## Bamboo Innovator R .E.S.

­ ilience in Value Creation 《竹 经 : 经 商

经

世离不得立根 创

新》 

# America’s Toilet Turnaround Is a Microcosm of US Manufacturing Trends; After Years of Moving Work Overseas, Remaining Factories Ramp Up U.S. Output SEPTEMBER 25, 2013 LEAVE A COMMENT (HTTP://BAMBOOINNOVATOR.COM/2013/09/25/AMERICAS ­ TOILET TURNAROUND ­ IS ­ A ­ MICROCOSM ­ OF ­ US ­ MANUFACTURING ­ TRENDS ­ AFTER ­ YEARS ­ OF ­ MOVING ­ WORK­ OVERSEAS REMAINING ­ FACTORIES ­ RAMP ­ UP ­ U ­ S ­ OUTPUT/#RESPOND) Updated September 24, 2013, 7:30 p.m. ET America’s Toilet Turnaround After Years of Moving WorkOverseas, Remaining Factories Ramp Up U.S. Output JAMES R. HAGERTY (http ://topics.wsj.com/person/A/biography/1361) PERRYSVILLE, Ohio—In previous management jobs, Jim Morando watched Chinese imports engulf the U.S. market for vinyl tiles, wood flooring and window blinds. Now, as president of Mansfi eld Plumbing Products, a toilet manufacturer here, Mr. Morando says he has decided to “stand and fight.” After decades of losingout to foreign rivals, U.S. manufacturing of toilets is makin g a surprising, if modest, comeback—mostly un der foreign ownership. Mansfield Plumbing, owned since 2004 by Organizacion Corona of Colombia, is spending $9 million to expand the capacity of its Perrysville plant by nearly 50%. Another toilet maker, Toto (http://online.wsj.com/public/quotes/main.html?type=djn&symb ol=5332.TO) Ltd. 5332.TO ­ 0.51% (http://online.wsj.com/public/quotes/main. html?type=djn&symbol=5332.TO?mod=inlineTicker) of Japan, is installing new casting machinery to raise capacity at its Morrow, Ga., plant about 5%. AmericanStandard Brands, bought ea rlier this year by Lixil (http://online.wsj.com/public/quotes/main.html?type=djn&symb ol=5938.TO) Corp.5938.TO ­ 1.62% (http://online.wsj.com/public/quotes/main.html?type=djn&symbol=5938.TO?mod=inlineTicker) of Japan, is installing a new kiln and refurbishing other parts of its Nevada, Mo., plant, boosting ca pacity 5% to 10%. The toilet turn around is a microcosm of U.S. manufacturing trends.“The days of chasing cheap labor around th e world are coming to an end,” said William Strang, who heads the operations division for Toto in the Americas. Toto is reducing trans­ Pacific shipments and relying more on U.S. and Mexican plants for its sales in North America. Making toilets requires lots of manual labor—”very much like making pottery,” as one industry executive puts it. That is why mo st production moved over the past two decades to lower ­ cost countries, mostly China and Mexico. The work is demanding, requiring muscles to lift bowls and tanks, as well as a delicate touch to smooth surfaces. “You need the strength of a football playerand the hands of a sculptor,” Manfield’s Mr. Morando said as workers in muscle shir ts hoisted newly baked porcelain on a recent afternoon. Three ­ quarters of the 10.6 million reside ntial and commercial toilets sold in the U.S. la st year were imports, estimates Victor Post, vice president of GMP Research Inc., a re search firm based in Mount Pleasant, S.C. There are just seven toilet plants in the U.S. toda y, down from 48 in the late 1970s, Mr. Morando said. Much of that capacity may never return, but industry executives no w see U.S. production as a viable alternative. Even if they d on’t build new plants in the U.S., they are more inclined to add capaci ty in nearby Mexico rather than in China so they can reduce shipping times. Inaddition, ocean­ shipping costs and Chinese wages have risen, making production there less attractive. The biggest U.S. toilet suppliers are KohlerCo., with an estimated 24% of the U.S. market, followed by American Standard, 18%; Toto, 9%, and Mansfield, 8%, according to GMP.Kohler has kept three U.S. toilet plants—i n Kohler, Wis.; Brownsville, Texas, and Spar tanburg, S.C.—and runs a large plant in Monterrey, Mexico. Many smaller U.S. suppliers moved all their production outside the U.S. When he arrived at Mansfield in early 2006, Mr. Morando said, th e factory in Perrysville was “on the ropes,” with production co sts about 20% above Chinese imports. But Mr. Morando wanted to keep production in the U.S. That woul d allow the company to differenti ate itself by stressing its abi lity to get products to customers faster, respond quickly to changes inconsumer preferences, and offer a “Made in U.S.A” label, whi ch Mr. Morando believes is increasingly appealing. To cut costs, Mansfield automated administrative processes such as order ­ taking and reduced inventories, among