01 Mar 2011
Making Their Way
Amid the pressures of global competition and recession, U.S. industrial and manufacturing firms are striving to retain and reinvent the core competency that made America great. The following are snapshots of three such companies.by Garry EmmonsTopics:
Anthony L. Chirchirillo
Leveraging China to Achieve Global Advantage for a U.S. Factory
Tony Chirchirillo’s (OPM 32, 2003) story could well be a case study about an American manufacturer’s adaptation to the forces of globalization. Back in the 1990s, when the U.S. economy was in a high-tech, dot-com frenzy and China’s experiment with export-driven market economics was beginning its great leap forward, the Chirchirillo family of Mequon, Wisconsin, was sitting on three very disparate Rust Belt businesses: an industrial-lighting company, a medical-packaging business, and a welding company. In the middle year of his three-year OPM schedule, Chirchirillo saw the handwriting on the wall.
“Overseas product — not only from China but from Mexico, South Korea, and elsewhere — was coming in at a lower price point than our unionized operations could match,” Chirchirillo recalls. “And many of my OPM classmates were from outside the United States, so I was getting a first-rate education on globalization from them, too. It became clear that if my family was going to stay in manufacturing, we would have to become globally competitive.” The Wisconsin businesses were sold in 2002, and a new company with a new strategy, Chirch Global Manufacturing (CGM), was born.
“China was emerging as a manufacturing behemoth,” Chirchirillo explains. “Rather than abandon U.S. manufacturing, my thinking was that once we had established a capability in China, we could then reinvest back in the United States and reinvent ourselves as a global player.” Working with a Chinese OPM classmate whose expertise and local knowledge was invaluable, Chirchirillo was able to establish a foothold in China. That import model, however, was only intended to be an interim strategy to build a global capability, and in 2008, Chirchirillo purchased a precision metal-stamping company in McHenry, Illinois. “I view that acquisition as a foundational platform for aggressively growing our U.S.-based manufacturing operations, while incorporating a global mindset and offering our customers a true international capability.”
With technology leveling the playing field, CGM can function as a globally networked factory. Says Chirchirillo, “Our company motto is to help our customers ‘compete with anyone, anywhere in the world,’ and that’s what we do.” Those customers can be found worldwide and in diverse industries. Examples of the range of metal-component parts CGM produces include air-bag sensor switches for the automotive sector; syringe guides for the medical industry; shelving units for retail consumer products; and high-tolerance firing pins for military applications.
When it comes to per-piece cost for metal stampings, the United States is very competitive with China because labor is not a key factor, Chirchirillo explains. Once a metal-stamping machine is set up and the press is running, a single worker can operate two or three presses. “In fact,” says Chirchirillo, “our McHenry plant produces parts for a lower per-piece price than the high-quality Chinese factories can.” CGM recently purchased a fifty-foot robotic unit. Says Chirchirillo, “It’s a game-changer. Now we can go from print-to-part faster than anyone in the world.”
However, when it comes to building certain tools, such as progressive dies for metal stampings, which is labor-intensive and takes up to three months, China often has a competitive price advantage. So, explains Chirchirillo, “We give customers a choice of where they want the tool work done, but we retain U.S. production. That flexibility and one-stop shopping is a key to attracting business.”
For manufacturing operations conducted in China, CGM has experienced on-site teams that are well-versed in Chinese culture, business practices, and nuances. They closely monitor the manufacturing process for quality and compliance (including regularly uploading video of work in progress back to McHenry for review). Says Chirchirillo, “It doesn’t matter that it’s being built halfway around the world. Even remotely, we still have process control over it. And in a worst-case scenario, we know we have the capability in McHenry to fix any problem and make that product work.”
CGM has some twenty full-time U.S. employees. Although the global recession brought about downsizing at the company in 2009, it was also an opportunity to invest in state-of-the-art IT systems and advanced technical training for its long-tenured tool-and-die professionals. “We are now a core group, and for anything beyond that we bring in people on a project and per-hour basis,” Chirchirillo explains. “We are doing more just-in-time work; that fits the uncertainty of these times and this kind of manufacturing, which is very high-skilled with fluctuating demand. Similarly, with IT, we were first-movers to cloud computing, which saves on fixed IT costs.”
Looking ahead, CGM is building on its core strength: family. “Our business model must be sustainable,” says Chirchirillo, “and that means the family’s next generation must be formally groomed to ensure we remain globally competitive.” As a group, the Chirchirillos have attended the weeklong HBS Executive Education offering Families in Business. Daughter Trisha (OPM 36, 2007) and son Anthony Dominic (PLD 7, 2009) then studied further at HBS; Michael, another son, plans to attend upcoming programs. Concludes Chirchirillo, “With a strong team coming along for the future, and with over 50 percent return on equity and 17 percent increase in sales in 2010, I think we are moving in the right direction.”
