The discomfort zone

Two executives at Sony Technology Center-Pittsburgh wrap up the challenge that a lot of U.S. manufacturers face and what might be part of the answer to quelling the loss of manufacturing to off-shore competitors.

“You can’t make a $29 DVD player in Pittsburgh,” says Bill Hanna, vice president of operations at Sony Technology Center-Pittsburgh, explaining the quandary that faces manufacturers in the United States that are trying to make commodity items and compete with global competitors.

“But you can make innovative medical devices here, where the intellectual capital behind them resides,” says Wyman Lee, the plant’s vice president of human resources.

The news lately for U.S. manufacturers has mostly been grim. Competing with low-wage workers in China and elsewhere is tough, and finding workers with the skills to perform the tasks required in today’s advanced manufacturing environment remains difficult, even in a soft economy. At Sony Pittsburgh, however, it seems they’ve found a way to make the numbers work, in no small part by continually moving forward to manufacture among the most sophisticated products in Sony’s portfolio. That success has meant a cumulative investment of $760 million and employment for 2,700 full-time workers and as many as 1,000 additional employees during its peak production season.

Rabbit runs

When Volkswagen decided to build an auto assembly plant in Westmoreland County just a few miles from the New Stanton exchange on the Pennsylvania Turnpike, it was lauded as a boon for the sluggish Western Pennsylvania economy and the welcome appearance of a modern manufacturing operation in a region where so many had disappeared. But in 1988, a decade after the plant rolled out its first Rabbit, Volkswagen, plagued by product reliability problems, labor unrest and a changing market in the United States that had come to favor larger cars, folded its tent and left.

Volkswagen turned out just three models at the plant over the 10 years it built cars there and used few domestically produced parts. Contrast Volkswagen’s record with that of Sony Pittsburgh, which began TV set production there in 1992. Sony Pittsburgh has added TV technologies to its portfolio, developed a partnership with another company to manufacture glass components for its TVs and attracted a Sony Chemicals plant to the site. Sony Logistics America operates there, as does Pittsburgh Refurbishment Operation, a facility that reconditions and repairs consumer electronics products and cable set-top boxes.

Building TVs and assembling cars may not be directly comparable activities, but there is little doubt that Sony Pittsburgh’s entrepreneurial approach to doing business is one key reason that the plant, in large measure, has fulfilled the promise that eluded the grasp of Volkswagen.

Chuck Gregory, Sony Pittsburgh’s CEO, says the operation competes not only with traditional rivals like Panasonic, Hitachi and Toshiba, but it is going head-to-head with new entries into its market – and with Sony itself.

“We have new competitors; Gateway, Hewlett Packard are now getting into the fray, but we have other competitors, too, other Sony plants,” says Gregory.

Sony Pittsburgh’s aim is not to be the largest, necessarily, but an operation that can be at the top of the technology pyramid, commercializing new products early and then turning over the production of the perfected products to other Sony operations.

“The strategy that we have right now is generally, we introduce new products here that tend to be a little technologically innovative, maybe need a little higher engineering effort, a little more skilled work force to put together,” says Hanna. “As these products mature, as we fix some of the issues, some of that production is transferred to Mexico. So really, our role has changed somewhat from being a huge volume manufacturer to less in volume than what we had several years ago, but bringing in the new technology.”

Gregory says it has been critical to advance to succeeding levels of technology to stay at the head of the pack. Sony Pittsburgh still produces sets that employ cathode ray tubes, the longstanding technology used in TV sets. But it has moved on to new generations of TV technology that promise to dominate the market in the future.

“CRT televisions now are almost nonexistent in Japan,” says Gregory. “In Japan, they’ve gone to LCD (liquid crystal display) and plasma (screens), so in the United States, we’re not so far along … but obviously, the technology is evolving from CRT to LCD and plasma. There are some other technologies out there right now, and our challenge is to try to get new technology here.”

In 1999, Sony Pittsburgh began producing Sony’s Grand Wega line, the company’s first high-definition projection television.

In 2002, the manufacture of 50- and 60-inch LCD televisions began, and last year, two more large screen models were added to the line.

The challenges

Sony Pittsburgh faces global competition, including from two Sony TV assembly plants in Mexico and another in San Diego. With wages in Asia and other regions at a fraction of what they are in the United States, Sony’s domestic plants can’t compete with off-shore manufacturers on labor costs.

“We still have to be competitive, and even though we can’t be competitive on the labor rates, we take quite a bit of initiative to bring innovative things in terms of processes here and to change our cost structure,” says Lee.

At Sony Pittsburgh, remaining competitive doesn’t rely on a few large advantages but rather on an aggregation of many factors. For instance, the plant drilled a gas well on its premises that provides about a quarter of its energy needs. It builds the aperture grille for its TV sets, a key component for the Trinitron TV technology, on site rather than importing it from another Sony facility.

The accounting operation has been centralized by Sony, reducing costs at its individual locations. Purchasers look for ways to trim costs on even the smallest of items. To cut the cost of a circuit board, for instance, it switched to a supplier in Mexico from one in Japan to cut shipping costs.

Inherent strengths

Gregory points out that the site — 650 acres and 3.8 million square feet under roof — offers advantages that others may not enjoy. The available land allowed it to attract American Video Glass Co., a partnership between Sony and Corning Asahi Corp., to the site in 1995. The facility, which lies across the road from the TV plant, makes glass components for CRTs and TV screen glass, an obvious advantage over shipping the parts from a remote location.

Close to the Pennsylvania Turnpike, the TV plant and other facilities on the campus allow ready access for vendors, suppliers and workers. The available real estate could also be a factor in drawing operations to Sony Pittsburgh as Sony restructures its worldwide operations for efficiency.

“We have some advantages, like our location,” says Gregory. “Sixty percent of the television market in the U.S. is east of the Mississippi.”

Gregory credits Sony Pittsburgh’s work force with helping the facility to turn out the sophisticated products that keep it at the top of the heap. Smooth labor relations at the plant are in contrast to Volkswagen’s troubled time with labor during its tenure at the facility. Gregory maintains a 24-hour telephone hotline that employees can call to voice their concerns, and a network of TV screens throughout the facility communicates company news and information to all employees. And Gregory cites cooperative state and local government officials who have paved the way from the beginning for the plant to open and expand.

But a near-relentless pursuit of quality, cost reduction and efficiency squeezes out the additional advantages that Sony Pittsburgh needs to remain competitive. It’s all about efficiency, Hanna says; finding closer suppliers to reduce shipping costs and lead time, and rearranging shifts and departments to meet emerging needs.

“Sony’s always had the thought that manufacturing ought to be close to the marketplace,” says Gregory.

Look at the location map of Sony Pittsburgh’s network of suppliers, and it becomes clear how Sony’s philosophy of manufacturing close to the market and its emphasis on cost reduction affects the regional economy. All of the mechanical parts used in the CRT rear projection sets are secured from suppliers in the United States. Of the plant’s 1,300 suppliers, nearly all are within a 300-mile radius. The largest concentration, is, in fact, is Western Pennsylvania.

One example of Sony’s ability to attract suppliers is the decision by Kyowa Corp., a Japanese manufacturer of plastic components, to build a plant in Waynesburg in Greene County, largely to be able to supply the TV plant.

Ultimately, the race to remain competitive never ceases. Staying at the top for Sony, says Gregory, means never resting or being satisfied with where the company stands and always staying alert for the next opportunity to cut costs, increase quality, achieve higher productivity or add a product or service.

Says Gregory: “In manufacturing, you always have to be uncomfortable. If you’re comfortable, maybe you’re not doing your job.” How to reach: Sony