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Este informe no está disponible en español. CARIBBEAN BUSINESSIntel: A Lesson In Saving JobsPablo Rodriguez was Intel’s first Puerto Rico employee 20 years ago. When he retires next month, he leaves behind lessons the manufacturing industry should learn in order to thrive in a fiercely competitive global economyby Daniel R. GarzaMay 4, 2000
Pablo Rodriguez was the first of 35 employees hired by Intel in Puerto Rico 20 years ago. When he retires next month as president of Intel Puerto Rico Inc., Rodriguez will leave behind 1,750 co-workers. The story of Rodriguez’ success could be told through the company’s phenomenal growth over the last two decades under his leadership. But the far more interesting story is how he helped save Intel’s Las Piedras plant from all but certain closure. He did it by slashing operating costs by 40%, while doubling production, which in turn will save at least 1,300 jobs in the long run. Intel’s experience is an important lesson about what the manufacturing industry in Puerto Rico must do to save jobs and compete globally. Economic success is measured by jobs created. That’s true just about anywhere in the world. However, in some places, especially those dependent on manufacturing jobs like Puerto Rico, success is often measured in jobs saved, not just in jobs created. The demise of Section 936 of the U.S. Internal Revenue Code and fierce competition from low-wage countries in Asia and Latin America has tested the job-saving skills of companies like Intel. Five years ago the company employed 3,000 workers at its Las Piedras plant. Global competition and eroding federal tax breaks helped reduce the number to 1,700 today. Another 200 jobs will be pared away by the end of the year, Rodriguez says. But he doesn’t think of it as 1,500 jobs lost since 1995, but 1,500 jobs saved. And that’s not counting the thousands of indirect jobs that have been saved as well. After all, the possibility of the plant closing was real, which would have meant all 3,000 direct jobs and all the indirect jobs would have been lost. Rodriguez remembers the month and the year–August 1998–that his boss at division headquarters in Portland, Ore. told him the Las Piedras plant had to make changes. "They never told us they would shut the plant, only that we had to become more competitive with the Far East. Roosters don’t sing any clearer than that," says Rodriguez using an old Puerto Rican saying. Considering the plant in Las Piedras is the only Intel plant in the world making motherboards, which house the circuitry, memory cards, chips, and plugs to operate desktop computers, the request to become "more competitive" had an ominous tone. Las Piedras motherboards are used in Dell, Gateway, Hewlett-Packard, and Compaq computers–companies that sell more computers at lower prices as each year passes. To reduce costs, Intel subcontracted out motherboard production to contract manufacturers in Asia. The reason: lower paid workers there make more motherboards. The exception was Puerto Rico. Rodriguez knew he couldn’t compete on wages. Electronics workers in Puerto Rico are paid two and half times more than their counterparts in Asia. Assembling motherboards is still quite labor intensive, despite automated assembly lines. For example, at the very last stage of assembly 16 people are needed at the Las Piedras plant to mount 40 parts on each board. Given Puerto Rico’s labor rates, cutting back on office supplies was not going to be enough. "I realized we were falling behind. I knew we had to be innovative," Rodriguez recalls. "What we were doing were small improvements. But the changes had to be substantial, revolutionary based on the principles of automation." Rodriguez had to work within the confines of already high and rising labor costs while at the same time increasing the production of boards. He decided to attack the problem on two fronts: investing in new equipment, and drastically reducing operating costs. Slashing costs Intel decided to soften the blow of the 10-year phase out of Section 936 by reorganizing as a controlled foreign corporation (CFC) under Section 901. As a CFC, Intel (with $29.3 billion in 1999 revenue and 70,000 employees around the world) and a growing number of multinational companies with operations on the island, reduce their federal income tax by the amount of tax paid to the treasury of Puerto Rico. Rodriguez also negotiated, with former Puerto Rico Industrial Development Co. (Pridco) Executive Director Jaime Morgan-Stubbe, a significantly lower tax rate under the local 1998 Tax Incentives Law. In return for the lower tax rate (between 2% and 7%) the company pledged to invest $25 million in new equipment and keep a minimum work force of 1,300 employees. But the combination of converting to a CFC and slashing local taxes was still not enough to make the plant competitive with Malaysia and Singapore, countries that have generous tax incentives of their own. Rodriguez turned to his management team to help figure out how to cut the costs of operation. What they concluded was that the plant had to focus on what it did best — produce motherboards. Tasks such as warehousing were not Intel’s specialty. Intel decided to hand over warehousing to subcontractor Menlo Logistics Inc. The company now operates a consignment warehouse adjacent to Intel’s factory floor. Menlo Logistics–a contract logistics company–ships, distributes, and warehouses products for clients such as IBM, Hewlett-Packard, Nike, and Dow Chemical.With wireless equipment Intel distributors are now linked to the on-site Menlo warehouse and the factory floor. That means a distributor can send in an order directly to the factory floor. The exact number of motherboards requested are made and shipped, cutting down on inventory. Outsourcing the warehouse saves the company millions of dollars a year and provides faster and more efficient service to the customer, Rodriguez says. The Las Piedras plant is the only Intel plant that has outsourced warehousing. The company is considering implementing the idea at other sites around the world. The warehouse concept has drawn the interest of other businesses, like Hospital Auxilio Mutuo, that have gone to the plant to see how it works first hand. Doubling production Subcontracting warehouse services and cutting taxes was significant, but even that was still not enough. In 1998, Intel completed a new $8 million building to house a $25 million automated assembly line. The new machinery helped to double the production of motherboards, while requiring fewer workers to assemble them. Since last year, Intel has cut its workforce by about 20% through attrition, such as early retirement, Rodriguez says. Intel replaced many of the permanent employees with temporary workers. "I call it upsizing because we’re producing more boards than what we did in the past. Before, we produced 60 to 75 boards per hour. Now, we’re making 150 and we’re looking at ways to increase production to 200 boards per hour by 2001." The doubling of motherboard production was boosted by another change. Rodriguez decided to make Las Piedras a 365-day-a-year operation. Adding two more days of production, the factory now makes boards seven-days-a-week, 24-hours-a-day. Employees are encouraged to suggest new ways to make the operation more efficient. Engineers lead daily meetings with work groups on the factory floor to review processes and identify and correct errors on the assembly line. As a result of their increased production, Intel gave employees bonuses amounting to 40 days of pay. That does not include the stock options offered to permanent workers. Rodriguez found a formula that appears to have worked in Las Piedras: investment in new technology, lowering the company’s tax burden, subcontracting warehouse operations, going to 24-hour production. But it also says a lot about Rodriguez’ willingness to embrace change even after being at the helm of Intel for 20 years and a veteran of the island’s manufacturing industry for 36 years. He believes Puerto Rico’s manufacturing industry will also have to embrace change if it’s to survive. Change means executives can’t wait until it’s too late to make their plants more productive, because global commerce now moves at warp speed, 24-hours a day. And Puerto Rico is now competing with Singapore, Malaysia, Ireland, Costa Rica, and others that want what Puerto Rico has. "We should have a roundtable where manufacturing industry executives can sit down and share their ideas with the business community and the details of how some of their best innovative ideas were implemented," he says. "There are things that we have done and other manufacturing companies have done that can apply to other businesses and industries. And by sharing this information we can help develop a stronger economy." Very few workers can match Puerto Rico’s manufacturing industry in terms of skilled workers and managers, Rodriguez says. Where the island is woefully lacking is in the area of research and development (R&D), he says. The innovation and design of new products by local engineers and scientists must become the backbone of the industry, just as it has in India and Ireland, if it’s to grow. So far the government has fallen short, despite its efforts to develop the Science & Technology Corridor in western Puerto Rico and the inclusion of R&D tax breaks under the 1998 Tax Incentives Law. Puerto Rico needs to present companies a better R&D package that includes better tax incentives and university engineering programs that prepare graduates to design, innovate and invent. "A lot of research and development is now done over the Internet. There are a lot of companies that have their R&D done in India, because they have a large pool of engineers and scientists," Rodriguez says. "What Puerto Rico needs to do is provide adequate incentives to motivate companies to do more R&D here. Puerto Rico has to offer many more incentives so that it’s economically viable and attractive for companies to do research and development." Intel Corp. Intel Puerto Rico Inc. Source: Intel and Market Guide Olympic Group Inc. Puerto Rico’s apparel industry has been hit hardest by competition from low wage countries. But apparel manufacturer Olympic Group Inc. is undaunted. The company is expanding beyond manufacturing for the local consumer market by performing subcontract, or private label, work for stateside companies that want the Made in the USA label on their clothing. Olympic Group has also mounted an aggressive marketing and distribution campaign, with plans to sell its products to the U.S. Hispanic market. In