The Assembly Top 50
September 30, 2008
During each stage of the Tour de France bicycle race, a lone cyclist will break away from the pack and ride comfortably in front for dozens of miles. For most of the stage, this rider enjoys much attention and has little competition. Inevitably, however, the rider runs out of steam and gets passed by stronger, faster, wiser opponents.
The story is much the same among the Assembly Top 50. After spending decades comfortably in front of every other product assembler in the world, General Motors Corp. was finally overtaken by Toyota Motor Co. in 2007. Indeed, like a cyclist with fresh legs, Toyota didn’t just pass GM, it blew by the struggling automaker by more than $81 billion in total sales for the past fiscal year.
While GM saw its sales decrease by 12 percent to $181.1 billion in 2007, Toyota’s sales increased 29 percent, from $202.8 billion to $262.3 billion. While Toyota posted a net profit of $17.1 billion in 2007-a 23 percent increase from 2006-GM posted a staggering net loss of $38.7 billion. That’s the largest loss logged by any of the 140 manufacturers we’ve looked at for this study in the past 6 years, and it marks the automaker’s third straight year with a net loss of at least $1 billion.
To determine the impact of product assembly on the U.S. economy, ASSEMBLY magazine ranked the top 50 publicly owned manufacturing companies by gross revenue. To qualify for our list, a company must derive a significant portion of its revenue from products it assembles or that it designs and has assembled by another company. More importantly, a substantial amount of the design and assembly of those products, whether in-house or outsourced, must occur in the United States.
GM’s problems aside, 2007 was a pretty good year for the Assembly Top 50. All totaled, these manufacturing titans rang up $2.63 trillion in gross revenue in 2007, an increase of 8 percent over 2006. By our estimates, approximately 81 percent of that revenue came directly from assembled products.
Half of the Top 50 saw their sales increase by at least 10 percent in 2007, and only seven manufacturers had lower sales. Nine companies recorded total sales of at least $100 billion in 2007, and 35 companies tallied sales of at least $20 billion. In comparison, only six companies reached the $100 billion mark in 2006, and 29 companies had sales of $20 billion.
Twenty-two of the Top 50 have enjoyed 5 consecutive years of sales growth. Three of those companies-No. 15 United Technologies Corp., No. 26 General Dynamics Corp., and No. 48 L-3 Communications Corp.-have grown their revenues by at least 10 percent for 5 years running.
The Assembly Top 50 did well on the profit side of the ledger, too. Forty-two members of the Top 50 posted a net profit in 2007. Of those, 18 recorded a net gain of at least $3 billion, and 32 have enjoyed 6 straight years with a net profit. All totaled, the Top 50 earned $108.5 billion in net income last year, which is a 15 percent decrease compared with 2006. However, if GM is excluded from the total, net income for the top 49 actually increased by 14 percent.
Of the 140 companies we studied for this article, 47 percent reported total sales of at least $10 billion for 2007, and 85 percent posted a net gain for the year. Forty-four of the top 140 earned at least $1 billion in net profit for 2007, and nine earned at least $5 billion.
A key measure of profitability is the ratio of net income to gross revenue, and in this regard, the Assembly Top 50 did reasonably well last year. Ten members of the Top 50 can say this ratio was at least 10 percent in 2007. In comparison, in 2002-a down year for the economy-just four members of the Top 50 had an income-to-sales ratio of 10 percent or more.
By this standard, No. 20 Cisco Systems Inc. was the most profitable member of the Top 50 last year, with an income-to-sales ratio of 21 percent. In fact, the manufacturer of networking equipment can boast that this ratio has been 10 percent or more for six straight years. Only two other members of the Top 50-No. 3 General Electric Co. and No. 14 Johnson & Johnson Inc.-can make that claim.
Ups and DownsIn addition to Toyota passing GM, there was quite a bit of movement among the 10 biggest companies in the Assembly Top 50. With strong sales of products related to energy production and environmental management, GE moved up two spots to No. 3, its highest position in 6 years. More importantly, for the sixth straight year, GE earned more profit than any other member of the Top 50. The company netted a whopping $22.2 billion in profit in 2007. That’s a 7 percent increase from 2006, and it’s the largest profit posted by any manufacturer since 2002.
