BUSINESS

ON THE REBOUND

CANADA’S BATTERED MANUFACTURERS ARE STARTING TO RECOVER FROM THREE YEARS OF RECESSION

BRENDA DALGLISH June 28 1993
BUSINESS

ON THE REBOUND

CANADA’S BATTERED MANUFACTURERS ARE STARTING TO RECOVER FROM THREE YEARS OF RECESSION

BRENDA DALGLISH June 28 1993

ON THE REBOUND

BUSINESS

CANADA’S BATTERED MANUFACTURERS ARE STARTING TO RECOVER FROM THREE YEARS OF RECESSION

BRENDA DALGLISH

Branimir Katkic and Peter Dobson are survivors. They and their 3,000 co-workers at the Chrysler Canada plant in Bramalea, Ont., have weathered the recession and hold down apparently secure jobs in the manufacturing sector that is leading the Canadian economic recovery. Not only that, but Katkic, a 26-year veteran production-line worker, and Dobson, a millwright who has worked in the auto industry for two decades, have been reaping a harvest of overtime, sometimes working seven-day weeks helping to build Chrysler’s popular new LH cars. Chrysler’s seven-year-old Bramalea plant, currently the only source of the full-size LH cars, also represents the future of manufacturing. It is one of the most highly automated auto plants in North America, with 360 robots. And its managers encourage worker participation in decision-making to a degree that would have been unthinkable a generation ago. Said Lance Alexander, a Chrysler labor relations spokesman: “Under the old system, we’d hire a guy’s two hands. Now, we need their heads as well.”

After a prolonged recession that battered manufacturing for more than three years,

Chrysler and companies like it are leading the way out of the abyss. Statistics Canada reports that manufacturing shipments have grown in every month since last July. Although the expansion is not as robust as it was after the recession in the early 1980s, because Canadian consumers have not begun a buying spree similar to the one that occurred a decade ago, Canada’s manufacturing output has grown by 5.9 per cent in the past year. At that rate, the manufacturing sector in Canada is growing faster than in every other major industrialized nation. Said John Clinkard, a senior economist with the Canadian Imperial Bank of Commerce in Toronto: “Our economy is being driven by exports at this point, and manufacturing is the only game in town.”

The upturn in output, however, has added few new jobs. Clinkard said that although the service sector created 71,000 new positions since May, 1992, manufacturing produced only 7,000 in the same period. But analysts say that the companies and jobs that have survived appear to have good prospects for the future. The reason: productivity gains have almost eliminated the cost disadvan-

tages that Canadian manufacturers used to face when competing against U.S. manufacturers. Said Peter Green, president of Alcatel Canada Wire Inc. of Toronto: “In the past four years, the industry has made huge strides on productivity. We’ve got the worst behind us. It’s the future that matters now.”

The manufacturing industry, which spans an immense range of companies from lumber producers to carmakers and software developers, began to decline in 1989, well before the rest of the economy. The Canadian Manufacturers’ Association (CMA) says that from 1989 to 1992, the manufacturing sector experienced a painful triple-dip recession. The severe readjustment was due to a combination of increased competition because of the Canada-U.S. Free Trade Agreement, higher costs because of lagging productivity, and a more expensive Canadian dollar. In addition, at the end of the 1980s, many Canadian manufacturing companies were building new plants and installing new high-technologies—expensive projects that caused companies’ fixed costs to soar just as interest rates climbed and sales fell off.

Faced with those difficulties, companies

responded by slashing one of the few costs over which they had control—employees. Manufacturing employment has fallen by 350,000 people to 1.85 million from its peak of 2.2 million in 1989. The CMA predicts that manufacturing shipments will rebound in 1993, but that more jobs may be lost as companies continue to restructure their operations and carry on the trend of replacing their human workers with machines.