Working on the Railroad in Support of America’s Manufacturing Base and Import/Export Sector
The eldest of eight children, Michael Ward (MBA ’76) grew up in blue-collar Baltimore. As a kid, he racked balls and collected customers’ money at Club Ritchie Billiards, his father’s pool hall; when he was older, he took summer jobs in an asphalt factory to pay for college. After graduating from HBS, Ward returned home “to work for any big company that would have me. I had no particular interest in trains or railroads, but the Chessie System happened to be hiring at the time.” Chessie and the Seaboard System Railroad combined to become CSX in 1986. In 2003, Ward became chairman, president, and CEO of the firm, which is based in Jacksonville, Florida. “I’ve been here 33 years and worked in almost all aspects of the business,” says Ward. “My granddad punched a clock here his whole life, and now his grandson’s running the show. I think that’s pretty cool.”
This may be the digital age, in an information-driven economy, but these are also good times to be shipping physical cargo the way it was done when America first began to industrialize. Indeed, says Ward, it’s back to the future: The country is in the midst of a “rail renaissance.” One heartening example — considering the prevalence of political gridlock, crumbling infrastructure, and high unemployment these days — is the $842 million National Gateway rail-transport improvement project. CSX is putting up half of the price tag, while six states and the District of Columbia are kicking in a quarter, with another quarter (some of it that much-debated stimulus money) coming from the federal government. After building new terminals, clearing rail lines, and raising bridges to accommodate cargo containers, the National Gateway will connect Mid-Atlantic ports with Midwest markets. The project is due to be finished in 2015. That will coincide with the completion of the widening of the Panama Canal, an improvement that is expected to significantly increase export/import growth in East Coast ports, many of which are serviced by CSX. For every dollar of public money invested in Gateway, the project will yield $8 in public benefits by increasing freight capacity and reducing transit times.
Notes Ward, “The Gateway will enhance America’s competitiveness in global markets. We’re proud of our role in the Gateway for that reason, in addition to the fact that so much of our own business at CSX is fully involved in the global economy through import and export. With globalization, supply chains are lengthening and that means growth for railroads and other transportation modes.”
According to the Association of American Railroads, an industry trade group, if U.S. railroads shipped 10 percent of the long-distance freight now carried by trucks, the United States would burn 1 billion fewer gallons of fuel a year. Says Ward, “We compete with trucks for intercity freight, but we also cooperate. More and more trucking companies are offering customers a single freight bill to move a container from Point A to Point B,” with the railroads handling the long haul and the truckers picking up and delivering at either end. “Rail moves a ton of freight 423 miles on a gallon of fuel,” Ward adds. “One train can carry the load of more than 280 trucks, thus reducing highway congestion and emissions from all those trucks while producing very little itself.”
With some 30,000 employees, CSX operates a fleet of approximately 220,000 freight cars on 21,000 miles of track in 23 eastern states and two Canadian provinces. Manufacturers rely on railroads for the shipment of raw materials, such as coal, iron ore, sand, gravel, and chemicals, for the production process. Railroads are also indispensable for the shipment of agricultural products as well as factory-finished goods like consumer products and automobiles.
Because railroads play an important role in the movement of both finished goods and raw materials related to U.S. manufacturing, CSX can be a good barometer of the economy. “We’re seeing gradual improvement, led by the auto industry,” Ward says. “There has been substantial and sustained growth in intermodal, our container operations, which constitutes about one-third of our business. We hired about 2,000 people in 2010 and expect to hire 3,000 more this year. Railroading is a very capital-intensive business; we invested approximately $1.8 billion of capital, or about 17 percent of our revenues, in 2010. Rail, locomotives, railcars, and technology components remain the big-ticket items. CSX purchases steel rail from the highest-quality, lowest-price source, and that is often overseas. We buy locomotives primarily from General Electric; we’re taking delivery of fifty new units this year.”
In short, the freight-rail business is humming, and that has Ward in an upbeat mood. Not that he wouldn’t be anyway. For many Americans, there’s the romance of the rails and the mournful sound of a distant freight train’s whistle. But for the guy who’s actually in charge, the thrill is a bit different. “When you go home at the end of the day,” Ward says, “there’s nothing like being part of operating a transportation system critical to the U.S. economy, 24 hours a day, seven days a week, to energize you and give you a sense of accomplishment.”
