MANUFACTURING: GREAT FUTURE IN A POST CASTRO CUBA

MANUEL CEREIJO

JULY 2001

INTRODUCTION

This report covers the area of manufacturing. It is composed of the following six sub-sections:

• A. STATE OF THE CURRENT SYSTEM
• B. STATE OF THE ART PRODUCTION TECHNIQUES
• C. TRANSPORTATION OF GOODS WITHIN THE ISLAND
• D. MANUFACTURING CAPABILITIES UPGRADE ACTION PLAN
• E. MANUFACTURING RECONSTRUCTION TIMELINE
• F. MANUFACTURING IN CUBA \ A FUTURISTIC APPROACH

These sections are intended to present some of the most important issues that a free Cuba would have to deal with, in the area of manufacturing. The first section tries to put in perspective the current state of the manufacturing capabilities in the island. The next section discusses the most current manufacturing techniques, that should be strongly considered for application in the new manufacturing system. A brief section is used to cover a very critical arm of a manufacturing system, transportation of goods.

The next section puts together an action plan, that sets out the activities that are required to upgrade and put into production the Cuban manufacturing industries, from a short and mid term perspective, followed by the last section which covers a futuristic approach to manufacturing in a free Cuba.

A. STATE OF THE CURRENT SYSTEMS

Although determining the current state of Cuba's manufacturing capabilities would be like looking for a needle in a haystack, we have been able to assert certain information which provides a generic background of today. We interviewed individuals that have recently arrived in the United States from Cuba, within 3 years, to try to develop a framework of the most recent manufacturing and production capabilities in the island.

Keep in mind that even though very specific and precise information as to the current state cannot be ascertained and thus is not described herein, based on the information gathered through these interviews, certain generic pieces of data, point to conclusions in a very consistent fashion.

From a technological innovation standpoint, the current manufacturing and production capabilities are at best mediocre. In most instances, these capabilities may be best described as to the existing conditions in 1959-1960, except with machinery that is 30 years older. There are some instances of very sophisticated "state of the art" applications of technology in the manufacturing area, but are very few.

For instance, the application of laser cutting operations in "Vanguardia Socialista", a cast iron steel manufacturing facility in Guanabacoa. Another example is a very sophisticated cement production facility developed by East Germany. Italy also developed a totally automated Yogurt manufacturing and packaging facility.

In the municipality of Pinar del Rio, there is a civil factory of electrical components, such as semi-conductors, computer chips, transistors, capacitors and resistors. The development for this factory was initially funded with capital from Italy and Japan. Spanish capital was also implemented, in order to be able to finish the project. A high degree of robotics is used in this plant, along with a minimal manpower requirement of approximately 10 technician/ employees.

Some other information gathered through the interviewing process of recently arrived engineers, point to some high tech applications used in the military area. "COPEXTEL", a high tech military production facility of computer technology, was designed and developed using technology provided by non-communist countries such as Japan and Italy.

Some innovation exists in other industries, which have been arrived at through the creativity of the work force. Mechanical automation has been achieved in these industries, through the implementation of mechanical devices, perhaps best described as "GIZMOS", that have been developed by the workers. Cases have been cited where this application of semi-advanced technological innovation in the production of steel drums, where a steel sheet comes in one side of the production line, and is cut, shaped, soldered and painted all through an automated process, with minor worker intervention. Another example is in a cracker production facility, in which the raw materials come in one end and are automatically worked on, yielding a packed (in cans) product at the end of the line.

Based on the information received, the later three applications of more innovative manufacturing processes carry with them a great amount of downtime due to not having easy access to new replacement parts, having to refurbish the old one that broke, and in the case of the laser technology, not having trained personnel that can interact effectively with the technology.

A critical differentiation must be made at this point between mechanical automation, electromechanical automation and robotization. Mechanical automation is the technique whereby employees create "GIZMOS" that can carry out the same dexterous operations that humans would go through to produce the finished product. Electromechanical automation is the technique whereby mechanical devices, controlled by semi-sophisticated to very-sophisticated electronic controls are used to produce the finished product. A clear differentiation between these two processes is that in the first a counting device tells you when the worker needs to stop the process due to whatever reason, whereby in the latter a computer stops the process automatically and tells the technician why the process was stopped (e.g. the end of a production run or perhaps something is out of specification due to a mechanical malfunction). The end resulting product of the electromechanical application carries a much higher quality, due to the sophisticated control mechanism that manages it.

