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Revitalizing the Manufacture and Design of Mature Global Products ALVIN P. LEHNERD Manufacturing enterprises are evolutionary entities. Over time, their product portfolios expand through evolutionary and chronological devel- opments. Products are usually designed and developed one at a time. As a result, it is the exception when the designs of a manufacturer's products embrace much compatibility, standard~z~hon, or modulanzation. The norm is Cat product portfolios are rarely designed simultaneously; designs take place in a sequential manner. Additionally, many current products of U.S. manufacturers were designed and tooled years ago, yet prevailing labor rates, manufacturing processes, energy costs, availability of materials, and interest rates are often significantly changed from the tune of the original product design and tooling activities. It is rare that a U.S. manufacturer invests the time and resources necessary to rationalize production of an entire product line to fit the changing economic environment and to take advantage of opportunities provided by technological advance. Manufacturers usually design for function, then redesign for manufac- tunug; thus, two design iterations usually take place. If an enterprise wishes to maintain or gain market share in global markets, Me firms' managers and technical personnel must learn to combine manufactunug win in- novation in product design. Few enlightened companies take time for a Bird design iteration to automate and mechanize production for global leadership in cost and value. In many, if not all, instances, design for manufacturing is also con- strained by Me existing resources of plant and equipment. In over words, manufacturing engineers guide Me design decisions to match He profiles 49

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50 ALVIN P. L'HNERD and capabilities of Weir existing factories and Heir respective in-house capabilities. In-place facilities are frequently barriers to product ~nnova- tions. Fixed capital investments in existing capabilities are also banners to more advanced lower-cost processes. Organizations commonly ignore what the production cost could be if their products were not shackled to outdated manufacturing processes and could also use state-of-~e-art ma- tenals requiring new processes and procedures. An additional issue is that few U.S. domestic manufacturers look at Heir product offerings as global opportunities. This domestic myopia- ~e belief Hat the marketplace ends at He U.S. borders is a problem for U.S. industry, and He problem will only get worse as He wodd becomes more economically integrated. Finally, corporate planning horizons are too short, and manufacturers seldom ask themselves what Hey are doing to ensure their longevity in He business. Too many managements or boards of directors do not act unto external influences cause significant disruptions and spur the orga ~zai~on into action. This chapter presents a case history of a 1970s program at Black & Decker Corporation to redesign a product line for production automation and leadership in cost and value. The program was an effort to redesign standard products to take advantage of opportunities for using new ma- tenals and new manufacturing and design techniques. BLACK & DECKER When managers at Black & Decker Corporation observed growing global competition in He 1960s and 1970s, they decided Hat a window of op- portunity existed to improve Heir product lines and manufacturing ca- pability. Moreover, they decided that if they did not take time to do it right the first time, they would never have He rime or resources to do it over. They recognized that if they were to be a domestic manufacturer with aspirations to do business internationally 20 years hence, Hey would have to change the business in a way that would ensure that long-range performance. This involved making certain irrevocable decisions. The impetus for change came from three sources. First, it was evident that foreign competition would increase in Black & Decker's product markets and that this would lead to foreign participation in new, related product markets. Second, in the 1970s, inflation in costs of labor, material, services, and capital goods was a serious consideration. Table 1 shows the effect of inflation in the labor component of product costs. It assumes an ~ percent compounded inflation rate over five periods from year 1 to year 6. To

