and the challenge for the U.S. apparel
and footwear industry is to find ways to meet those needs.”
Evaporating Profits
North Carolina follows a national trend in the decline of
manufacturing jobs for apparel and textiles, economists say. They
blame big-box discount retailers — Wal-Mart, Target and Kmart —
for driving down the prices on products. Their presence put commodity
suppliers in a position in which they could not afford the labor costs
in this country.
“The bottom line is, Wal-Mart has generated more problems than any
single entity, because they’re driving prices down,” says C.
Mitchell Oakley, CEO of Charles Aris Inc./Management Recruiters of
Greensboro, which has placed top executives in the textile and apparel
industry for 31 years. “Companies wanting to respond are being
forced to go into areas that labor can be found at much, much lower
rates than in the United States.”
According to the American Textile Manufacturers Institute, and because
of pressure from abnormally low-priced Asian imports that fed such
retailers, prices for U.S. textile products have plummeted since 1997.
In turn, U.S. textile profits have evaporated, and last year, turned
sharply negative, the institute says.
In the past year, more than 100 textile plants in the United States
have been closed and 60,000 textile workers — more than 10 percent
of the industry workforce — have lost their jobs. The institute says
that the industry “is now suffering its worst downturn in 50
years.”
North Carolina State University just released a study by the Textile
& Apparel Business Intelligence Consortium that notes while U.S.
industries “have proven resilient,” migration to other countries
“has accelerated since 1993.”
Companies were forced to react, and those that did quickly were
rewarded. “Sara Lee’s apparel divisions have long embraced changes
in the global market not only to grow the business, but also to
stimulate as many U.S.-based operations as possible,” Carter says.
“More than 40 years ago, we began developing operations in Caribbean
and Central American countries. When NAFTA and the subsequent
Caribbean Basin Initiative were passed, we were positioned to take
advantage of new trade rules.”
Further, Sara Lee Corp. in 1997 moved to reduce the capital demands on
the company and enhance its competitiveness and ability to focus on
brand building by “deverticalizing” operations across its product
lines, starting with textile operations.
“Essentially, we moved to a model similar to the relationship
between soft drink companies and independent bottlers,” Carter says.
“We divested most of the company’s U.S. yarn and textile
operations related to fabric production. We own and control the image
of the brand. We design product and establish production
specifications. Then we turn to contract partners for production.”
Other factors moving the industries toward globalization include the
reduction of tariffs, improved international communications,
management capabilities and industrial development polices of national
governments and institutions such as the World Bank.
Turnaround Coming
Likewise, the furniture manufacturing industry is projecting a 6.7
percent decline in shipments for 2001, the first time “in many
years, since the ’90s that things have slowed down,” says Jackie
Hirschhaut, vice president of the American Furniture Manufactures
Association in High Point. But unlike other industries, “if you look
back on our performance, we have had stellar increases year after year
after year,” she says.
Wholesale shipments are projected to be $23.8 billion this year, lower
than last, but in 2002 the industry is forecasting an increase to
$24.7 billion, Hirschhaut says. Economists project a turnaround by the
fourth quarter of this year, she says.
“It seems that we’ve had the worst of the worst. While things
aren’t bouncing back, they’re at least holding steady and starting
to move forward.”
Keeping the big picture in perspective is essential to business
survival, especially in light of the recent terrorist attacks, which
have led to national economic uncertainty, says John Bray, chief
executive officer of Vanguard Furniture Co. in Hickory. He maintains
companies should stay the course of their business plans even in the
face of such tragedy.
“The challenge with managing is that you have to do a combination of
a long-term perspective while managing the business that you have,”
Bray says. “You can’t be so shortsighted that you cut into the
fiber or muscle of your company, because you won’t have the
structure to get the job done when business comes back. And it will
come back. That’s my philosophy in a nutshell.”
Overall in North Carolina, the three industries’ share of the
state’s economy has dwindled from 1986 to 1999, the latest figures
available from the state Commerce Department’s Bureau of Economic
Analysis. Textile mill products dropped from 4.1 percent of the
economy in 1986 to 2.4 percent in 1999. Likewise, apparel dropped from
1 percent to 0.5 percent, and furniture manufacturing dropped from 1.8
percent to 1.2 percent.
Meanwhile, other manufacturing segments — industrial equipment and
machinery and chemicals, to name a few — are growing in North
Carolina, says Dave Huether, chief economist for the National
Manufacturers Association in Washington, D.C. This, in turn, shrinks
the workforce available for the traditional North Carolina industries,
he says.
Morgan, of the footwear association, agrees that competition for
workers is intense. Ultimately, it drives companies to other countries
to seek affordable labor, he says.
“Because of worker shortages, companies had little choice but to
move the manufacturing part of their businesses off shore. As we know,
not all the companies have survived. But where we see the light at the
end of the tunnel is that jobs that have stayed here are, in many
cases, textile and cutting jobs, design jobs, sourcing positions,”
Morgan says.
Technology’s Major Role
Huether points out that the textile sector today “is much more
high-tech,” and that will lend to its future success in the global
market.
