Alison Smith: Strategy versus compensation in the search for manufacturing excellence

Manufacturers sorting out their five-year strategic manufacturing architectures have come to realize that strategic vision—while vital to the future—isn't going anywhere until the fires in the plants are put out. Just ask the business owners: Investments in fundamentals are desperately needed.


Manufacturers sorting out their five-year strategic manufacturing architectures have come to realize that strategic vision—while vital to the future—isn't going anywhere until the fires in the plants are put out.

Just ask the business owners: Investments in fundamentals are desperately needed. Yet the pervasive practice within manufacturing of placing the burden of technology adoption squarely on the plant P&L gets in the way of progress. Have we established a system that rewards local optimization at the expense of strategic goals?

Progressive manufacturers acknowledge that any operations excellence transformation must include a revamping of project funding models to encourage plant-level adoption of new technologies. Plant financial performance and employee incentives shouldn't be adversely affected.

The two examples that follow illustrate collaborative shared-risk approaches to project funding and execution that encourage adoption of strategic technologies, and therefore, progress in realizing strategic visions.

Advanced manufacturing technology/central engineering groups . These are centralized corporate engineering/IT organizations with the budget to invest in technologies deemed strategic to the organization. This group is charged not only with identifying strategic manufacturing technologies, but with creating, testing, and deploying new processes and applications to selected plants on a project basis. Projects are generally initiated by the business. Depending on the internal organization, the business case may be proposed by the product-line manager, brand owner, or by a specific facility owner; and is prioritized on ROI (based on net present value).

The plant assumes the project cost burden (again, net present value) only after the technology or application has been validated in the production environment. The underlying rationale is that the plant should not have to assume the burden until the project is yielding a return—i.e., increased production efficiencies, capacity, or some other benefit to the P&L that offsets the cost.

Centers of excellence . In this scenario, facilities are selected as corporate centers of excellence for specific processes. The plant agrees to pilot the new processes and technologies, and in return for assuming the risk associated with being an “early adopter,” enjoys a corporate subsidy on license, first-year maintenance, training, and deployment expenses—in addition to becoming a corporate showcase and proof point for ROI. We've yet to see a best practice for managing depreciation in this case, so write-ins from our readers are welcome.

The intent, in both cases, is to first make progress on strategic goals realization, and demonstrate to other plant-level organizations that there are tangible benefits to be gained from adopting the technology. Both of these approaches also recognize the financial realities that the plants live with, and aim to alleviate some if not all of the financial barriers to adoption.

We recognize that the relationship between corporate IT and manufacturing often is cordial at best, but it's less about culture than it is about compensation plans. We continue to research innovative approaches to negotiating the strategy-versus-compensation-plan dilemma, and if you've got additional thoughts on the issue, drop me a line.

Author Information

Alison Smith is a director within AMR Research's Market Services group, where her current focus is on manufacturing operations. Smith offers insight on applying manufacturing execution systems, enterprise manufacturing intelligence, and asset performance management solutions across vertical industries. She can be reached at .

No comments
The Top Plant program honors outstanding manufacturing facilities in North America. View the 2013 Top Plant.
The Product of the Year program recognizes products newly released in the manufacturing industries.
The Engineering Leaders Under 40 program identifies and gives recognition to young engineers who...
A cool solution: Collaboration, chemistry leads to foundry coat product development; See the 2015 Product of the Year Finalists
Raising the standard: What's new with NFPA 70E; A global view of manufacturing; Maintenance data; Fit bearings properly
Sister act: Building on their father's legacy, a new generation moves Bales Metal Surface Solutions forward; Meet the 2015 Engineering Leaders Under 40
Cyber security cost-efficient for industrial control systems; Extracting full value from operational data; Managing cyber security risks
Drilling for Big Data: Managing the flow of information; Big data drilldown series: Challenge and opportunity; OT to IT: Creating a circle of improvement; Industry loses best workers, again
Pipeline vulnerabilities? Securing hydrocarbon transit; Predictive analytics hit the mainstream; Dirty pipelines decrease flow, production—pig your line; Ensuring pipeline physical and cyber security
Upgrading secondary control systems; Keeping enclosures conditioned; Diagnostics increase equipment uptime; Mechatronics simplifies machine design
Designing positive-energy buildings; Ensuring power quality; Complying with NFPA 110; Minimizing arc flash hazards
Building high availability into industrial computers; Of key metrics and myth busting; The truth about five common VFD myths

Annual Salary Survey

After almost a decade of uncertainty, the confidence of plant floor managers is soaring. Even with a number of challenges and while implementing new technologies, there is a renewed sense of optimism among plant managers about their business and their future.

The respondents to the 2014 Plant Engineering Salary Survey come from throughout the U.S. and serve a variety of industries, but they are uniform in their optimism about manufacturing. This year’s survey found 79% consider manufacturing a secure career. That’s up from 75% in 2013 and significantly higher than the 63% figure when Plant Engineering first started asking that question a decade ago.

Read more: 2014 Salary Survey: Confidence rises amid the challenges

Maintenance and reliability tips and best practices from the maintenance and reliability coaches at Allied Reliability Group.
The One Voice for Manufacturing blog reports on federal public policy issues impacting the manufacturing sector. One Voice is a joint effort by the National Tooling and Machining...
The Society for Maintenance and Reliability Professionals an organization devoted...
Join this ongoing discussion of machine guarding topics, including solutions assessments, regulatory compliance, gap analysis...
IMS Research, recently acquired by IHS Inc., is a leading independent supplier of market research and consultancy to the global electronics industry.
Maintenance is not optional in manufacturing. It’s a profit center, driving productivity and uptime while reducing overall repair costs.
The Lachance on CMMS blog is about current maintenance topics. Blogger Paul Lachance is president and chief technology officer for Smartware Group.