Sunday, May 01, 2005

World Class Manufacturer’s Challenges

This past week I toured Excel Industries, Inc., a world class manufacturer of turf equipment. This plant makes zero turn mowers that are shipped all over the world from Hesston, KS.

The first thing I saw as I entered the plant were state of the art laser fabricating machines, which take a sheet of heavy gauge steel and cuts it exactly into various sizes. The computer program that controls the operation minimizes the amount of scrap steel. Excel recently installed a new 10-stage powder coat paint system, which is also highly automated. Their bottleneck at the present time is in their welding department, where they hire 45 welders. They could use another 10, but can’t find them, despite the fact that welders make in excess of $30,000/year.

The Mullet brothers, majority owners of Excel, have been able to continually increase productivity in their plant thru innovations and new tooling. In the 1970s they produced $25,000 of sales for each employee. Today they are doing over $300,000/employee. They are doing 10 times more in sales volume with 100 fewer employees.

These productivity gains are why I continue to think that we as a country have a wonderful future in manufacturing. We continually are innovating and developing new ways of producing products. Because we can do it with fewer people (the productivity miracle), we are able to pay those producers more each year and it is why the manufacturing sector has some of the highest paying jobs in many communities.

The downside of being a USA manufacturer? It didn’t take long for me to guess what a major problem for them might be and the Mullets quickly expressed their frustration with our present legal system. Bob Mullet told me, “The contingency fee system raises legal costs for everyone. When we get a claim, we settle early if we can or we find that the meter runs up very high on these cases.”

One of their frustrations with these product liability claims is that while governmental sales account for only about 5% of their overall sales, it accounts for over 90% of their claims. Why would there be this discrepancy? The product is the same and you would have to assume that the skill set to mow a lawn is similar from the private to public sector. The only explanation I could come up with is that too many governmental employees are “gaming the system”, trying to qualify for workers compensation. It is a shame and raises costs for all of us in the USA.

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