a bold move recently, the company announced it was acquiring five manufacturing operations from Hampshire Group LTD, the largest sweater maker in North America, and moving them to the island. The deal could create at least 1,000 new jobs and make Quebradillas, in words of Olympic Group Chairman and CEO Luis Rivera Siaca, "the sweater capital of the world." Company President Alejandro Asmar saw the opportunity to acquire the operations more than year ago. Olympic Group is acquiring Hampshire’s plant operations in San Francisco, Calif., Aguas Calientes, Mexico, Winona, Minn., Chilhowie, Va., and Quebradillas. With the new equipment, including state-of-the-art, knitting machines Olympic Group plans to establish a high tech apparel manufacturing center in Quebradillas with an anticipated annual production of 2.5 million sweaters a year, which could boost the company’s revenue from $29 million to $100 million annually in two years. "This is very significant because we’re proving that the apparel industry can succeed in Puerto Rico," Asmar said. Manufacturing Solutions Two years ago, Oscar Marrero, manufacturing manager at Symmetricom Puerto Rico Inc. in Aguada decided to pitch an idea to corporate headquarters in San Jose, Calif. Marrero believed the telecommunications equipment maker could branch out to contract manufacturing. Puerto Rico was the ideal place because the company already had a plant in Aguada, there was a pool of skilled workers, and transportation costs were relatively inexpensive. The company liked the idea and told Marrero and Symmetricom General Manager Ramon Cordero to implement the idea. The two executives created Manufacturing Solutions Inc., a Symmetricom subsidiary. The new company quickly landed contracts with California firms Lam Research, Applied Instruments and Orbitech, beating foreign contract manufacturers for the work. The new subsidiary went from less than $1 million in sales in 1998 to $3 million last year. Marrero expects to double sales this year as the company obtains more contracts. Manufacturing Solutions has created 30 new jobs and plans to create even more jobs as it expands its manufacturing facilities this year with the help of the Puerto Rico Industrial Development Co. "We’ve created an incubator for a new business by using the using the resources of Symmetricom," Marrero says. "It shows we have the skills, resources and the people on the island to compete globally." A career designed by Intel... Most visitors would expect the president of one of Puerto Rico’s largest manufacturing plants to have a plush office with a nice view and a private bathroom. But this is Intel. Entering the administrative offices at the company’s manufacturing complex in Las Piedras is a trip to Cubicle Land. Somewhere in the middle in of this vast expanse of bland, neat portable offices sits Pablo Rodriguez, the president of Intel Puerto Rico Inc. His cubicle is no larger than any one of his administrative assistants’, or anyone else’s for that matter. "If you go to any Intel facility around the world you’ll find the exact same thing," he says. The no-frills executive offices are pure Intel corporate culture. "Intel’s corporate culture is very simple. It’s a very open company, but very disciplined," he says. Rodriguez was new to Intel’s corporate culture 20 years ago when the company hired him away from Tenna Inc., a Caguas electronics manufacturer. Back then, Intel had only been around for about 12 years. The company’s formula for success is simple, Rodriguez says. "Establish a clear process, follow that process consistently and with discipline." Rodriguez, 57, has applied the formula to grow the Puerto Rico operation from 35 employees in 1980 to 3,000 in 1995 to 1,750 today. He has led the expansion of the manufacturing operation from a single 46,000-square-foot building to five interconnected buildings encompassing more than 400,000 square feet. Rodriguez figures the plant has produced millions of computer motherboards over the last 20 years and some 5,000 workers have been immersed in Intel’s corporate culture. "Couples who met here and married 20 years ago have children that work here now. We’ve been a vehicle for families to prosper," he says. "Parents have been able to pay for their children’s education thanks to Intel. Workers have shown me photos of houses they were able to purchase with Intel bonuses. I find that the most fulfilling part of this job." During the last five years, Intel has donated $1.7 million in computer equipment to the University of Puerto Rico to create computer laboratories for engineering students. The company also sponsors the Pre-College Engineering Program at the University of Puerto Rico-Mayaguez -- a two-week summer in-residence program designed to motivate promising high school juniors to pursue careers in engineering. When Rodriguez retires next month he plans to devote more time to enhancing university engineering programs and making Puerto Rico more competitive globally. "I want to rest mentally and physically for at least six months," he says "But I want to do something that will contribute to Puerto Rico. I want to share what I’ve learned over the years to try to improve Puerto Rico’s manufacturing industry and make it an example of competitiveness."
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