A study on manufacturing productivity released last week by a Toronto investment firm, Wood Gundy Inc., reports that in 1992, for the first time since 1985, the Canadian manufacturing industry increased its competitiveness in the United States. “Although Canadian manufacturers still face a cost disadvantage compared with their U.S. counterparts, the gap shrank by a third last year to 15 per cent,” said the report. “We expect the cost gap to shrink to 6.5 per cent this year, and for Canadian manufacturers to effectively achieve cost parity with their U.S. counterparts in 1994.” The gain in competitiveness resulted from reductions in the labor

force, in the rate of increases in pay and benefits, and in the foreign value of the Canadian dollar—all of which may combine to make exports cheaper in the U.S. market. Wood Gundy economists Jeffrey Rubin and Peter Buchanan forecast that, in 1994, the manufacturing sector will exceed its 1989 record in profits.

At Chiysler’s Bramalea operation, productivity changes have been dramatic. Even the plant’s E-shaped floor plan is different than the traditional rectangular plant. The Eshape, among other things, provides greater space for loading docks around the outside of the building to receive last-minute shipments of parts. The plant produces about 960 vehicles a day and most parts arrive at the plant just four hours before the workers need them. The so-called just-in-time system

saves the expense of financing and storing an inventory. Dozens of unmanned robot cars whir along plant corridors picking up and delivering parts to work stations along the 25-km production line.

Generally, robots do the jobs that are the hardest or most boring for people to perform. One of the most gruelling jobs for humans on a production line is positioning an undercarriage beneath a chassis and bolting them together. Workers had to stand below the line and perform the task with their arms above their heads, hour after hour. A robot now does the job in four seconds. Another robot installs carpets, a job that Katkic described as one of the worst jobs on the line. Katkic, who is a union-appointed member of the joint new technology committee, which management has charged with various tasks including organizing and running the extensive training programs that workers received before the LH car went into production, added: “There’s always particles in the air, the rolls are heavy, you have to crawl into the car. Well, management listened to us, and

they developed a machine to do that job.”

But those kinds of changes are just the beginning of things to come for the manufacturing sector. Said CMA president Stephen Van Houten: “The next 10 years will bring about more change in the way business is done than we have seen in the past 50.” Already, the association calculates that the typical Canadian manufacturing company spends just 15 per cent of its total budget on labor costs. CMA economist Jayson Myers says that companies that relied on cheap labor are either among the 3,000 manufacturers who have gone bankrupt since the recession began or they have found a new way of doing business.

The next phase of changes have less to do with cutting costs, especially labor costs, and more to do with improving the production process. Robots, so-called smart machines,

are thoroughly entrenched in many factories. Industry leaders predict that “smart materials” will soon follow—components with built-in sensors and activators capable of selfdiagnosis, repair and learning. And factories will become even more flexible in what they produce. The CMA theorizes that within a few years, one plant could, for instance, produce cars one day and coffeepots the next.

With such changes approaching so rapidly,

Alcatel Wire president Green says that management’s main challenge will be to create a secure environment for employees so that they can get over the pain and uncertainty of restructuring and focus again on coming up with new ideas. Said £

Green: “It all comes down to people. It’s going to be a steady series of small advances that keep us ahead of the competition in the future, not big dramatic discoveries.” He added that imagination and creativity will be the skills most needed in the factory of the future.

As an example, Green cited two recent advances in his company. One is a sophisticated two-way communication and inventory-

monitoring system between Alcatel and its customers so that the firm can supply needed inventory even before customers realize that they need it. The other is a design for a so-called eccentric monitor that constantly checks that cable meets the exact standard of perfect roundness necessary to operate

Chrysler was looking for that kind of edge when it launched the LH. The company not only changed the basic design of the car significantly by moving the wheels outward to increase the interior space, it also changed the design process. It halved the time it takes to produce a new model and reduced

most efficiently. Green said that some of his competitors had offered to buy copies of both systems but that he had scoffed at the notion of trading away that kind of competitive advantage. ‘They’ll eventually develop something similar,” he said, “but in the meantime we’ll have an edge for a year or two and, hopefully by then, we’ll have come up with something new and even better.”

the cost of the process to $1 billion from $4 billion. But despite the radical transformation, some things remain the same. “We’ve changed everything,” said Katkic. “The only thing we didn’t solve is the boredom.” Still, as the jobless recovery continues, even a boring job is better than no job at all.

BRENDA DALGLISH