German automaker Daimler AG moved down two spots, to No. 5, after shedding its Chrysler division last year. That’s the lowest position for the automaker in 6 years. At the same time, Daimler’s rival, Nissan Motor Co. Ltd., moved up two spots, to No. 8, its highest position since 2004. The Japanese automaker can credit strong sales in Europe, China and the Middle East for the jump.
There was a lot of shuffling elsewhere in the Top 50, as well. Including the two companies that dropped out of the Top 50-Navistar International and Eastman Kodak Co.-18 companies moved up or down in our rankings by three or more spots.
All totaled, 21 companies moved up in the Top 50, with 11 of those reaching their highest level in 6 years. One of them is Flextronics International Ltd. After acquiring Solectron Corp. last October, the electronics manufacturing services provider cracked the top 25 for the first time, moving up eight spots from No. 33 in 2006 to No. 25 in 2007.
Alcatel-Lucent made the biggest jump in our standings, moving up 11 spots from No. 39 to No. 28. The communications equipment manufacturer saw its sales increase 60 percent, from $16.2 billion in 2006 to $25.9 billion in 2007. Unfortunately, the additional revenue didn’t help Alcatel-Lucent turn a profit, and the company posted a net loss of $5 billion last year. That’s the second largest loss reported by any of the 140 companies we examined for this article, and it’s the sixth largest loss posted by any product assembler in the past 6 years.
Another company making a big jump in our rankings is CNH Global. The tractor manufacturer moves up eight spots to No. 42. After 2 years of moderate growth in 2005 and 2006, CNH saw its sales shoot up 23 percent, from $12.9 billion in 2006 to $15.9 billion in 2007. At the same time, net profit almost doubled, from $292 million in 2006 to $559 million in 2007. The company attributed the increase to particularly strong sales of agricultural equipment.
According to its annual report, CNH saved some $67 million by improving quality and $12 million through manufacturing efficiencies. Assembly capacity utilization was approximately 71 percent in 2007, compared with 64 percent in 2006.
CNH was not alone in its success; 2007 was a good year for all the tractor manufacturers in our rankings. No. 16 Caterpillar Inc., No. 31 Deere & Co., No. 69 Terex Corp. and No. 81 AGCO all saw their revenues grow by 8 percent to 26 percent in 2007, and all four recorded their highest net profits since 2002.
Kodak fell out of the Top 50 in dramatic fashion. After 2 straight years of declining revenue, the manufacturer of film, cameras and printing equipment drops 18 spots, from No. 47 in 2006 to No. 65 in 2007. Kodak’s fall is even more remarkable considering that the company once ranked as high as No. 36 back in 2002. In fact, over the past 6 years, only automotive supplier Visteon Corp. has experienced a more precipitous plunge in our rankings, dropping 35 spots from No. 25 in 2002 to No. 60 in 2007.
Navistar inched its way into the Top 50 in 2005, but slipped back out in 2007. From 2003 to 2006, the manufacturer of trucks, buses and engines enjoyed 4 straight years of double-digit increases in revenue. Last year, however, Navistar saw its sales decrease by 13 percent, from $14.2 billion in 2006 to $12.3 billion in 2007.
Still, Navistar could very well rejoin the Top 50 in 2008. In 2007, the company introduced the ProStar, the most fuel efficient Class 8 truck on the road. Navistar also became the first company to produce hybrid commercial trucks. The DuraStar Hybrid, a diesel-electric hybrid medium-duty truck, can deliver fuel savings of 30 percent to 40 percent for standard in-city applications, and more than 60 percent for utility-type applications. In addition, Navistar has ventured into the defense contracting business. To date, the company has received more than $3 billion in orders for mine-resistant, ambush-protected vehicles. It’s also working on a $1.3 billion contract to provide medium tactical trucks for Afghanistan and Iraq.
Here’s some of what’s going on at other companies on our list.
No. 18, Philips Electronics, Amsterdam, The Netherlands.Philips Electronics has enjoyed back to back years of double-digit growth in sales. In 2007, the manufacturer of lighting, consumer electronics and medical devices netted more than $6 billion in income on total sales of $39.1 billion-not bad for a company that was founded 117 years ago by a cousin of Karl Marx!