The third manufacturing technology warranting some differentiation is the area of "robotics". Robotics is the manufacturing technology arrived at by using electromechanically based and computer controlled robots to carry out the production of the manufactured goods. This is a very sophisticated and typically expensive technology used to carry out assembly line type of tasks. Based on the information received, this area of manufacturing is not applied at all in the current arsenal of manufacturing production techniques in Cuba.

Even though there is some application of advanced manufacturing technologies,as outlined above, most of the manufacturing capabilities currently in use in Cuba, are work force based. Most operations and assembly lines are antiquated and based on a number of manual operations carried out by employees, often using old basic machinery. The employees are typically under-motivated due to the lack of incentive to do better and go the extra mile. A major result of this lack of incentive, is a product that has a very poor quality. No doubt that a reason for the poor quality also has to do with the parts they use to produce the finished product. In many instances recycled or reused parts, instead of new ones; mainly due to the lack of new materials.

The lack of technological innovation in manufacturing and production of goods can be seen by taking into consideration that "Cerveceria Tropical", a beer distillery located in Marianao, is still using the same basic technology that was there in 1959. Further proof of the lack of innovative and aggressive leadership in production methods is exemplified by the shape of the sugar industry. The main industry prior to the Castro regime can best be described today as dismal, based on information provided through the interviews, in terms of production output and plant utilization.

Undoubtedly, there is a work force in Cuba to produce goods manually. This availability of labor is possibly one of the reasons for the very small amount of automation, at least at the rudimentary stage. This same work force has the capability to automatize processes, examples of which are aforementioned, but for the most part lack the incentive to do so. Obviously, a second major reason for the lack of advanced manufacturing processes is the lack of capital required to acquire these goods.

B. STATE OF THE ART PRODUCTION TECHNIQUES

There are a large number of analytical and production/ productivity techniques that are applied in the area of production and processes. Any effort at moving forward the existing industries in Cuba, should contain many of these techniques. Specifically, the newest manufacturing technique applied in manufacturing in the U.S., Just-In-Time (JIT) production methodologies, must be the backbone of many industries. Realize that JIT may not be applicable to all industries in all areas, but for the most part most industries should be able to apply part of the concepts behind JIT. Converting from old manufacturing processes and practices to a JIT manufacturing system usually requires a drastic change in the culture. In the case of Cuba, the drastic change in the culture is going to be there anyway, regardless of what manufacturing and production philosophies are applied. These cultural issues will have to be addressed over time with the appropriate motivational techniques.

Just-In-Time is a conglomeration of techniques that lead to in theory "ZERO INVENTORIES", minimal space requirements, "ZERO QUALITY DEFECTS", optimized profits and high employee motivation and morale.

Just-In-Time is a manufacturing philosophy with the following goals:

Total elimination of waste (space, defects, worker motions) JIT techniques strive at these five theoretical, to some extent unreachable goals, to keep a "challenged culture". Perfection is very difficult to achieve, but always striving for perfection is not, with the appropriate management emphasis.

Many institutions have given lip service to JIT, and as thus have failed miserably at implementing what they conceived to be a JIT processing system. JIT requires a change of mindset towards total synchronization of activities, not only within the manufacturing system and the production line, but between the producer of the finished item and the supplier of the raw materials, as well as between each of the assembly sub-stations within the process. Put bluntly, total trust and communication must exist, in order to launch a successful JIT production environment. With the appropriate management commitment at every level, it is feasible to see significant results quickly.

JIT manufacturing and production philosophies are an on-going process. It is extremely important to understand that it is not a philosophy about a project, since it has no end. Once JIT improvement activities are underway, they should continue indefinitely.

Part of the JIT philosophies are capital intense, while other parts are not. Obviously, at the beginning the applications of JIT in Cuba must capitalize on those phases of JIT that are not capital intense, or minimize the required capital necessary.

This philosophy can be applied not only in the manufacturing industry, but also in service industries.

Some of the more basic principles of JIT production systems are as follows:

The greatest difference between a JIT based manufacturing and production system and the standard production systems is that the previous is a pull system, whereas the latter is a push system. What we mean by this is that in a JIT system the necessary output to fulfill the customers demand/pull dictates the only amount that will be produced in each station. In a non JIT system, each station within the system is producing at a maximum rate pushing on the next station to do the same, compiling a large inventory of finished subassemblies and requiring large parts inventories in the process, necessitating a lot of space for these.

