Surviving in the Rust Bowl
After more than 110 years of producing several products in Elgin, Illinois, dairy company Borden, Inc. moved out its last Elgin plant about 11 years ago. Elgin Watch bailed out of town a year before its centennial in 1964. But where these and other big businesses have fled the Rust Bowl, other smaller players have stayed behind. Some of them seem not to have heard that times are supposedly tough.
Elgin Corrugated Box Company, another denizen of Elgin (41 miles northwest of Chicago), just celebrated its 100th anniversary on April 30. The approximately $9 million (sales), 15,000-ton-a-year producer of paperboard for packaging is growing in a $12 billion market that is dominated by scale-obsessed giants. It is profitable despite a major decline in demand in its Chicago-area market.
To understand Elgin’s success, you need to know the difference between an A-flute and a C-flute. The flute is the accordion-like folding, or corrugation, of the middle layer of paper in corrugated packaging material. An A-flute, like the shape of the letter, is steeper and requires more material than a C-flute, but it is stronger. Elgin prefers to produce the A-flutes and uses only the finest quality inks for printing. Its quality-conscious customers don’t mind paying a penny or two more for the product.
A visit to Elgin’s plant is not impressive at first glance. The production lines, chugging along at a sluggish pace, look like they were designed from Rube Goldberg’s sketchbook and seem as old as the company. The reason for the slower pace is not the age of the machinery; it is a conscious choice aimed at providing a virtually flawless product. As for the little gadgets and devices, fastened onto machines here and there, they give better folds and squarer corners than the state-of-the-art, $25 million plants of some of its rivals.
Chief Executive Bob Wilson delights in explaining these odds and ends, bragging on his hourly workers and plant engineers, who have invented almost all of these appendages. Pointing out one, Wilson boasts, “This cost $2,000. Ordering it outside, if possible at all, would have cost us $80,000.”
Many of Elgin’s quirks are shared by some of the most successful Japanese and West German manufacturing companies. A recent study by management consulting firm McKinsey & Co. concludes that the Japanese spend just one-sixth as much as we do in plant automation, per dollar of factory output. The reason is that their engineers work right on the plant floor and constantly tinker to add minor improvements. Professors Steve Wheelright and Bob Hayes—in their 1984 book, Restoring Our Competitive Edge: Competing Through Manufacturing—attribute Japanese and German manufacturing success to their penchant for incremental improvements, while Americans are obsessed by the quest for giant leaps and all but ignore day-to-day smaller opportunities.
Other crucial elements are flexibility, constant innovation and service. As Wilson puts it, flexibility means “we’ll make two boxes if we’re asked. The big plants won’t talk to you about anything less than a truckload order.” In fact, my plant tour included numerous machines making special boxes for pies or plumbing fixtures that others would not take on because of their “volume mentality,” which has crippled so much of U.S. industry.
Innovation goes beyond plant improvement—more pervasively, it encompasses a transparent love affair with the humble corrugated box. New folds and shapes are discussed with as much satisfaction and passion as one senses in Detroit when car-model changes are revealed.
Service is the truly distinguishing Elgin edge. Wilson claims there has not been a single late delivery in the last four years. That doesn’t mean they haven’t cut it close. Tales abound of drivers delivering boxes in personal station wagons in the wee hours of the morning. One satisfied customer believes that the truck drivers are Elgin’s best salespersons.
Indeed, marketing is everyone’s business at Elgin. Wilson and the until recently active Schmidt family are fanatics about team work. They go out of their way to heap praise on every member of the team—although Wilson reserves special accolades for the dispatch office.
Most firms, Wilson explains, march to the beat of the often detached front office. Elgin is orchestrated by the tail-end of its operation, which pulls through the 250 or so orders a week. Dispatchers, a bit higher tech than the factory floor, use their state-of-the-art computer system that is the envy of the industry.
Part of the reason for the lack of front-office kibitzing is the spare “staff” operation, which consists of just two accountants, one production planner, one customer-service person, and one jack-of-all-trades to help out the other four.
While industry giants blame their ills on lack of sufficient scale to produce economical output and permit market control, the smaller independents’ share of market has shot up to 30 percent from 12 percent in 1970. That share is still gaining, despite desperate price cutting by the big players.
The story is familiar in industries throughout the land, from Silicon Valley to Elgin’s Fox River Valley, where smaller companies are inheriting the future. And they are doing so because, like Elgin, rather than wasting time and money begging for protection, they spend their precious hours serving the customer with unrelenting responsiveness and care.
(c) 1986 Not Just Another Publishing Company
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