Just over three years ago, Clifton Vann III came to a sobering conclusion: Unless his company did something to stop it, many of its customers would soon go out of business or move offshore, taking their business with them. That was at the tail end of an economic slowdown that saw sales growth come to a screeching halt at CEO Vann's company, Livingston & Haven, a $70 million manufacturer and distributor of hydraulic, pneumatic, lubrication, and automation systems used by other manufacturers in metal fabrication, automotive, and other industries. Many of L&H's manufacturing customers were facing intense competition from offshore rivals and were beginning to move production to lower-cost locations in order to stay afloat. So Vann and his management team came up with a plan: L&H would use lean principles to transform itself into a more efficient and market-focused organization. In so doing, the company would serve as an example to its manufacturing customers and gain valuable experience it could share with them, improving the odds that they would survive and continue to manufacture in the United States. "We decided that we would win only if our customers win," says Clifton Vann IV, the company's president. "If they don't, not only will we miss the opportunity to sell them technology today, but tomorrow they will be gone." L&H's initiative has been remarkably successful. Over the past three years, the company has increased sales by 60% and net profit from $37,000 in 2003 to $2 million in 2006. Between 2003 and 2005, the company increased its return on assets from 0.3% to 13.4% and its return on investment from 0.7% to 46.8%. Those results not only improved L&H's own chances for survival, but they also persuaded a panel of manufacturing experts and judges to name L&H the Progressive Manufacturer of the Year in Managing Automation's 2007 Progressive Manufacturing awards competition. L&H's transformation began in January 2003, when CEO Vann issued a challenge to employees to do "whatever it takes to ensure the long-term health of U.S. manufacturing." Vann formed a Leadership Council, made up of top executives from all of the company's operations, and instructed the group to develop a new vision for the business and focus on driving efficiency throughout the organization. L&H's resulting forays into lean techniques delivered mixed results at first. Its initial attempts to map processes, in fact, foundered because many were excessively complex. "That brought us to our knees on day one because we were just learning how confusing our own processes were," says Bruce McKay, L&H's executive vice president. "But once we recovered from the shock, we were able to fill in some of the blanks and say, 'We can streamline this and do better at that.' " Automating Processes The company attacked a range of processes. L&H, for example, used lean principles to streamline a production workflow that involved building gear boxes, pumps, and fittings for an aerospace customer, turning an inefficient process into one that automatically coordinates part replenishment with customer demand. L&H also automated several processes that had previously been manual and wasteful. The company, for example, created customized Web sites for customers where they could access real-time inventory, pricing delivery, and order information, and place orders. The company also automated the creation of 4,000 post-transaction acknowledgments per month. While L&H's lean initiative was the starting point for such improvements, they were enabled by a home-grown software system that performs ERP, CRM, opportunity management, and other enterprise functions. The system, internally called Apoge, was developed in the mid-1980s on top of the Oracle database management system. At that time, L&H became an Oracle partner and planned to market Apoge to other manufacturing companies. Although that plan failed, L&H decided to stick with Apoge rather than switch to a commercial enterprise application suite. L&H needs 10 staff people and contractors to maintain and enhance Apoge, but it's worth it, Vann says, because the company can quickly enhance the system to support its transformation efforts as well as customers and partners. "If you can give us XML strings, we'll tie right to the database, and tomorrow you can see purchase orders, invoices, acknowledgments — all that information," Vann says. "Other manufacturers have to deal with third-party software providers who really couldn't care less what their woes are. We don't." In fact, L&H has also leveraged Apoge to create a collaborative supply network with two other makers of hydraulics, lubrication, and pneumatics systems that, like L&H, distribute equipment made by Bosch Rexroth AG. Both companies, Womack Machine Supply in Dallas and Airline Hydraulics in Philadelphia, use Apoge to run their own businesses. Because all three companies are on the same system, they have visibility into the inventories of the other partners and can even ship from one another's warehouses, dramatically reducing lead times. "In this case, software is the tie that binds," Vann says. But L&H's accomplishments go well beyond improving its internal operations. The company has shared with customers the valuable lessons it has learned from transforming itself. L&H has placed a major emphasis on its field engineering organization, providing most of its 60 degreed engineers with lean training and tools so that they can transfer L&H's experience to customers. L&H has also transformed the way it delivers engineering support to customers. Traditionally, L&H and its competitors provided an engineer, who was trained as a generalist, to support customers in deploying its systems. As manufacturing environments have become more complex, however, and as manufacturers have cut back their own engineering staffs, that approach has become insufficient, Vann says. So L&H has trained and organized its engineering staff in specific disciplines, such as hydraulics, pneumatics, lubrication, automation, and electronics. Now L&H may send three or more such engineering domain experts to support an implementation. That approach, Vann says, involved considerable risk for L&H. For one thing, the company had to invest in additional training for its engineering staff. For another, it had to pay for more engineers to be involved in each deployment project, and it had to make sure all the engineers involved in a given project could easily collaborate. L&H enhanced the Apoge system to support such collaboration. "At a time when most people in our industry were cutting back, we did not cut back a lot. We actually invested in our business, knowing that the economy was going to turn at some point," Vann says. "We had to be ready for our customers and in a position where we had the technical expertise to provide the collaboration of these technologies that manufacturers had not seen before." L&H's customers have noticed the changes. At Nucor Corp., which makes steel joists and decks, L&H engineers have worked to keep hydraulic systems running. The higher domain expertise of L&H's engineers "has helped us reduce downtime tremendously," says Ray Evans, Nucor's maintenance supervisor. While L&H isn't in a position to single-handedly save U.S. manufacturing, it's clear that by investing in transformation, the company is doing its share to help its customers thrive.