Lean manufacturing? Low-cost labour? Important, for sure - but so yesterday. The new buzz­word is regionalisation.

That is the view of Pierre Ayotte, head of Mecachrome Canada. Sitting where he does in high-cost Montreal, Ayotte may well like a model of regional co-operation as a bulwark against the momentum of low-cost manufacturing in countries such as China or Mexico. But the notion is compelling, with turmoil in the Middle East, Chinese inflation and natural disasters in Japan, Australia and New Zealand reminding business leaders that globalisation leaves them vulnerable to far-off events.

Ayotte is a former General Electric business development executive who bought a failing aerospace tubing maker from the industrial giant, turned it around, sold it to Bombardier and entered semi-retirement before being taking up an invitation to join Mecachrome a year ago.

Montreal
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Making new friends in Montreal

The French-headquartered manufacturer - perhaps best known as the specialist behind Renault's world-beating Formula 1 engines, but deriving most of its revenue from aerostructures, aeroengines and mainstream automotive components - was near bankruptcy 18 months ago but saved by a consortium of equity funds.

In what Ayotte describes as a fantastic year, he has shaken up management, doing away with the windows and corner offices and embedding top executives in cubicles with their teams. He has also put himself at the bottom of the management chart. Ayotte works for everybody else, not the other way around. Whose salary, he asks, should be saved in a downturn - his or the machinists? Meanwhile, Mecachrome has gone from near-death to 35% growth this year. Ayotte knows he cannot sustain that organically for two years, so his intention is to develop his supply network.

At this point the concept of regionalisation kicks in. Rather than merely employing the lean manufacturing technique of managing a network of subcontractors, Ayotte's tactic is to exploit the extensive aerospace and high-technology resources of the Montreal area by building partnerships with competitors.

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Ayotte's insight is to recognise that on a big civil programme with high planned production rates, an airframer is concerned about the capacity of its supply chain to keep up with final assembly, so it may dual-source. He believes that rather than compete alone it makes sense to partner with a rival and offer a dual-sourced solution. Then, the partners can save costs by jointly developing inputs such as software and some tooling, leveraging their investments to increase the efficiency of capital expenditure.

Partners working this way clearly need to be in close proximity, and thus regionalisation is about organising the business around programmes or, more broadly, about working with neighbours to leverage strengths and overcome weaknesses.

Ayotte readily acknowledges that "it takes a leap of faith" to work with a competitor, but it is a way to maximise the impact of technology and expertise in the face of competition from China or Mexico, say, which can throw low-cost labour at a problem.

He says the goal is to "streamline your process, not just inside your four walls but outside".

Having the airframer - Bombardier literally and Boeing nearly so - on the doorstep is, Ayotte says, a huge advantage, especially considering the value of personal relationships. It must also help that his Montreal area is such an intensively developed aerospace cluster that it can claim to be the only place in the world where an entire aircraft can be built from local parts.

But while the tide of globalisation may seem more like a tsunami to a manufacturer in a high-cost region, some trends work in support of Ayotte's regional bias. One is the expectation that high fuel costs are here to stay; investment in local production capability buys some protection from rising transport costs.

Another is the worry that rising demand may soon exhaust world capacity for hard-metal machining, Mecachrome's core capability. Thus, says Ayotte, a strategy of partnering with local peers to boost the efficiency of their capital investment makes sense; efficient investors are best able to respond quickly to changes in their customers' requirements.

The key, he says, is to stand ready to reallocate resources "on the turn of a dime".

Source: Flight International

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