Sorry for the delay in getting to Part 3 in the WSJ series that I like to call, “Hey, We Still Build Stuff Here?” Here are links for parts one and two. Part 3 focused on an Ohio company that hand builds pipe organs, a high labor content business that requires real artists and specialists in organ-making roles:
It takes a worker an average of 30 to 40 painstaking hours of hand labor to bend specially made sheets of soft metal into the 61 pipes in just one of the shorter “ranks,” or rows, of pipes; the seam on each pipe is hand-dabbed with solder.
“Takt time” for the organs is roughly one month, these are very valuable and customized works of art they are building — it's probably more like custom home building (or yacht making) than it is like most of the manufacturing processes we know.
The Journal takes it's usual skeptical tone in the first sentence:
Factories where employees do most of the work by hand aren't supposed to survive in the U.S.
Thanks for your positive tone, WSJ.
It takes four to five years to become a good pipe maker, for instance, while the company's seven “voicers” each spend up to seven years as an apprentice learning how to tune each pipe by hand.
So, WSJ — you expect a company would actually ship this work to China — ignoring the skill and experience of their Ohio workers? So much for “respect for people”, eh?
And the WSJ expects them to ship a pipe organ from a low-wage country??
Proximity alone provides an edge when selling something as bulky as a pipe organ, which essentially has to be built twice: once in the factory and then again on site, when it is reassembled by a team sent from the company. Indeed, the biggest room at Schantz's red-brick factory is the cavernous, three-story “assembly room,” where each organ is put together and tested before being boxed up and shipped out.
But what about the labor cost?
Schantz calculates its labor costs represent just under 57% of its sales of about $8 million — a high percentage that reflects the hands-on nature of the work. By contrast, the average for all U.S. manufacturing, according to an annual survey by the U.S. Census Bureau which looks at labor costs relative to total shipments, is 17%. In some highly automated sectors, such as soybean processing, it is as little as 2%.
57% *is* very high for a manufacturing business. Most manufacturing companies were in the 10-15% range for labor cost — high volume stuff built with automation (like cars) tend to have labor costs at the low end of the scale. So that's one thing that mystifies me and most lean folk: Why are we obsessed with labor cost when it's a particularly small part of our overall costs??? Well, for one, it's easy to compare labor rates…. much harder to compare total cost, which is why I think so many companies blindly move to China or whatever place is the cheapest right now. Sad.
The WSJ tries to explain that the high labor costs cause the high prices for the organs.
Hefty labor bills help explain Schantz's high prices. The company's most elaborate instruments sell for up to $2 million. Schantz also does a brisk business in refurbishing old pipe organs.
WRONG. The market sets the price. This is a point often misunderstood by the media and many businesspeople. Toyota teaches us that companies don't get to set prices based on their costs. You can read more about that here.
It sounds like the employees at Schantz sure are allowed to take pride in their work and their final product.
Throughout the factory, workers take responsibility for an entire chunk of production, rather than breaking tasks up into tiny bits, as is done in most modern plants. A single pipe maker, for example, does an entire rank of pipes. One upshot is that Schantz has no need for a quality-control department, or even a quality inspector. Flubs are easily traced.
So these aren't assembly line products. Again, that should be no surprise considering the product. This article didn't talk about lean and I can't claim that Schantz, the company, is the least bit lean (it takes 4-6 months to build an organ, who knows what percentage of that time is value added.
But the WSJ once again proves it's not that knowledgeable about modern manufacturing when they are surprised there is no “quality control” department. Lean companies don't “inspect in” quality. They build it in from the beginning and people take responsibility for and pride in their work. I hope Schantz continues to be successful for a long time.
Did you like this post? Make sure you don't miss a post or podcast — Subscribe to get notified about posts via email daily or weekly.
Check out my latest book, The Mistakes That Make Us: Cultivating a Culture of Learning and Innovation: