Leonhardt Manufacturing focuses on people, processes to produce success

Bob Jacobs knows a lot about the power of focus in manufacturing - focusing on the right things for the long term.

Jacobs is president and chief executive officer of Leonhardt Manufacturing in Hanover, a tube-bending tool and die company that has grown from one person in 1970 (Hans Leonhardt, the founder) to around 90 today. It completed its best fiscal year ever in July. Leonhardt makes chrome-plated and specialty painted tubular parts for the motorcycle, recreational vehicle, construction and home and garden industries.

In April, aiming to ensure its future as a locally owned, Hanover-based business, Leonhardt's three owners (Peter and Hans Jr., the founder's two sons, and Jacobs) sold 70 percent of the company to its employees under an employee stock ownership plan (ESOP). Training and continued support by the management team will be needed to ensure that the business model they have been building so successfully will continue.

Yet much has been accomplished in a turnaround that began when Jacobs arrived at Leonhardt in 2000. He brought extensive experience at plants that supplied both U.S. and Japanese automakers. He prefers the collaborative Japanese approach to manufacturing and introduced it at Leonhardt.

Factors including outsourcing overseas, rising costs of materials and shortages of skilled workers make this a turbulent time for manufacturing. "You need to be excellent in this day and age," Jacobs says in explaining Leonhardt's core purpose - "to enhance the lives of our employee owners through excellence in manufacturing."

Jacobs' approach (a variant of lean manufacturing) is to focus on people and processes. When he was hired at Leonhardt, he told Hans Leonhardt's two sons, "If you're looking for someone to squeeze the last 1 percent of profit out of the company, you I you've got the wrong guy." Success, he feels, includes a good quality of life for a company's workers, which ultimately adds to its net worth. So Leonhardt has a wellness program for its employees, among other benefits.

On the process side, Jacobs advises that an efficient factory starts with a clean, well-ordered workplace, then adopts - and keeps improving - standard methods of production. Jacobs describes Leonhardt as a "visual factory' with everything, including where the staplers go, clearly labeled and colorcoded. (Blue for raw materials, green for work in process, red for rejects.) The workers are trained in visual-control methods, like Kanban, a production system using cards to signal the need for an item.

Leonhardt also works relentlessly at controlling its inventory of parts and materials, at turning inventory over faster relative to sales.

Where you focus matters a lot, Jacobs says. U.S. auto companies focused on finance and marketing while the Japanese stayed focused on building cars. And the Japanese understood that a product's quality is determined at each stage of production within a well-conceived overall system.

In dealing with their suppliers, the Japanese auto companies considered the selling price a given and selling price minus costs equals profit. "But they would actually work with you on getting costs down, on designing to take costs out of things."

"The first Japanese words I ever learned," Jacobs says, smiling, "were 'costa reduction."'

By contrast, relations between the U.S. car makers and their suppliers were tense. Too often, "You're wrong, we're right" was how it would go, Jacobs says.

Jacobs discussed the challenges he sees in manufacturing today. Training to ensure the capacities of a plant's work force is a big concern at Leonhardt. Faced with a chronic shortage of welders, the company has an apprenticeship program to help increase its supply. But Jacobs is dismayed by an apparent lack of interest in manufacturing careers in today's high-school students. When students visit the plant, it's hard to catch and hold their attention, he's found.

Leonhardt seeks to make working at the plant as engaging as possible, especially since the workers are now its majority owners. (An ESOP operates in much the same way as a pension plan. Workers don't become fully vested until they have been on the job five years and can't cash in until they leave.)

The idea is to have people aligned for a common purpose. Leonhardt doesn't use elaborate merit pay or pay-forperformance plans. "We would rather have an open and free environment for ideas, and it breeds discontent when one group is rewarded over another."

Instead, the company relies on wage surveys of market rates in various classifications and adds "a little above that," based on supervisors' evaluations. "I've never yet found a perfect wage structure," Jacobs says.

He'd rather take a group to lunch or bring pizza in. When the company had record sales in August, Jacobs gave everybody a $50 bill. He can't do that too often, though, with the employees as owners, as they begin to realize their stake in the company's earnings in firsthand terms.

At a company party held in April to announce the switch to employee ownership, Jacobs found himself saying to the happy attendees, "I hope you're enjoying this because you're paying for it."

Helping employees understand the implications of owning the company is a challenge at Leonhardt. Training is coming up on that, too. "What are sales?" Jacobs asks. "People think sales are profits, and we have to explain the difference."

"It's not enough for an employee to know, 'I own the company.' He naturally wants to know, 'What's in it for me?' and we have to explain how that works."

Leonhardt is an example of a company that espouses the need to pay attention to people and processes and actually has a consistent approach to both. It meets the needs of its people and manage processes to make them efficient. How do you pay attention to your people and processes?