Emerging markets are a key part of the Philips’ growth strategy. Asia, Eastern Europe and Latin America accounted for 30 percent of the company’s 2007sales, and the company expects to expand that percentage significantly over the next few years. At the end of 2007, Philips operated 100 production sites in 29 countries, including 12 in the United States. All totaled, the company employs more than 123,800 people in 150 countries.
Innovation is also important. In 2007, 56 percent of the Philips’ sales came from products introduced in the past 3 years, and the company placed 38th in Business Week magazine’s annual ranking of the world’s most innovative companies.
“Green” technologies will be a major target for the company’s R&D spending. In 2007, Philips launched the EcoVision IV program, which aims to double the company’s sales of green products over the next 5 years, to 30 percent of total revenues. In 2006, such products represented only 15 percent of the company’s total sales. To meet that goal, Philips plans to invest more than $1.4 billion in green innovations by 2012, or approximately double what the company is spending now on the technology.
The company’s design theme of “Sense and Simplicity” has paid off dramatically in terms of brand loyalty. Philips uses a metric, called the Net Promoter Score (NPS), to gauge customer experience with its products. To get the NPS, Philips asks customers one question: “How likely is it that you would recommend this company or product to a friend or colleague?” Brands with high NPS scores tend to grow faster and more profitably than their competitors. To date, close to half of the company’s key businesses have industry-leading scores, and Philips hopes to increase that figure to 70 percent by 2010.
Innovation and growth depend on employees who are satisfied and engaged with their company. To measure how well its leaders are doing, Philips conducts an “Employee Engagement Survey” each year. The survey is sent to 100,000 employees worldwide across all sectors and functions. The survey’s 39 questions cover corporate leadership, management capabilities, alignment with Philips’ vision, identification with the brand, and reward recognition. From 2006 to 2007, the “Employee Engagement Index”-a composite figure based on the overall results of the survey-increased from 61 percent to 64 percent, and the company hopes to boost the index to 70 percent by 2009.
No. 40, Illinois Tool Works Inc., Glenview, ILDon’t let the name fool you-ITW produces much more than just tools. With more than 825 business units in 52 countries, ITW makes a range of products used in the automotive, electronics, construction, and food and beverage industries. Among other things, the company’s myriad business units assemble arc welders, nail guns, paint sprayers, hardness testers, electronics assembly machines, airport ground support equipment, automotive transmission components, commercial freezers and restaurant dishwashers. All totaled, assemblies accounted for approximately 55 percent of ITW’s total sales of $16.1 billion in 2007.
ITW got to this point by buying small, often niche, companies and then making them more efficient. In 2007 alone, ITW acquired 52 businesses worth $995 million in annualized revenues.
Due to the large number of diverse businesses, ITW does not require its business units to provide detailed information on operating results. Instead, the company’s corporate management collects data on a few key measurements: operating revenues, operating income, operating margins, overhead costs, number of months on-hand in inventory, days sales outstanding in accounts receivable, past due receivables, and return on invested capital.
A driving force behind ITW’s success is its “80/20” business process. The concept directs business units to focus on what is most important-the 20 percent of items that account for 80 percent of the value-and to spend less time and resources on the less important-the 80 percent of items that account for 20 percent of the value.
Common applications of the 80/20 business process include:
* Simplifying product lines by reducing the number of products, outsourcing products or eliminating low-value products.
* Segmenting the customer base by focusing in the 80/20 customers separately and finding alternative ways to serve the 20/80 customers.
* Simplifying the supplier base by partnering with 80/20 suppliers and reducing the number of 20/80 suppliers.
* Designing business processes, systems and measurements around 80/20 activities.
ITW’s culture is rooted in developing commercial innovations. One of the benefits of the company’s decentralized structure is that it enables individual business units to stay close to their customers and respond quickly to their needs. If business units do need help with R&D, they can get it at ITW’s Technology Center, located at the company’s corporate headquarters. Working on a request-only basis, the center provides consulting on issues such as cutting-edge materials, mechanical designs and manufacturing processes.