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R~VITAL17lNG MANUFACTURE AND DESIGN TABLE ~ Impact of Wage Inflation on Labor Costs (8 percent compounded inflation) 51 Year Hourly Wage ($) Labor Minute Value of $3.00 - lst 3.00 60.0 2nd 3.24 5S.5 3rd 3.50 51.5 4 ~3.78 47.6 5th 4.08 44. 1 6 ~4.41 40.8 maintain constant labor-cost content in the product, one-third of the labor has to be removed from the product between period 1 and period 5. In Black & Decker's assessment, offsethug inflation in labor costs depended on making better use of labor In adding value through design standard- ization, mechanization, automation, better use of material and floor space, and intelligent capital planning. We thud factor in Black ~ Decker's decisions was an anticipated continued public attention to consumer protection and environmental con- cerns. In the power too] Industry, this attention took the form of require- ments for double insulation of tools. The term "double insulation" refers to He additional insulation bamer placed ~ an electncal device to protect Me user from electrical shock if the main insulation system ever fails. In Be late 1960s there was a strong possibility that double insulation of domestic power tools would be legally required. Black & Decker decided Cat the threat of required double Insulation provided an opportunity to study the entire product line. The program begun at Black & Decker in the early 1970s was called Double Insulation. All consumer power tools were to be redesigned at Be same time and would initially be manufactured in venous locations In Norm America win standardized parts and components. Double Insulation was Black ~ Decker's vehicle to redesign Be line and develop a "family" look, simplify Be product offenng, reduce man- ufacturing costs, automate manufacturing, standardize components, in- co~porate new materials, improve product performance, incorporate new product features, and provide for worldwide product specifications. The program was designed to incorporate double insulation on 122 basic tools win hundreds of variations. Of i8 tool groups manufactured by Black & Decker, ~ contributed 73 percent of sales, 71 percent of earnings, and 91 percent of units sold. These groups were tools and drivers, jig saws, shrub and hedge mmmers, hammers, circular saws, grinders and polishers, finishing sanders, and edgers.

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so ALVIN P. ~ WE Many of Black & Decker's U.S. competitors that had already Introduced products win double Insulation had incurred a 15 to 20 percent premium in material and labor costs in doing so. It was Black & Decker's goal to add double insulation without increasing the cost of any new tool beyond Hat of Be existing product. In addition, of course, Black & Decker aimed to avoid dilution of assets or return on investment. In this instance, Black & Decker's decision to introduce fundamental redesign throughout its product line was motivated by the prospect of an indushywide requirement to incorporate double insulation in power tools. At other times, competitive product analysis plays an important role in decisions to redesign (~e Appendix to this chapter describes a competitive product analysis carried out by Be Sunbeam Appliance Company). An important part of Be plan for Double Insulation was Be decision Cat the resources of Be organization would be concentrated on this tran- sit~on. Black & Decker would leave only a small portion of its management and engineenug staff to carry out development efforts on new products. The development of new products was put In abeyance, and the resources usually devoted to development were focused on the manufacturing pro- cesses essential to the program. To accomplish Be engineering goals, a bridge was needed between design engineering and manufac~g. That bridge was Be placement of advanced manufacturing engineers in residence at headquarters to work elbow to elbow win Be design Sneering groups. These manufacturing + 20 _ + is ~ 10 -15 30 % ROI (DC~ PRE-T" - _~_! __ Savings | ~ Capital 8 Revenue I an: . :,: -.. ~ - 22.''-2'' ~ 1 1 1 1 8reak~even Cumulative Net Cash Flow I I ~I 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 YEAR FIGUBE 1 Financial analysis of Double insulation program.

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*~VITAnZING MANUFACTURE AND DESIGN 16 14 At 10 - z of o Q 8 6 41 2 r _ 53 TOTAL Investment $17.t Million _~.7 D.l. Tooling 6.0 O _ 1970 1971 1972 1973 1974 1975 YEAR FIGURE 2 Investment requirements for Double Insulation program. engineers were involved with machine development, process development, value and cost engineering, purchasing engineering, and packaging. In addition to bringing manufacturing and design together at the engineering level, the basic structure of the company was changed. Before these changes were made, the program structure had consisted of a general manager and two vice presidents one for manufacturing, and one for engineenug and product development. That organization was changed, and a new position- vice president of operations was developed to combine manufacturing, product development, and advanced manufac- tunng engineering under one manager. A final general point about the Double Insulation program was the large investment required and the long time horizon needed to reap a return on that investment. As Figure 1 shows, the break-even point in the program came nearly 7 years after the program began, and total cost was $17 million. Figure 2 shows the cumulative cost of the program from 1971 through 1975. Capital expenditures were $6 million. Tooling was $6.5 million, and development engineering and manufacturing technology were $1.7 million each. It is important to note that this program is rare from the standpoint that as much money was spent on manufacturing technology as on development engineenug.

