Part 2 of the WSJ series (Part 1 here) focuses on Viking, the high-end cooktop and grill manufacturer, based in Greenwood Mississippi.
I’m glad that the WSJ is focusing on U.S. manufacturing, but the tone seems to be one of “what’s wrong with these people” or “isn’t that quaint?” The first sentence of the article says:
“Finding it cheaper to produce in Mexico and beyond, many appliance makers have pulled the plug on U.S. factories in recent years. Then there’s Viking Range Corp.”
This mantra that it’s obviously cheaper…. sure, LABOR is definitely cheaper in Mexico and China, but it’s harder to tell about total supply chain costs. I’m sure it usually IS cheaper, overall, but by what margin?
Yesterday’s article, on Bobcat, focused on the VALUE that’s created by being responsive to your customers, in both delivery and design. Cheap cheap cheap, is that the only thing that matters? I’ve heard Toyota people quoted as saying that Lean/TPS is not a “cost cutting” tool, rather it is a “profit maximization” tool (focusing on long-term profit, of course).
One way that Viking can be responsive is by building each range to order. If you’re not familiar with Viking, they are the “Harley” of kitchen cooktops. I love to cook and dream of owning a Viking range someday. As with Harley, it’s a matter of look and style as much as performance.
Viking is one of those rare U.S. brands that have evolved into a cult object. Like Harley-Davidson motorcycles and Martin guitars, these brands have an aura of exclusivity that entitles their producers to charge premium prices — which helps keep their relatively high-cost U.S. manufacturing base viable.
“Price is not our main issue by any stretch of the imagination,” affirms Dale Persons, a Viking spokesman. Viking ranges sell for between $3,000 and $10,000.
$3,000 to $10,000…. that’s why I say “dream” rather than being ready to buy one tomorrow. Again, another example of price being set by the market. Given the high price, in a lean mindset, you set your target profit and drive your cost down accordingly to hit that profit target. The WSJ says that Viking can “afford” to build in the U.S. (high cost) because the market demands a high price. That’s probably true, but it discounts the value of responsiveness yet again.
Beyond the upscale mystique, a big reason Viking can afford to keep expanding its U.S. manufacturing is the way it produces its products. Every stove and other major appliance made in Greenwood is made to order, which means the factories don’t produce it unless there is a customer for it. To be sure, most stoves are ordered by independent distributors, who often keep their own stocks of the fastest-moving items, such as the classic 36-inch, six-burner stainless-steel stove.
This sounds a lot like the Toyota model. You have dealers ordering, so it’s “build to order” but they could probably do some production leveling (heijunka) if they wanted to (nothing is said about that in the article). Viking might operate like Dell, where it’s pure BTO with no real attempt at demand leveling. For Viking, the dealer inventory serves as a bit of a buffer for real customer demand. But, like Toyota, they can still build something purely custom, if you’ll wait:
The system allows Viking to operate without a warehouse of finished appliances, which cuts its costs, while giving it the leeway to respond rapidly to requests for more unusual models, such as a burgundy-colored six-burner range.
Toyota and Dell can both do BTO, but there’s a tradeoff – you might wait six months for a custom Prius while you can get a custom Dell in five days. Dell, without any production leveling, has some higher engrained costs due to the excess capacity (facilities and employees) to be purely responsive to non-level demand.
Either way, I’m glad that Viking is committed to manufacturing in America, for the most part:
Mr. Carl isn’t unrealistic about the limitations of domestic production. Viking has some small appliances, such as blenders, produced for it in Asia. Not only would those be tough to produce competitively in the U.S., but producers in Asia offer the best quality, he says.
The article also points out that Viking has to be concerned about competition or copies coming from China. Even with that competition — lookalike products at cheaper prices, Viking can still compete based on customization, responsiveness, and the mystique of their Harley-like brand.
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