COVER

SCRAPPING THE ASSEMBLY LINE

CAMCO ADOPTS A NEW MIND-SET

ROSS LAVER August 12 1991
COVER

SCRAPPING THE ASSEMBLY LINE

CAMCO ADOPTS A NEW MIND-SET

ROSS LAVER August 12 1991

SCRAPPING THE ASSEMBLY LINE

COVER

CAMCO ADOPTS A NEW MIND-SET

Until the late 1980s, recalls Charles Miller, the household-appliance industry was a relatively simple business. Three times a year, executives at Miller’s company, Cameo Inc. of Mississauga, Ont., drew up a forecast for the company’s sales over the next 120 days, taking into account the state of the economy, the predicted number of housing starts, changing consumer tastes and other factors. The forecast included projections for the total number of sales in each product category—washing machines, dryers, ranges—as well as the anticipated demand for specific models and colors. Then, Cameo officials contacted their 1,500 suppliers to ensure that the necessary parts were delivered to the firm’s two manufacturing plants in Montreal and Hamilton, Ont. Based on that forecast, the factories then assembled the goods and shipped them to a warehouse, where they sat until orders came in from dealers

across Canada. It was a convenient system, says Miller, 38, Cameo’s vice-president for product marketing, but it had one glaring flaw: “Our forecasts were consistently wrong, which meant that our customers weren’t happy.” Rethink: In fact, Cameo’s reliance on a rigidly structured manufacturing process—a method little changed from the mass-production system pioneered by Henry Ford in the early 1900s—would probably have driven it out of business if the company’s executives had not decided, in 1988, to rethink the way they did business from the ground up. Despite its stature as Canada’s largest manufacturer of major household appliances, Cameo faced an uncertain future as a result of the 1989 Canada-U.S. Free Trade Agreement (FTA), which provided for a 10-year phase-out of Canada’s import duties on major appliances, last set at 11 per cent. The tariff elimination could have resulted in U.S. companies, which benefit from

economies of scale, drowning Cameo in their wake. But the company was also riddled with internal problems, including high inventory costs, inefficient assembly plants and poor customer satisfaction. “We basically had no choice,” says Jean-Guy Gagnon, the Montreal factory’s manager of manufacturing systems. “We realized that the only way to survive in the North American market was to become faster and more flexible. That meant that we had to get smarter.”

Cameo’s struggle to become more competitive, although far from over, has clearly had a positive impact. Squeezed by the recession, the company’s profits declined to $12 million last year on sales of $468 million, compared with profits of $18.5 million on sales of $517 million in 1989. At the same time, however, the company maintained its share of the market for laundry appliances and actually gained slightly in kitchen products, a category that includes ranges, refrigerators and dishwashers. Cameo’s product lines, including the General Electric, Hotpoint, Moffat and McClary brands, as well as several private brands for the major department-store chains, including Eaton’s and The Bay, now have a combined 36-per-cent share of the Canadian market for major household appliances.

Cameo officials acknowledge, however, that even a strong market share will not ensure the firm’s survival. For proof, they have the experience of the company’s main competitor, Inglis Ltd. of Mississauga. Two years ago, with the ink on the FTA barely dry, Inglis announced plans to close one of its two Canadian factories, a washing-machine plant in Toronto, and to begin importing the machines from its majority owner, Whirlpool Inc. of Benton Harbor, Mich. The significance of that decision was not lost on Cameo’s 2,600 employees: the company is 51per-cent controlled by General Electric Co. of Fairfield, Conn., which theoretically could close either or both of Cameo’s production facilities.

To improve their chances of survival, Cameo’s managers began searching for ways to increase productivity while reducing the firm’s massive inventory costs. Almost immediately, they realized that the two problems were actually different sides of the same coin: the company was manufacturing appliances according to theoretical forecasts of consumer demand, rather than in response to actual sales. In practice, that forced Cameo to keep a huge supply of finished units in its warehouses simply to make sure that it would have enough appliances on hand to cope with potential fluctuations in demand.

To make matters worse, the company frequently underestimated the demand for particular models, or colors, of appliances. Instead of delaying their purchases in order to give the company time to manufacture the desired units in its next 120-day production period, most customers simply took their business elsewhere. Says Stephen Snyder, 42, Cameo’s president and chief executive officer: “We had dealers waiting as long as three months for delivery. Whenever that happens, you know that you are losing sales.”