There exist a multitude of other techniques that are applicable in a JIT based manufacturing system. One such technique bears mentioning in this report, due to the possible total disregard in the current manufacturing and production environments that exist in Cuba today; the application of Human Factors and Ergonomics in the design of production systems.

Along with this technique, other techniques such as motivation and incentive program for employees, as well as other analytical techniques, should be used to augment a JIT based manufacturing and production system. These techniques should be consider for each individual case and application.

C. TRANSPORTATION OF FINISHED GOODS AND RAW MATERIALS

A great amount of synergies must exist between manufacturers of finished goods and the suppliers of the raw materials, as well as the seller of the manufactured goods. The prior section briefly discussed, within the concept of JIT manufacturing, the necessity for suppliers of raw materials and the manufacturers, to work together well, for their mutual economic benefit. A critical component in this marriage is the network that exists of vehicles and network of facilities to transport the goods.

An interesting fact to make here is that depending on the size and price of the item, anywhere between 30% and 80% of the total cost of a finished good can be attributed directly or indirectly to product transportation costs. Thus, consideration of the transportation network to support any reconstruction of a manufacturing plan, is critical.

Short term, reliance on the existing network of highways and byways is what manufacturers and suppliers alike, will have to co-exist with. One would expect that the state of the available facilities to handle products is no better than the industries that make these products themselves.Whatever available highways and streets will have to be used, until reconstruction improves the existing ones and creates new ones. Similarly, the train network will have to be used, as best as possible.

Short term however, analytical concepts of Operations Research discipline can be applied, to optimize the use of the existing transportation facilities, specifically the train system. Since the availability of trains will be quite limited ( e.g. there will be more demand than the available supply) a methodology has to be applied, to ensure that the use of these limited facilities are being optimized. A number of analytical transportation and scheduling techniques available and readily applied today in distribution systems throughout the world, can be immediately used in a free Cuba, to ensure the best use of the available transportation facilities. This optimization will benefit all industries that need to use the existing system, in all likelihood all industries that will exist in the island, from construction, to agriculture, to service.

Mid-range to Long term, an upgrade and an addition to the existing network of highways, streets, airports and trains, will help alleviate the transportation demands that will exist in a progressive Cuban economy. In order to ensure optimal use of the new facilities, it is of utmost importance that the facilities builders communicate frequently with the facilities users.

Long term, the industrial parks concept, described in Section B of the general document should be embraced. This concept is perfect for a JIT manufacturing philosophy. Imagine having as your next door neighbor on one side the supplier of your components or raw materials, and on the other side the shipper/user of your finished goods. This situation could exist in an industrial park scenario.

D. MANUFACTURING CAPABILITIES UPGRADE ACTION PLAN

SEQUENCE OF ACTIVITIES TO UNDERTAKE

Immediate action must be taken to develop short, mid and long range plans in the manufacturing industry, concentrating on developing a network of industries that can produce necessary goods for internal consumption as well as external demand.

Above find a rough outline of the sequence of interrelated activities that must be conducted, to get the manufacturing capabilities back on their feet.

Informational & Physical Inventory of Industries

The first step in any manufacturing requirements analysis involves collecting data on the existing conditions of the facilities. This data is then utilized to develop a course of action, leading to problem resolution and manufacturing capabilities upgrade program.

To be able to develop a manufacturing capabilities plan, information has to be gathered on the current state of the system. Information on the available manufacturing facilities, the product made, the manpower used, the equipment state, the available production output capacity and the current production control mechanisms, among other bits of information, has to be gathered.

Product Demand Determination

In this stage of the manufacturing capabilities study, teams of engineers would attempt to determine the demand that would exist for the products manufactured in Cuba. Consideration must be given to short, mid and long-term demands for the product, from both an internal consumption, as well as external consumption standpoints.

A large number of facts must be considered in order to develop an internal consumption demand expectations schedule. Comparisons would be made to other countries that have gone through similar governmental changes, taking into consideration the state of the economy, the population acquisitive power, demographical data, as well as other very important factors. A number of good examples exist now, since most of Eastern Europe is currently going through similar changes. Some of the items produced would be pretty easy to develop demand schedules for, such as soft manufactured items, typically inexpensive items. Others categorized as hard manufactured items, such as cars, electrical appliances, machinery of different sorts, are much more difficult to forecast, especially from a short term perspective due to the lack of economic power from the consumers.

