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US firm maintains manufacturing prowess
October 18, 2006

Conventional wisdom has it that manufacturing is migrating from the US to Asia and other areas of lower labor costs. In this view, US engineers must excel at creativity, developing the innovative products that will be built elsewhere.

From a test standpoint, the creativity challenge has involved how US-based test engineers can manage test processes taking place half a world away. Our November cover story will discuss how engineers at laser-scanner maker PSC keep tabs on contract manufacturers’ test systems using a “software kiosk” they developed in house. Last November, we described how Plantronics engineers perform similar functions with their CMs using SigmaQuest software.

For its part, SigmaQuest is offering a series of online workshops aimed at helping companies make the off-shore transition. The workshops cover how to determine whether to pursue offshore manufacturing, how to select and manage suppliers in Asia, and how to develop a cost model.

But not all US companies are ready to make the jump. Baldor Electric, a Fort Smith, Arkansas, manufacturer of electric motors, generators, and drives is maintaining 13 manufacturing plants in the US and one in the UK. Chairman and CEO John McFarland, speaking at an analysts’ luncheon October 17 in Boston, said that 85% of Baldor’s customers are in the US and that the company can best serve those customers by keeping its manufacturing near them. As a demonstration of its commitment to a US manufacturing base, Baldor just expanded its Columbus, Mississippi, manufacturing capacity by 144,000 sq. ft.

That’s not to say that Baldor isn’t interested in Asia, but it’s looking there for more customers, not for manufacturing sites. Said McFarland, “We sell motors everyday in China.” He also noted that the company sold the energy-saving high-efficiency motors used to retrofit a steel mill in India, where manufacturers are extremely sensitive to energy costs.

In fact, McFarland said that the quest for energy efficiency—offshore as well as in the US--could open significant opportunities for Baldor in a world where a motor’s 1-year electric bill for can be four times its purchase price. He noted as an example of potential energy savings that one of his firm’s 150-hp Super-E motors commands a $1236 purchase-price premium over a standard motor but will cut electric bills (assuming a cost of $0.10/kWhr) by $2395 each year.

As evidence of Baldor’s success as a US manufacturer, the company has reported consistent growth (with a few recessionary dips) in net sales, with 2006 year-to-date results through Q3 up 13% over the same period for 2005. Earnings per share and dividends per share have shown similar growth.

The nonunion company also has a profit-sharing plan, offers stock options to all employees, and has a no-layoff policy. “We haven’t had a layoff since 1961,” said McFarland, “and I’m not going to be the one to break that string.” The company has good reason to keep its workers onboard, as productivity has increased from $125,000 per employee in 1995 to a projected $200,000 per employee this year.

Baldor’s success might not be translatable to other industries. A key cost component for the company is for materials--steel, copper, and aluminum—for which offshore competitors would have to pay similar prices. The same can’t be said for the raw materials—human ingenuity--needed to make software.

One risk factor for Baldor might be the migration of its US customers themselves to offshore locations. But McFarland said he doesn’t expect that to happen. “Most of our customers are small, privately owned manufacturers, and we don’t expect them to move. We don’t subscribe to the idea that all manufacturing is moving out of the US.”

Posted by Rick Nelson on October 18, 2006 | Comments (0)