The solution to Cameo’s problems seemed obvious: somehow, the company had to find a way of making appliances to order. That involved abandoning one of the fundamental principles of mass production: the conviction that the cheapest and most efficient method of manufacturing is to produce vast quantities of identical items in continuous production runs. Says Snyder: “The old mind-set was always,

‘You give me the largest lot size and the longest lead time, and I’ll get you the lowest price.’ Strictly in terms of manufacturing costs, that’s probably true. But what good does it do if you are not producing exactly what your customers want when they want it?”

In 1988 and 1989, teams of Cameo managers and employees travelled across North America and to Europe and Japan to examine ways in which manufacturers had responded to similar situations. In Gagnon’s case, the tour included visits to a Toyota factory in Cambridge, Ont., a Seimens appliance factory in Germany, and Casio and Fuji assembly plants in Japan. At the same time, the company spent $30 million to install a state-of-the-art dishwasher production line in its east-end Montreal factory. Similar to the production lines introduced during the 1980s at Japanese and some North American automobile plants, the new

assembly mechanism uses a computer-controlled overhead monorail system to guide partly assembled units through a series of work stations. Rather than performing a single, repetitive task on a continuously moving assembly line, employees operate in teams and are responsible for carrying out their own quality checks before sending the product on to the next assembly stage.

Flexible: But the biggest change at Cameo’s Montreal assembly plant was the introduction of a Japanese-style flexible production system known as kanban, or signal. Unlike a traditional mass-production system, which essentially pushes products through the factory according to predetermined schedules, the kanban process is designed to react quickly to the marketplace, pulling goods through the factory in response to consumer demand. The chain reaction starts when a customer buys one of the products. That signals the factory to replace

the product, which it does by ordering the necessary parts from its suppliers. To avoid waste, the parts themselves are manufactured and shipped to the factory for assembly only when required to fill a new order—a procedure known as just-in-time inventory control.

At Cameo’s Montreal plant, the kanban system has resulted in a dramatic reduction in parts inventories. Previously, much of the floor space was taken up by boxes full of electric motors, switches, hinges and other components, many of which were used only occasionally. Now, parts arrive in small batches and are delivered immediately to the point on the production line where they will be needed.

To improve productivity, Cameo has borrowed two other ideas from the Japanese— simplified design and single-sourcing. A new line of dishwashers introduced in 1989 uses 300 different components, compared with 500

parts in the older version, and the product’s weight has been reduced by 25 per cent. “In manufacturing, weight equates to cost,” says Snyder. “With fewer parts, you get reduced assembly time and lower transport charges.” The company has also reduced the number of its outside suppliers to about 500, from 1,500 in 1986. Within a few years, the figure should be below 300, Snyder says. Most of those companies will likely enjoy threeor fouryear supply contracts, in contrast to the oneyear arrangements that once were the industry norm. “By having fewer suppliers and staying with them longer,” Snyder adds, “we hope to create an incentive for them to invest in productivity. Suppliers used to be afraid to spend money on improvements because they knew that next year they could lose the contract.” According to Gagnon, the recent changes at Cameo have had a dramatic impact on quality. Before, fully 18 per cent of Cameo’s dishwashers failed to pass the company’s factory inspections and were sent back for repair. Now, Gagnon says, the average rejection rate is five per cent, and about half of the cases involve only cosmetic defects. Meanwhile, the number of quality-control inspectors has been cut to three, from 25 in the mid-1980s. “Under the old system,” adds Gagnon, “we checked for quality at the end of the assembly line. Now, our operators do that at every step in the process. It’s a total culture change.”

The new manufacturing methods have had an even bigger impact on production cycles. The old 120-day cycle is gone—Cameo can now process a dealer’s order, build the appliance and ship the finished product within three days. Dealers who used to place orders once a month now fax orders directly to the factory every week, and in some cases every day.

Faster: For his part, Snyder says that Cameo has yet to get its production costs down to the levels of larger U.S. appliance makers, including General Electric. He adds that in the future, the company will probably concentrate on fewer product lines while attempting to increase its U.S. sales from five per cent to 50 per cent of its total sales. But he says that he is convinced that Cameo has found the key to surviving in the North American market. Added Snyder: “In the long run, we’ve got to become faster and more efficient. And the way to do that is to get closer to our customers.” By practising what they preach, Snyder and his associates are helping to prove that there is a future for Canadian manufacturing.

ROSS LAVER in Montreal

Cameo Inc. HEAD OFFICE: Mississauga, Ont. MAJOR PRODUCTS: Major home appliances EMPLOYEES: 2,600 1990 REVENUES: $468 million 1990 PROFITS: $12 million ESTABLISHED: 1977