Similarly, a demand forecast could be developed for outside consumption items, export opportunities. Cuba, being situated in a strategical location, in the middle of Central and South America, as well as the Caribbean, could serve as a source of goods to these Countries. The key to being able to do this is to develop the manufacturing industries. Cuba could become the gateway to the Americas, from a manufacturing goods perspective. One of the factors that would simplify this undertaking, is the ability to be able to more easily communicate with these markets, because of the Hispanic Heritage, including the ability to understand the existing customs. Realize that the nearest possible competitor, South Florida, is a service driven economy, and has been unwilling or unable to change into a manufacturing driven economy, making the likelihood of a Cuba to succeed, better, with the appropriate guidance and emphasis. One could easily envision a partnership with South Florida, geared to ensure that this manufacturing development effort succeed.

In many instances, large private industries interested in developing a business in the island, would be willing to undertake this phase of the study, much like they would be interested in doing phases one and two. As previously mentioned, it would be to the best interest of the government to allow these large parties an opportunity to do this, however some sort of control mechanisms must be in place, to ensure that these studies are undertaken in an orderly fashion.

Procure Large Private Industry Interest

Based on the data gathered in stages one through four, procure the involvement of large private firms by selling to them the idea of undertaking the required investment and running the production facility.

Even though this step is shown as step four of the reconstruction cycle, in many instances, large companies may be interested in funding and doing stages one through four themselves, if the conditions are right (e.g. they have the opportunity to be first to bid on the facility, "right of first refusal").

Obviously, this form of economy reconstruction in the manufacturing area is preferred to the one where small private industries are procured, described in the next section, since most of the effort and capital required to move an existing or new business is the responsibility of a large outside private party, with vast capital resources, which would minimize the likelihood of having financial difficulties. Furthermore, this situation would require minimal involvement by any other agency, including the government.

Assist Small Private Industries

A good part of the progression of an economy is the result of individual entrepreneurs, with small companies that manufacture or produce a certain demanded product. If there is a necessity that is required to be produced within a progressive Cuba, for which large companies do not have an interest, it is to the best interest of the government to help small privately held industries get in the economic boom. Long term, this priority should be in place, even if large corporate interest is prevalent.

E. MANUFACTURING RECONSTRUCTION TIMELINE

The total time to reconstruct the Cuban economy, from a manufacturing timeline, would depend on a lot of factors, including but not limited to the following:

• The Amount of Involvement from Outside Companies
• The Priority The Government Will Place On The Development
• The State Of The Existing Industry Base
• The Ability To Train The Work Force Appropriately

At this point in time, and from the reference point that we currently have, it would be quite difficult and almost impossible to ascertain exactly how long of a period of time it would take to gear up the manufacturing industries currently existing in the island. However, with the appropriate emphasis from the governmental body that will be in power, within a year from starting the work, a large number of the most necessary and economically promising industries should have gone through the necessary improvements to make them efficient enough to produce goods.

Below find a rough timeline developed for this venture. Realize that some of these activities could be undertaken simultaneously, especially if large companies are involved.

MANUFACTURING RECONSTRUCTION TIMELINE

E. MANUFACTURING IN CUBA / A FUTURISTIC APPROACH

Most of the concentration of this report has been in the areas of conventional manufacturing practices for products that carry a low technology base. From a short and mid-range perspective, this strategy is what a developing Cuba should concentrate on, to give a spark to the economy, as expeditiously as possible. However, from a long term perspective, strong consideration should be given to developing "High-Tech" Industries in Cuba.

There is definitely a market niche for this product in Latin America and the Caribbean, that is currently being filled by products manufactured in the Far East and the West Coast, Silicon Valley. The long term strategy should be to develop Cuba, so that it can replace the supply currently filled by these locations, since Cuba has two major advantages over these two sources of supply; specifically, proximity to the source of demand as well as an advantage from a language and culture standpoints.

To make this transition happen, however, a strong support and emphasis from the Government is a must. Regulations making these ventures more appealing to companies must be instituted. Many service driven economies have been hit hard during recent recessionary times for not having been willing or able to get into any manufacturing economic and production effort. We must not let this happen to the Cuban economy.

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