other things. Workers, represented by the International Br otherhood of Teamsters, accepted a wage freeze that lasted until 2012 and shouldere d a larger share of health­ care costs. “We’ve worked together to get them through a rough time,” said Mike Markham, secretary ­ treasurer of the Teamsters local that represents workers. Mansfield employs about 480 people in Perrysv ille, up from 370 four years ago, and expe cts to raise that head count to about 55 0 within six months, Mr. Morando said. In Georgia, Toto has increased automation. New Motoman robots, from Japan’sYaskawa Electric (http://online.wsj.com/public/quotes/main. html?type=djn&symbol =6506.TO) Corp., 6506.TO ­ 1.90% (http://online.wsj.com/public/quotes/main. html?type=djn&symbol=6506.TO?mod=inlineTicker) spray glaze on the toilets, a job done by people in many factories. Those new robots are abou t twice as fast as the previous ones used by Toto. Still, much of the work needs to be done by hand, partly because the clay used to ma ke toilets is fragile during the production process and could easily be damaged by machinery. People don’t need to be reprogrammed every time a style changes slightly. Clay arrives at the plant as powder. Giant blades stir the powder with water into a gray soup, pumped via pipes and hoses into molds. After the clay bowls emerge from the mo lds, workers use sponges to smooth the surfaces. “The human hand is much more sensitive and capable” than a robot for such tasks, Toto’s Mr. Strang said. The workers bond the rim of the toilet to the bowl by hand. A custom ­ made machine gingerly grasps the clay bowl and turns it upside down so workers can inspect the underside. Then a conveyor belt moves the toilets into a drying room, wher e they sweat out excess liquid. After drying, the robots spray o n glaze, a liquid that provides the hard, shiny surface. Then the toilets spend roughly 18 hours baki ng in a kiln at a temperature of 1,800 de grees Fahrenheit. Next come final assemblyand testing. Annie Shannon whacks each newly baked toilet with a wooden mall et. “It should sound like a bell,” said Ms. Shannon, who has worked in the plant for 15 years. If the sound is fl at, there might be a hairline crack in the porcelain. One of her colleagues puts sponges in the new toilets and flushes. Mr. Strang explained: “We want to make sure if we put four sponges in, four come out.” FILED UNDER MACRO TRENDS About bambooinnovator Bamboo Innovator Institute is set up to establish the thought lead ership of resilient value creato rs around the world. KB Kee i s the Managing Editor of the Moat Report Asia (www.moatreport.co m), a research service focused exclusively on highlighting undervalued wide ­ moat businesses in Asia. The Moat Report is developed together with our European partners The Manual of Ideas (www.manualofideas.com), the idea ­ oriented acclaimed monthly rese arch publication for institut ional and private investors. The MRA’s paid ­ subscribers from North Americ a, Europe, the Oceania and Asia include pr ofessional value investors with over $20 b illion in asset under management in equities and savvy private individual investors. KB has presented his thought leadership as a keynote speaker in global invest ing conferences with speakers including famed se rious investors Donald Yacktman, Howard Marks, J ean ­ Marie Eveillard etc. KB has tr ained CEOs, entrepreneurs, CFOs, management ex ecutives in business strategy, macroeconomic and industry trends in Singapore, HK and Ch ina. KB has been rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets. He wa s head of research and fund manager at a Singapore ­based value investment firm since 2002. As a member of the investment committee, he helped the firm’s Asia ­ focused equity funds significantlyoutperform the benchmark index. He was previously the portfolio manager for Asia ­ Pacific equities at Mirae Asset Global Investments, Korea’s largest mutual fund company. He holds a Masters in Finance and degrees in Accountancy and Business Management, summa cum laude, from the Sing apore Management University (SMU). He ha d also taught accounting at the SMU. He had published cutting ­ edge empirical research in the Special Issue of Is tanbul Stock Exchange 25th Year Anniversary of the Bo ğ aziçi Journal, Review of Social and Economic Studies, as well as wrote articles about value in vesting and corporate governance in the media. Blog at WordPress.com . The Enterprise Theme .

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