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54 ALVIN P. ~H~VE~ Designing for Manufacture The transition to Black & Decker's leadership in cost and value was the result of collaborative effort among design, manufactunng, and man- ufac~ng engineering functions. The changes in design and production of motors are one example of this collaborative effort. The most common component in ail power tools is the universal motor. Figure 3 shows all Me components of such motors before redesign. Figure 4 shows the motor configuration both before and after redesign. Motors are now manufactured automatically, untouched by human hands. The laminations, placed at the head of the mechanized line, are stacked, welded, insulated, wound, varnished, terminated, and tested automatically. Table 2 shows, at 1974 volumes of 2,400 pieces per hour, that the new Double Insulation manufacturing system required 16 operators and that the old design would have required 108 operators. Material, labor, and overhead cost $0.51 in the old system and $0.31 in the new. The labor content cost $0.02 in the new system, down from $0.14 in the old. Through attention to standardization, the entire range of Black & Decker power tools could be produced using a line of motors that vain only in stack length Mat is, standardization froze the dimensional geometry of ... A ...... ... .................. .~. -. - - - ~ - ,~.- ~:~.~.~-~-~::-~.~:.:~--:~ ~- FIGURE 3 Elecmc motor field components. :: ~ .~ . - :.:. ~ . - ~.~ ; .::::. : ~ . I: at: I: ~ :: .~ i

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REVITALIZING MANUFACTURE; AND DESIGN 55 FIGS 4 Motor configuration before and after redesign. He motors in the axial profile. All motors can now be produced on the same machines, and the only difference is stack length and the amount of copper and steel used. As Figure S shows, designs ranged from 60 watts to 650 watts, and He only dimension that changed was in the axial profile. The only difference in cost from He low-wattage to He high- wattage motors was the cost of materials and machine time; labor cost remained the same through He entire wattage range. TABLE 2 Motor Field ~oducuon, Aerator Requirements, "d Costs at 2,400 Units per Hour, Old and New Design and Manufacumng Process Old Design and Manufacturing Process 108 New Design and Manufacturing Process 16 Operators to produce Cost to insulate (materials, labor, overhead) SO.S1 Labor cost $0.14 Capital to produce $400,000 Annual savings (labor and materials only): $1,280,000 $0.31 $0.02 $1,222,000

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56 .. ,.~: ,..,.,..,.-.-,..,-,..-...,.,- ~,.,~-~...:.-~.~.. Ha. .-<,::.. I.'.... ALVIN P. LEHlIERD ,................ .~..,., _............. ,., alW: .....~. ~ . ~- _ . ..... ~ ~.~ ~ aft-.- --.: -- . if. .- .-- ~ ~-~ .. . ~ .~ . ~ ~-:.-..~.---.~..~ -.,..--. ~.. 60 ................. _ ............... .... .. ................. .. ................ . .. ~ ~ ~ . ~ ~ -. ~ . ~- ~- ..... -. ..:.~:-~.:.Y-.~-~.-.~..-.:...~-'-~...~::... ':....:: :..~ .--1'~.~..-.~-.-.,. --=A.:CK- I-- -a FIGUBE 5 Motor staclc length, 60 to 650 watts. . . . Another effect of design for manufacture can be seen in the production costs for the armature of the motors. As Table 3 shows, four times as many operators would have been needed to produce armatures under He old system as under the new system at a constant production volume. The effect on labor costs was dramatic. The labor cost of the manufacture using He new design was only $0.025 cents per unit, whereas the cost using the old design was $0.108 per unit. TABLE 3 Armature Production, Operation Requirements, and Costs at 1,800 Units per Hour, Old and New Design and Manufac~ng Processes - Old Design and Manufacumng Process Operators to produce 60 15 Cost to insulate (materials, labor, overhead) $0.26 $0.11 Labor cost $0.108 $0.025 Capital to produce $2,340,000 $795,000 Annual savings (labor and materials only): $540~000 New Design and Manu,~actunng Process

