The threat to Dortec Industries at the turn of the century could be summed up in one word: China.
The Magna International Inc. plant in Newmarket, Ont., had been around since 1985, making door latches for cars, trucks and minivans. Latches take a lot of work to put together, they're easy to package and can be easily shipped anywhere around the world, so Magna's customers wanted the Canadian auto parts giant to open a plant in China to keep costs in check.
Magna complied with the requests and opened a latch plant in Kunshan in 2001. But it kept Dortec open as well. The boom in North American auto production in the first half of the 2000s ensured there was enough work to go around, and the plant was even able to generate higher profits than the average Magna factory.
By 2006, however, the business was being battered by soaring commodity prices and demands by the auto makers for price cuts. Executives at Magna Closures Inc., which oversees both the Newmarket and China operations, turned for help to a retired Toyota Motor Corp. vice-president to teach the company how to develop a first-rate manufacturing system.
Seven years later, Dortec is at the head of the class. It is also defying the notion that low-cost countries have sounded the death knell for manufacturing in Canada – so much so that side-door latches assembled in Newmarket are shipped from "high-cost" Canada to auto makers in China, Thailand and other low-cost regions.
Its turnaround holds lessons for other Magna plants as the company puts its so-called world-class manufacturing system in place at more than 300 auto parts plants around the world. Dortec is the plant Magna points to any time a chorus of "Canada can't compete" breaks out. But the factory is also a beacon for other Canadian manufacturers that are struggling to stay competitive as they contend with a high dollar and globalization. At stake are 1.5 million jobs and the billions of dollars those jobs contribute to the economy annually.
"If you're efficient, if you're world class, you can compete and your customers will want to use you in high-cost countries to supply their product," says Frank Seguin, president of Magna Closures.
A visit to Newmarket last December by Benson Wong, the China plant manager, showed just how far Dortec has come.
"He came over to here to benchmark and he saw a latch going together every 3.2 seconds and he says 'I'm in trouble,' " recalls John O'Hara, vice-president of North American operations for Magna Closures. "He left here thinking: 'I've got some work to do.' "
To succeed in the way that Dortec has, manufacturers need to focus intently on the design of their products, integrate information technology into all aspects of their manufacturing and harness the knowledge of their employees, says David Wolfe, a University of Toronto public and economic policy professor. "It's critical if they want to survive," Prof. Wolfe says.
All those elements are part of Magna's system, which borrows heavily from the fabled Toyota production system, with its emphasis on lean manufacturing, elimination of waste and relentless focus on quality.
Upgrading all Magna operations to meet world-class manufacturing standards represents a key pillar underpinning the company's future in the hyper-competitive auto parts business. "Our vision is to be the best manufacturing company in the world in all the operations we have," Magna chief executive officer Don Walker says in an interview in Dortec's conference room, where one wall is lined with the various types of latches Dortec employees put together.
"Ultimately ... if we're not going to be the best, we won't be successful as a company."
The Toyota influence
A door latch is among the many unglamorous components of a car that drivers and passengers never see. But a single latch can contain up to 80 individual parts and they have become more complex in recent years with the proliferation of power sliding doors on minivans and power liftgates on minivans and crossovers.
"They're very, very critical and highly engineered," Mr. Seguin says.
Magna never discloses publicly the costs of the thousands of parts it sells to auto makers, but on such a small component as door latches, reducing that cost by even a penny makes a big difference. Taking one second out of the time it takes to assemble them also matters. That's where Yasumasa Sano, the retired Toyota vice-president, comes in. When the Magna Closures executives began to look at the operation in 2006 – before the near collapse of the auto industry in 2008 – Mr. Sano would visit Dortec every three months, giving advice on how to improve quality and put lean manufacturing techniques in place.
Dortec is a fairly typical auto parts plant inside, although its bright lights and cleanliness distinguish it from many other factories in Ontario's manufacturing heartland. That's one of the more obvious influences of the Toyota production system. During a recent 45-minute tour of the factory, Mr. O'Hara, Mr. Seguin and other Magna Closures executives explained how the rest of it played out.
Assembly lines were shortened. On some lines, several workstations were combined into one to reduce the amount of time it takes to create a latch.
There are no motorized forklift trucks – in part because it permits narrow aisles between assembly cells, which reduces the amount of wasted floor space and enables it to be used for new machinery.
All the employees were empowered to stop assembly lines if they spotted a quality problem.
The plant established standard practices "so that we produce the same product the same way across multiple shifts or multiple lines," Mr. O'Hara says.
Quality improved by 60 per cent, capital spending on new projects fell by 20 per cent and the changes cut the amount of floor space being used by 15 per cent.
The plant was one of the few Magna operations that remained profitable through what became a perfect storm for the company and the auto industry as a whole, as North American vehicle production plunged to 8.7 million in 2008, less than half the peak hit in 2000. Dortec's ability to stay profitable "was a sign that we got it before it was too late," Mr. O'Hara adds.
But the slump also brought lessons, teaching executives that buying flexible equipment is essential so that when orders fall because a customer cuts production, the plant doesn't have to keep cranking out latches to keep expensive machinery in use. Continuing to produce parts so that equipment isn't sitting idle creates excess inventory, one of the cardinal sins in Toyota's manufacturing ethos.
The workers buy in
Magna also adopted another element of the Toyota production system for use in its world-class manufacturing program – employee suggestions. In 2009, employees offered 27 suggestions to streamline production processes, improve ergonomics or eliminate waste.
By last year, that number had grown 17-fold to 473 ideas – more than 98 per cent of the workers on the factory floor had contributed. For example, workers suggested reducing the size of some of the racks next to an assembly line so less material has to be stored there, opening up floor space for other use.
There are monetary rewards for suggestions, a policy that catches the attention of Prof. Wolfe. "When you give [employees] a greater stake in how the organization is working, the results always reflect it," he says.
After all the changes, Dortec has increased productivity by 25 per cent since 2006, even though auto production is still far from pre-recession levels.
The numbers highlight that the plant has become world class, but when asked how he knows it, Mr. O'Hara points to a change in attitude that can't be quantified: "When people stop talking about how good they are and how good we are and just look at what needs to be done next. How do we continually improve?"
The world-class manufacturing project is one of three critical priorities at Magna, Mr. Walker says. The others are innovation and a leadership development system that seeks to identify the company's best people. And while he believes everyone in the company is convinced of the need for continuous improvement, Magna as a whole is about halfway to where he wants it to be.
The Magna Closures executives say the streamlined production system will have a dramatic impact in reducing costs and improving efficiency at other divisions that make much larger parts, such as Cosma International Inc., Magna's metal-bashing subsidiary that makes frames and chassis components and the division that makes engine and transmission parts.
And Mr. Walker has kicked off a program to examine every action taken at the company's head office in Aurora, Ont., studying why activities are done, whether they can be done more efficiently and if overhead costs can be cut. "At the end of the day, we're paid by our customers to make parts," he says. "We're not paid to run any office anywhere, so really all value added comes from the shop floor."