Jana Kirlin Brownell
From a Historic Manufacturing City, a Family Company Brings USA Lighting to the World
It’s fundamental to life, but light — especially the kind that comes at the flip of a switch — is easily taken for granted. But not by Jana Kirlin Brownell (MBA ’83), CEO of the Kirlin Company, a Detroit-based commercial-lighting firm. Brownell makes it her business to ensure that Kirlin lighting accomplishes its illumination requirements first and foremost. But it should also be pleasing to the eye and soothing to the spirit. It should render colors accurately, burn efficiently and for a long time, harmonize with interior design, and boost productivity. It’s quite simple, Brownell says: “Who wants to live, work, or play in a dingy or glary space?”
The oldest family-owned and -operated lighting business in the nation — its doors opened in 1895 — Kirlin proclaims its products are “100% designed, manufactured, and assembled in the USA.” The company moved from Minnesota to Detroit in the 1910s to take advantage of the Motor City’s skilled-labor and manufacturing expertise, design sophistication, and transportation infrastructure. For a time Kirlin created handcrafted chandeliers — said to cost twice as much as Cadillacs — from glass and metal produced in its own foundries. In 1953, Ivan Kirlin received a patent for recessed lighting, to this day a landmark innovation for Kirlin and its customers.
Throughout Detroit’s ups and downs, Kirlin has remained a stalwart manufacturing presence and loyal member of the community. Today, its 85 employees design and manufacture lighting systems for commercial, institutional, and custom residential construction. Kirlin has created lighting for a range of famous customers, including the New York Stock Exchange, Google, Boeing, San Francisco’s BART public-transportation system, General Motors World Headquarters, New York’s Grand Central Station, and even the White House.
Like most family businesses, there are plenty of stories in the Kirlin Company’s history, including Brownell’s own. After graduating from HBS, she and her husband, HBS classmate Stephen Brownell, moved to Los Angeles where she worked in marketing at a global biotechnology firm. But when her father fell ill in 1986, the Brownells decided to return to Detroit to help with the family enterprise founded by her great-grandfather. As things turned out, Brownell’s father recovered and was able to continue with the company. But Brownell, who in her biotech job had become fascinated by technology’s ability to advance medicine, was already hooked. Struck by the potential of technology and innovation to be a driving, cutting-edge force in the lighting industry — especially for the health-care sector — she stayed on, becoming CEO in 1993 and working with her dad until she took over the top spot, becoming president in 1996.
Kirlin has a long list of U.S. competitors; many of them take advantage of low-cost component sourcing from overseas. Kirlin counters that by emphasizing high-end quality and performance in its design and manufacturing, and with an innovative, technologically advanced, and energy-efficient product mix, including customization options.
“The biggest factor in our success is that we can quickly utilize value-added technological advancements in our lighting designs,” Brownell explains. “That brings innovation in design quality to bear on LEED certification, architectural objectives, and clinical-medicine needs, for example. It also improves the quality of living through energy efficiency, visual acuity, and overall ambience.”
More than 90 percent of Kirlin’s sales are domestic. The company is not directly challenged by foreign competitors, Brownell explains, because its product is specified commercial and institutional lighting, which tends to be uniquely adapted to the needs of each project, as opposed to the commodity, “off-the-shelf” end of the market. But Brownell is looking to jump into the global arena by expanding into overseas markets. “We’re finding demand overseas for our expertise and ingenuity,” she notes. “A weaker dollar is also making our products more popular abroad.” Recent overseas installations are at Dubai’s Atlantis hotel, the UK’s RAF Lakenheath air base, and Abu Dhabi’s Cleveland Clinic. The latter is emblematic of a customer segment — health care — that, along with the education sector, has remained particularly strong for Kirlin despite the current downturn. Other health-care customers include the Mayo Clinic, Massachusetts General Hospital, the University of Michigan Hospitals, and Cedars-Sinai Medical Center.
When the recession hit, Kirlin was able to avoid layoffs, though hours were reduced in some departments. Notes Brownell, “While we foresee a continued sluggish economy, we are still doing some selective hiring, particularly around design engineering and production control. Our hiring is up over last year; we are seeing about ten times as many applicants per job as we did in years past.” In terms of investment, over the last year the company bolstered its infrastructure, primarily in IT systems and lighting-systems R&D.
Asked how important she thinks it is for America to have a solid, competitive manufacturing base, Brownell says, “U.S. manufacturing leadership is the reason for our country’s high standard of living. Manufacturing is a value-added, ‘pay-it-forward’ enterprise with every link in the chain benefiting with endless opportunities for continuous innovation and improvements. That, of course, translates into job creation and retention. Without this, we all stagnate and lose that uniquely American competitive drive, can-do attitude, and optimism for ‘better’ in the future.”
Spoken by the leader of one of America’s oldest companies and backed up by history, those words are something to build on, as the Kirlin Company has done through good times and bad for over 100 hundred years.
Class of OPM 32
Class of MBA 1976, Section G
Class of MBA 1983, Section G