“The sector has figured out what products it can make with
technology to compete on the world stage,” he says. “The same
thing will go for all the other sectors. You’ll see that the parts
of the industries that will survive will be products that, with
technology, they can produce overseas.”
Technology has played a large role in Sara Lee’s continued growth,
Carter notes. For example, one of the fastest growing segments in the
corporation is seamless panties and bras. Sara Lee, through Bali,
Playtex and Hanes Her Way, is at the forefront of developing such
products.
The “Only You” bra no longer has stitches but is melded together
with a gluing technology to fuse the fabrics and support underwires,
lending to a smoother appearance under other garments.
“We’re having trouble keeping it in stores. Women don’t want to
go back to anything else. Our history is steeped in technology: Hanes
developed nylon with DuPont,” Carter says. “We have a long
heritage, and we focus on new technology and staying on the front end.
“We are very optimistic that with our focus on technology and
innovation, as well as internal reshaping of the organization, that as
the economy starts to turn around, we are well poised to maintain our
leadership position.”
Technology also is integral to operations at Marsh Furniture Co. in
High Point, a manufacturer of kitchen cabinets, says CEO Reid Marsh.
“Over the last decade, there has been more automated computer
equipment available, and it’s important that you stay up to date —
particularly to stay within the lower labor costs in other parts of
the world,” he says.
Morgan notes that given the role of technology, “there’s a
relatively large base of jobs that can be maintained in North Carolina
and the United States.” There are nearly 600,000 apparel jobs in
this country, and although that figure is significantly off from years
ago, companies in the states can use cost-effective partnerships with
other countries in the Western Hemisphere and maintain their current
levels of employment.
“There’s a lot of design and technological jobs, computer systems,
in which the fabric is cut and treated here, sold here. The planning
for the sourcing for the sewing is here,” Morgan says.
“If we didn’t have NAFTA and other pieces of legislation that
allowed partnerships to flourish, the alternative is to import these
products from Asia. So the advantage of these Western hemisphere
partnerships is that it’s feasible to keep jobs in the United States
— the design, merchandising, sales, sourcing, that sort of thing.
That’s the kind of industry we see evolving in the near term.”
Oakley agrees that the industry will not be disappearing but
that it will “reposition itself globally.”
“That could easily mean that for companies in the United States with
a leadership role, it may be wise for them to buy offshore companies.
It may be wise to enter into strategic alliances,” he says.
“So the U.S.-based companies could in fact take advantage of also
being players in the global economy as opposed to being players for
the domestic market. I do believe the organizations in business that
do have the global presence will end up at the end of the day not only
surviving, but prospering significantly.”
Finding Ways to Cut Costs
In the meantime, companies do have to find ways to cut costs in the
current slump. But despite the economic downturn, companies statewide
say that layoffs so far this year could have been much worse.
In January, Sara Lee Corp. announced reductions in its global
operations of more than 7,000 positions, Carter says. Most of those
were internationally based, however. In North Carolina, the company
cut no more than a couple hundred jobs when it tightened its hosiery
operations.
Marsh Furniture, which has 625 workers, has been able to stave off
layoffs through delaying some rehiring through attrition, Marsh says.
Even though the company’s sales volume is “down a percent or
two,” there has been no significant downturn because new home
construction has held up, Marsh says.
“Really as far as this company goes, we’ve weathered it well,
because our segment is doing well,” Marsh says, adding, “We face
the same thing most manufacturers do — finding qualified labor.
“I think you have to watch your costs a lot more closely. The banks
tend to get skittish about loans. People don’t want to hold
inventory, so those kinds of things happen. When business is going
bad, it impacts everybody in one way or another. You have to pay
attention at controlling your cost and not getting overextended.”
Bray at Vanguard Furniture notes that his company implemented a
teamwork approach in 1993 that has helped it stay afloat in the face
of the economic downturn. Vanguard, which manufactures custom-made
upholstery products, assigns small teams to make each piece to its
final inspection, giving workers a sense of ownership of each product.
Vanguard has not had across-the-board layoffs of its 450-person
workforce. The company has been in a downturn for the past 12 months
but started to see a pickup beginning in early August, Bray says.
“Our backlog has improved every week since then. We’re starting to
pick up ever so slightly. The trend and momentum is moving ahead,”
he says, adding however that with the recent tragic events “all bets
are off for now.”
“It depends on the mood of consumers. In our business, it’s all
about consumer confidence. People don’t have to buy a sofa today.
You can delay it. The more secure we feel about the jobs, economy and
the country, the sooner we’ll see things improve,” he says.
Morgan holds out hope that over the long haul, companies will bounce
back. He predicts that soon “the economic doldrums will go away, and
consumer spending will continue.”
“I think it will rectify itself, but companies need to be aware of
the economic realities they face,” he says. “This is a global
economy, and we have the American consumer who won’t accept boring
fashion or mediocre quality. She wants it all, and companies will have
to maintain quality and get fresh new fashion on the shelf and use
design technology to turn the product around faster.
“You need to go from a concept from a blouse in someone’s mind to
a finished product in a short time frame in a matter of days or weeks
and re-supply that product and have the next idea for the next trend
right up your sleeve. That’s where business is at this particular
moment in time.”
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