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R~VITALlZING MANUFACTURE AND DESIGA' The Results of Double Insulation 57 The Double Insulation program worked for Black & Decker. It reduced production costs, created opportunities for profitable vertical integration, increased market share, and improved the company's capability for new product development. Each of these changes is discussed furler in the following sections. Cost Reductions Cost reductions due to We Double Insulation program came mostly from labor savings, and Me balance came from reduced factory overhead, ma- tenal savings, and savings from standardization of parts and modulan- zation. In 1976 Black & Decker reviewed the program and compared existing equipment and labor costs with the capital equipment and labor costs that would have been required for the 1976 volume without the Double Insulation program (see Table 41. If the company had not camed out this program, estimated 1976 requirements for motor manufacture would have been nearly 600 people whereas the new system required only 171. That is a labor cost difference from $6.4 million down to $1.8 million-of $4.6 million per year. The capital investment for the new system was higher Man simple capital replacement-$4.6 million instead of $3.0 million but with labor savings of $4.6 million per year, the payback on Me investment was 4 months. In its 1974 annual report, Black & Decker published its assessment of TABLE 4 Comparison of Labor and Capital Requirements for Electric Motor Production, 1972 and 1976 Volumes, Old and New Designs 1972 Volume 1976 Volume Workers required Old design 242 596 New design 86 171 Annual labor cost Old design $2,700,000 $6,400,000 New design $ 900,000 $1,800,000 Annual labor savings 51,800,000 $4,600,000 Capital costa Old design $1,300,000 $3,000,000 New design $2,300,000 $4,600,000 Capital cost difference $1,000,000 $1,600,000 Payback 1.25 years 4 months . aIncludes floor space at $201sq. ft.

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58 Baslc Drill Price (U.S.) . :: ~.:~::~, tS18.95? :..' 19!;8 1973 talc Jig Saw Price (U.S.) ~-50 ,i.:. .... ,:::::; ,.~" :: . 1958 1973 ALVIN P. LFHNERD Baslc Sander PrIce (U.S.) 5~ 1958 1973 Baslc Circular Saw Price (IJ.S.) ::::.:::: .~ S69.50 .~ 1958 1973 FIGURE 6 PriCes, 1958 and 1973, Of TOUT basic hand power tools. Me effect of dais project on four basic power tools (Figure 61. In current dollars, Black & Decker's power drills, for example, were $10 cheaper in 1973 than Hey were in 1958. Figure 7 shows substantial reductions in the real cost of Black & Decker's products. The constant~ollar cost of products A, B. and C dropped by 47, 62, and 5S percent, respectively. The company was able to produce each product at an almost constant current dollar cost despite steady in- flation in materials and labor costs. For Black ~ Decker's pricing position in the marketplace, We relevant comparison is between the top two lines on each graph, which show the difference, in current dollars between manufacturing costs wig and without Double Insulation. Increased Vertical Integration The cost and value leadership permitted unprecedented low prices to the consumers and thereby expanded Black & Decker's market share and increased household penetrations of power tools. The expanded volume resulted in opportunities for cost-effective vertical integrations. Examples include:

