At about the same time last year when General Motors announced that it was getting out of the sedan market and “proactively” shuttering five U.S. factories, a smaller, but equally iconic New England manufacturer was writing the final chapter in its 170 year saga. In a three-day on-line auction, America’s oldest candy producer, New England Confectionery and Candy Company, NECCO liquidated its most popular brands and manufacturing equipment. By October, all that remained was a freshly swept 850,000 square foot building. In a series of bankruptcy sales transactions, a New England tradition had vanished.
NECCO, whose name was synonymous with its home region and namesake candy, NECCO Wafers, manufactured a what’s what list of America’s favorite candies including Clark Bars, Sky Bars, Mary Janes and the perennial Valentine’s Day favorite, Sweethearts. Produced continuously since 1902, an estimated 250 billion Sweethearts had rolled off the NECCO candy lines before last year’s shutdown. As late as May 2017, then CEO Michael McGee had announced that “business was booming.” Fourteen months later, NECCO abruptly closed its doors leaving 260 long-term employees with two-week’s severance. How, I wondered, could a part of Americana, a candy inseparable from Valentine’s Day suddenly disappear from market shelves? The Boston business press conjectured variously that cost pressures, lack of new products, a changing market landscape, and failure to keep pace with modern production methods had each contributed to NECCO’s demise.
Visiting the NECCO site in 2015, I arrived at somewhat different theory: NECCO, like General Motors had failed to understand what Shigeo Shingo called “the most basic concept in the Toyota Production System,” the COST SUBTRACTION PRINCIPLE. Simply put, when in the 1960’s the world economy shifted from a seller’s to a buyer’s market, wise manufacturers chose TPS thinking to promote system efficiency by eliminating waste, while less enlightened manufacturers elected to automate wasteful processes creating what Toyota referred to as “apparent efficiency” and Shingo called “superficial improvement.” Reflecting on General Motors’ unwise choices at a 2005 Shingo Conference, former General Motors manager, Russ Scafede, quipped “We liked to say at GM that all the divisions were profitable; it was only the corporation that was losing its shirt.”
Like GM, NECCO did not choose wisely, but unlike GM is was not too big to fail. By 2007, when it was purchased by asset manager American Capital Strategies, NECCO was heavily invested in a status quo infrastructure that favored superficial improvement, and, over-production. That liability was apparently invisible in 2007 to American Capital Vice President, Jeffery Anapolsky, who commented on the purchase, “NECCO is well-positioned to leverage its state-of-the-art production capabilities.” Taiichi Ohno famously noted that an organization’s true productivity is not tested until it faces a down economy, which is exactly what ensued in the following decade. By 2018, NECCO was once more on the block as was its investor, American Capital. Now losing $10M per year despite significant downsizing, what was once the world’s largest candy company, NECCO was closing in on the final chapter – chapter 11.
As I walked the factory floor at the Revere plant in 2015, my host from American Capital lamented “These are the candies of our parents; millenials want something new.”
An automated process, about sixty feet in length, sat idle in the middle of the floor.
Motioning to it, my host explained, “With this automated Sky Bar machinery we can produce the entire candy bar with all fills in a single pass, eliminating several production positions.”
“Why is it idle now?” I asked.
“It runs so fast,” he replied, “we can produce a month’s worth in a couple days.”
I followed up with a related question: “Is inventory a concern?”
“No, it’s not a key metric. We are focused on reducing operating expense.”
“When the Sky Bar Machine is down, what do you do with the folks who operate it?” I asked.
“We move them somewhere else.” I didn’t continue that line of questioning, but I think “somewhere” meant “anywhere.”
Changing the subject, I inquired, “How’s the Sky Bar machine run for you?”
“It’s a little touchy,” he replied. I suspect this machine was part of the state of the art capabilities noted in the 2007 news release from American Capital.
At the conclusion of my tour I asked how GBMP could help. “We’re looking for a new general manager now, but will be back in touch shortly,” he said. That never happened, maybe for the best. The investors were looking for a short-term fix to a long-term problem and were looking, in my opinion, in the wrong places.
If there’s a silver lining to the sad demise of a Boston institution, it’s that most of the iconic candies that were once produced by NECCO were sold to other candy companies and will eventually be on market shelves again. Sweetheart Candies will not be back in stores until later this year when Ohio-based Spangler Candy Company ramps up production capability. For now, I want to wish everyone a Sweetheartless Valentine’s Day, 2019.
Join Bruce for his pre-summit (March 25) workshop Poka-Yoke: Respect for People Through Mistake-Proofing as part of the 2019 Lean Summit taking place March 27-28 in Houston, TX.