This model has paid off. In 2007, ITW had 21,636 patents and pending applications worldwide, and the company consistently ranks among the top 100 patent recipients in the United States. Each year, the company recognizes the worldwide patent contributions of its people through the ITW Patent Society. Founded in 1969, the society has 800 members, including hundreds of engineers and technicians. These innovative thinkers meet each year to share insights and product breakthroughs.
No. 48, L-3 Communications Corp., New York.Over the past 6 years, only No. 32 Apple Computer Inc. has climbed faster up our rankings than L-3 Communications. In 2002, the defense contractor ranked 79th on our list of the largest manufacturers. Five years later, L-3 debuts in the Assembly Top 50 at No. 48, a difference of 31 spots.
The company’s sales have more than tripled since 2002, and L-3 is one of only 13 companies in the Top 50 that have increased their net income for 5 consecutive years. Of the company’s $13.9 billion in total sales in 2007, approximately half came from assembled products and 74 percent came from the U.S. Department of Defense.
L-3 is organized into four business segments: Command, Control, Communications, Intelligence, Surveillance and Reconnaissance (CCCISR); Government Services; Aircraft Modernization and Maintenance; and Specialized Products. The CCCISR division accounted for 17 percent of L-3’s total sales. This division makes equipment for transmitting, collecting and analyzing electronic communications. One of the division’s products, the Remote-Operated Video Enhanced Receiver, or ROVER III, is helping to save the lives of soldiers in Iraq and Afghanistan. The ROVER III transmits and receives live video and other data from unmanned aerial vehicles (UAVs), gunships and fighter planes. This enables soldiers to detect enemies and explosive devices quickly and to coordinate air strikes that hit only their intended targets.
The Specialized Products division represented 34 percent of L-3’s revenue. Among other products, this division makes electronic navigation equipment for ships, flight data recorders for airplanes, microwave components for satellites, and flight simulators for training military pilots.
L-3 may be the Pentagon’s sixth largest contractor, but the company is not putting all its eggs in the defense basket. For example, the company supplies digital video surveillance systems for police cars, and it recently introduced a whole-body scanning machine for airport security. Instead of X-rays, the machine uses low-frequency radio signals to penetrate clothing and scan the body beneath it. L-3 hopes to deploy 120 scanners in 24 airports by the end of 2008.
If 2007 was a good year for the company, the future looks equally bright. L-3 began 2008 with a funded backlog of $9.6 billion, and the company has landed a significant amount of new business. In August 2008 alone, the company received:
* a $7 million contract from the U.S. Army for video systems used in UAVs.
* a $60.6 million contract from the U.S. Navy to build four outer wing assemblies for the P-3 aircraft.
* a portion of a $6.9 billion contract from the U.S. Air Force for weapons systems support.
* an $18 million contract from the British Royal Air Force to replace the outer wings on three C-130K aircraft.
Who's WhoWho’s In
L-3 Communications Corp., New York. The manufacturer of communications gear debuts at No. 48.
Valeo, Paris. The auto parts manufacturer returns to the Top 50 after a 2-year hiatus. Valeo has 14 assembly plants and 12 R&D centers in North America.
Eastman Kodak Co., Rochester, NY. The manufacturer of film, cameras and printing equipment plummets out of the Top 50 after two consecutive years of declining revenue. Ranked No. 36 in 2002, Kodak now lies at No. 65.
Navistar International, Warrenville, IL. Navistar’s visit to the Top 50 proved brief. After clawing its way into the Top 50 in 2005, the assembler of heavy trucks and engines falls back out, slipping from No. 43 to No. 57
Who’s Up And Coming
Cummins Inc., Columbus, IN. The manufacturer of engines and generators has enjoyed four straight years of double-digit increases in revenue. A fifth could very well propel Cummins into the Top 50. Ranked No. 63 in 2002, Cummins now sits at No. 54.
Jabil Circuit Inc., St. Petersburg, FL. The electronics manufacturing service provider rises eight spots, to No. 58 this year. Jabil’s total sales of $12.2 billion in 2007 are more than triple what they were in 2002, and the company has enjoyed five consecutive years with revenue growth of at least 20 percent.
The Assembly Top 50
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