What does the future hold for U.S. manufacturing companies? In the wake of the Sept. 11 attacks and the economic downturn, no one can say for sure. But while it's impossible to predict the exact time when the economy will rebound, history tells us that at some point, it will.

But even in times of economic trouble, some manufacturers continue to thrive. Learning lessons from these companies, in both good and bad economic conditions, can be beneficial for the long-term health of your business.

That said, an economic upturn does not guarantee success for North American manufacturers. They must confront wildly unpredictable markets and intense global competition. Relationships with customers and suppliers are changing, and the challenges of recruit-ing, training, and holding employees have never been greater.

Lifelong learning is now the norm, and Web-based distance learning is rapidly becoming the standard method of keeping employees up to date - whether they are senior managers or assembly-line workers. None of these trends in manufacturing is new.

But all of them are gaining in importance as the pace of manufacturing increases and the cost of mismanagement rises.

Energy prices are declining, cutting the costs of manufacturing and shipping goods. Second, and better known, the Federal Reserve shows no signs - as of October - that it intends to back away from its aggressive monetary policy. Even after interest rate reductions of more than 2.75 percent, the Fed seems committed to

further rate reductions. Finally, the new, across-the-board income tax cut promises to spur consumer demand, further setting the stage for recovery.

The economic indicator most directly related to manufacturing is the inventory-to-sales ratio, a measure of the amount of excess inventory on hand. The ratio dropped from a very high 1.5 in 1999 to a modest 1.33 earlier this year, according to Census Bureau figures.

Businesses had overbuilt their stock of goods to years ago, and production slowed down. Now, with the inventory selling off, plants will need to go back online.

Good management is still a must

Of course, all of the optimism in the world does not guarantee a recovery. Companies must develop a strategy to exploit even the best of economic times. One manufacturer that faced a sudden and disastrous downturn in its sector chose to radically restructure itself. Not only has it weathered the downturn, it has also positioned itself to capitalize on the coming economic upturn.

Early in the summer of 2000, French telecom giant Alcatel made headlines when it announced it would sell off manufacturing plants around the world, lay off tens of thousands of workers, and develop new strategies as a company that manufactures few of its own products.

The radical restructuring measure cut costs, of course. But more importantly, it aimed to create a new, more flexible company that could buffer the shocks of economic downturns, respond quickly to changes in the market, and ramp up in a hurry when business gets better.

In other words, Alcatel, a multinational company burdened with high capital investments, limbered up and slimmed down.

That may be the only way to survive in an increasingly volatile business climate.

For the smaller companies who are buying up the factories, Alcatel's divestment strategies spell opportunity. They hire the plant's skilled workers, go to the head of the line when bidding on Alcatel's outsourcing contracts, and remain free to work for their customer's competitors.

The buyers' biggest challenge is a familiar one: reacting quickly to changing market conditions and delivering high-quality goods on time. Many of the factors likely to influence manufacturers' expansion decisions in the next few years shaped strategic moves on both sides of the Alcatel deals. First a look from the Alcatel perspective:

 Increased productivity. At Alcatel, the number of workers required to produce 100 mobile base stations has dropped from 19 to 4 since 1997. Even without an economic slowdown, workers are idled by increased technological efficiency. Outsourcing manufacturing outsources the challenge of keeping workers busy.

 Greater investment in research and development. Even as manufacturing becomes more efficient, R&D presents greater challenges. Alcatel found itself hiring engineers even as it faced idling manufacturing workers. Engineering proved to be closer to the core business.

 Abrupt, unpredictable market changes. The bottom can fall out of an industry faster than ever before. And with less warning. The company can react fastest when it has less fixed capital. Idling a plant is more expensive than canceling an order. Placing an order is cheaper than retooling a factory.

 Spreading out across industries. By selling manufacturing sites to companies that service other industries - in Alcatel's case, automotive, medical, and consumer electronics - the company shelters its manufacturing base from downturns in specific industries.

All of these factors contributed to Alcatel divestment deals as early as January 2000, well

before the downturn in the telecom industry approached a low point. At that time, Alcatel sold off plants to trusted outsourcing partners.

Solectron bought a plant in Aguadilla, Puerto Rico, while Sanmina took over a facility in Clinton, NC. Don't imagine for a moment that Alcatel diminished its access to manufacturing capacity.

At the time, Krish Prabhu, Alcatel's COO and CEO of Alcatel USA, explained the reasons behind the sale.

"This strategic initiative will allow us to better direct and leverage our internal resources, while continuing to provide Alcatel's existing businesses with world-class manufacturing and test services," said Prabhu.

Nimble companies pounce on opportunities

From the perspective of Solectron and Sanmina, who hired Alcatel workers and picked up Alcatel's outsourcing orders, the deal presented few risks. Sanmina did another deal with Alcatel in July 2001, when it purchased an optical switching plant in Richardson, TX.

Hari Pillai, Sanmina's executive vice president for electronics manufacturing in North America, lists four advantages that read like the "Desiderata" for expanding any manufacturing company.

 New Products: Taking over the plant enabled Sanmina to pick up additional technical innovations in the areas of optical switching and transmission.

 Skilled Workers: The opportunity to hire a large number of skilled manufacturing employees was too good to pass up.

 Relationship with Customer: By acquiring the Richardson plant, Sanmina further solidified its status as a preferred supplier to Alcatel.

 Strategic Location: The Texas Telecom Corridor, from Plano to Richardson, is home not only to big players like Alcatel but also to many startups incubated at the University of Texas. This is a desirable location, not merely for its proximity to customers, but as a base for recruiting talent.

"Big manufacturing will outsource to regions," said Thomas Vass, a corporate investment advisor based in Raleigh, NC. "Certain regions have a core competency that is rooted in its culture."

If Texas is a high-tech, electronics culture driven in part by Dell Computer and the strong Texas university system, some parts of the South are becoming known for automobile parts manufacturing, a competency that Vass believes is rooted in NASCAR.

"The important thing to understand is what skills exist in an area," said Vass. "The goal is to outsource into a nexus of affiliations and absorb the cultural knowledge of a certain area."

Work force remains a key

Once a company has moved - or outsourced - its facilities to a particular region, the next challenge is developing and training a work force. Even the most gifted and experienced workers need to be trained in new methods and - sometimes more important - be taught the values and "culture" of a company.

For many companies, online learning is the tool of choice. IBM, considered by many to be the world leader in online corporate e-learning, has provided online training for more than 200,000 employees worldwide.

In 2000, IBM moved 36 percent of its employee training to an online environment, resulting in a savings of $350 million. IBM estimates that for every 1,000 classroom days converted to distance learning, more than $400,000 in costs can be avoided.

Among the programs that IBM has instituted is One Voice. Some 37,000 new IBM hires (including nonmanagers) each year attend this employee orientation program, which utilizes distributed learning technology.

As companies become less concentrated in single locations - and especially in cases when the same product or component is manufactured in two or more different locations - distance learning is likely to become the standard method of training workers.

However a company decides to distribute its manufacturing base, the most important ingredients for success are likely to be technological change and strength of relationships to the customer.

First, as Vass points out, the goal is not merely to make a product faster and cheaper, it is to do so with little fixed overhead, so that few residual costs endure if the component or its end-product is canceled. Second, since most competitors will quickly learn to duplicate most products - often at the same or lower cost - another element of the supplier-customer relationship will come into play: Trust.

Once again, this is nothing new. But in a rapidly changing, highly volatile environment, there may be nothing more important than knowing and respecting your partner.

Ron Feemster is a freelance writer from New York.

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