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RE: VITALIZING MANUFAC7UR~ AND DESIGN 59 Use of plastic materials grew from thousands of pounds per year to millions of pounds per year. Black & Decker's molding facilities were able to justify railcar bunk shipment of uncolored plastics resulting in a cost advantage of 5, 10, and sometimes 15 percent per pound. The coloring of plastic compounds at He molding machine reduced in- ventones, provided instant response to color changes, and eliminated material handing. The standardization of gears, and design revisions that allowed the change to spur gears from bevel gears, permitted the use of gears made from powdered metal. This change eliminated the need for gear cutting and bobbing, heat treating, and gauging. These activities all contributed to high capital cost, high labor cost, and inefficient use of material in production. The volumes were large enough to pelt vertical integration of fabrication of powdered metal gears. Before the Double Insulation program, 29 percent of the total cost of a drill was in the cost of a purchased chuck. Production volumes, again, coupled with a modern state-of-art processing system enabled backward ~ntegrabon into chuck manufacturing at reduced costs of about 40 to 50 percent. Standardization of bearings, switches, cord sets, cartons, fasteners, and so on resulted in component volumes high enough to justify seeking sources on world markets for the best pnce. The "inflation offset" idea proved to be recursive in Cat low production cost permitted low sales pnce, which increased unit sales, fueled vertical integration, and Archer reduced costs. . . Competitive Performance ants Market Share In Be U.S. market, Black & Decker's competitors in consumer power tools were caught absolutely flat-footed. Their product designs and manu- facturing processes were costly, and in an attempt to continue to compete Hey tried to match Black & Decker pnces. This diluted their profitability and collapsed Heir ability to redesign to match Black & Decker. hn the resulting shakeout in the market for consumer power tools, Stanley, Skil, Pet, McGraw Edison, Sunbeam, General Electric, Wen, Thor, Porter Ca- ble, and Rockwell all left He consumer market. Sears Roebuck and Co. was able to stay In the domestic consumer market with Black & Decker. In He European market, consumer power tools were much more ex- pensive because He tool offerings were different. European tool producers provided a power driver in He drill configuration, but all other power tools-sander, circular saw, hedge trimmer were sold as attachments. The availability of new low-cost single-purpose power tools enabled He

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60 ~0 to to cat 1~5 _ 1.0 Cl) o c' 0.5 FIGURE 7(a) 25 2.0 o ~ 1.5 l o 1.0 o FIGS 700) ALVIN A. [FHNERD ,2.46 2.5 - Product A . _ Do Nothing ~ Current S Vs. Standard Cost ~ Current $ Vs. Standard Cost --1967 S Do Noth= - - - Current S 1 1968 1970 1972 1974 YEAR Product E' Do Nothing -- Current S Us. Standard Cost ~ Current S 1s67s vs. Standard Cost --1967 S Do Nothing ~ Gunent~ - - - 1 1 1968 1970 19721974 YEAR ,1.30 1 - - 1 1976 1978 1980 0.53 ~ 2.46 Current S 1 0.94 0.38 1 1976 1978 1980

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R~VITALlZl~G AlANUFACTU~ AND DESIGN 25 2.0 - n ~ 1 It o 1.0 o 0.5 61 Product C Do Nothing ~ Curtsy S VS. Standard Cost ~ Current S _ _ Vs. Standard Cost-1967 S Do Nothing -- Current S_' A ~ ARC . O - / - - Current S _ - - J - - J i' 2.46 ~ 1.12 1976 1978 I ~I 1980 1968 1970 1972 1974 YEAR FIGURE 7(C) FIGURE 7 Product cost trends ~ current dollars with and without Double Insulation and product cost trend win Double Insulation in constant 1967 dollars for three products, 1967-1980. consumer to el~ate the inconvenience and performance compromise of attachment technology. Black &Decker performed well throughout Europe as the new tools both greatly expanded Black & Decker's market share and increased household penetration. Impact on New Product Development Another benefit of Black & Decker's efforts was a substantially improved ability In product development. As new product concepts emerged, much of He work in design and tooling was eliminated because of Be stand- ardizabon of motors, bearings, switches, gears, cord sets, and fasteners. Design and tooling engineers working on a new product had only to concern themselves with Be "business end" of Be product and to perfect its intended function. New designs could be developed using components already

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62 ALVI]VP. HERD standardized for manufacturability. The product did not have to start win a blank sheet of paper and be designed from scratch. As products reached their maturity and had to be dropped, massive write-offs and scrapping of tools and equipment were avoided because Here were few special-purpose tools or equipment. This flexibility allowed marketers and managers to pivot quickly and avoid being tied to a dying product because they could not afford the wnte-offs. In short, me pace of new product development and product retirement was greatly accelerated. Products could be introduced, exploited, and phased out with minimal expense related specifically to Be decision to develop or retire a product. SUMMARY AND CONCLUSIONS In accomplishing the dramatic cost reductions though the Double In- sulation program, the attitudes of the management were extremely im- portant. Black & Decker management had a target of 15 percent compounded growth rate, and they wanted to remain independent and to service world markets. To do these things, the management focused not on marketing or financial manipulation, but on cost and value leadership in the industry. The management, as a team, projected how a successful program of this type could affect the marketplace and had the courage and tenacity to see it through. Black & Decker was also fortunate in having a large amount of latent talent: Many ordinary people proved capable of performing ex- traordinary tasks. Win pricing and promotional strategies, the corporation was able to provide enough grown with the product improvements to avoid either reductions or expansions of its labor force. Black & Decked experience with the Double Insulation program shows the potential benefit of aggressively evaluating Be design and production of "mature" manufactured products. Considered in relation to developed global markets, advances in matenals and manufac~.ng processes provide opportunities for redesigning products to decrease the cost and increase Be quality of manufactured goods. Although Be success Cat Black & Decker had with power tools may not be replicated in over industries, the principle of redesign and retooling for cost and value leadership In global markets can provide a focus for other manufacturing firms. It is a valid approach to achieving global competitiveness in manufac~nng. By this means, U.S. films can design, develop, and manufacture world-class products in the United States and at the same time achieve leadership in product value.

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REVITALIZING MANUFACTURE AND DESIGNS 63 APPENDIX Competitor Analysis by Sunbeam Appliance Company ~ 1982 Sunbeam Appliance Company launched a program aimed at capturing at least 30 percent of Me worldwide market share for the steam/ Try iron In markets they wished to participate in. The first step was to assess global production capabilities and me~ods. Sunbeam obtained samples of competitive products from around the world for analysis of materials and labor content estimated in time, not dollars. Components were reviewed and estimates of production costs were developed for aD Of the designs. After this material was puBed together, project management convened a 2-day review for Sunbeam engineers from Australia, Germany, England, Canada, Mexico, and Me United States to tank over what had been uncovered In this global product evaluation. That analysis revealed some interesting aspects of Me design and man- ufacture of steam/dry irons around die world. The number of parts used In the product ranged from a high of 147 parts to a low of 74 parts. The number of fasteners ranged from 30 to 16, and We number of fastener types In tony one design ranged from 15 to 9. Sunbeam's existing product used 97 parts win 18 fasteners in 10 configurations. Reducing the cost Of blat design, incorporating evening learned from composite design, yielded a design which had 73 parts, 13 fasteners, 7 types. Design Engiwing DrNes Down Part Count 80 70 - - o 60 _~:B1 50 ( 40 .~ 3.50 4.00 4.50 {;.00 5~50 6.00 MATERIAL & LABOR COST (S) Part Count Cost A ~73 5.38 A2 68 4.58 B 5.59 B 4.44 C 74 3.93 .. ,., i . ~... ..... . :. A3 .:. 52 ~ 3.75 ................... ~ Design ~ Process Engineenog Dnve Down LAM Costs 4. V - lea Integration Dnves Down l&M Costs FIGURE A-1 Relationship of part count to material and labor cost per iron.

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64 ALVIN P. HERD To gain a significant share of Me market, however, it was necessary to leapfrog existing products and come up win a design win significantly lower cost and complexity over competitive offenrlgs. Such a design was developed, win 51 parts and 3 fasteners in 2 configurations. Figure A-1 makes We point that diving down the part count also drives down cost. Although reducing the part count entails a considerable effort in design engineenng, effective design and process engineering will drive down labor and material costs. The result of that effort was a composite design that would be Me best of ad of Me products collected win attention to what Me product would cost if Me design were used throughout Me world and compatibility were maintained. The new design is substantially cheaper to produce clan either Of Sunbeam's existing designs. The product was launched in 1986.