Understand the manufacturing problems before selecting the right tool to fit it

Most all companies are determined to improve their performance and become ever more competitive. Most try various tools for improving their performance, but typically have only limited success. The tools applied may initially succeed, but then not be sustained. This article begins a discussion of this issue characterizing many companies’ performance and behavior.

Beta International, a large manufacturing conglomerate, has made substantial progress in its operations and business performance. A few years ago, CEO Bob Neurath set forth a 10-point strategic plan for process improvement that focused on getting back to basics. After all, he reasoned, if we aren’t tenacious about getting the basics right, how can we expect to get anything else right?

Driven from the top, this focus has yielded substantial gains for the company. Asset performance has improved, unit costs are decreasing, safety performance continues to improve and market share is increasing in many markets, holding steady in others and only declining in a few markets that are on strategic watch. Profits have moderately increased in most business units and holding steady in almost all others.

But, performance is simply not good enough. Return on capital is only about average in most business units. Intense pricing pressures from foreign competition, particularly Asian manufacturers, are continuing to drive down prices and hold down margins. If downward pricing pressures are stemming from Asia, Bob mused, then there is no doubt that companies like Wal-Mart, with its guaranteed lowest-price strategy, will only further intensify those pressures.

The low margins resulting from these pressures limit Beta’s ability to invest in research and development for new product and process development, new capital projects that flow from this R&D, as well as strategic acquisitions better aligned to the company’s long-term strategy and business objectives. As a result, future market development and the growth that goes with it are likely to be hampered.

In summary, the good news is that Beta has returned from the brink of disaster to become at least a mediocre company, maybe even above average in some business units. The bad news is that Beta is still not much better than a mediocre company. Perhaps more importantly, many seem to be satisfied — even pleased, with this.

Bob Neurath is not. Having taken a step back from the abyss it faced a few years ago, Bob is now ready to move Beta forward more aggressively, creating a much more profitable future for the business.

Trying to be all things in all markets only dilutes management focus, thus leading to mediocrity. Bob’s expectation, like many corporate leaders today, is that Beta should be first or second in all of its markets or have a clear, measurable path for achieving that position. The company must now move from survival mode to growth mode.

Going beyond the basics

Bob’s response to this lack of consistency and purpose in applying these tools, beyond a certain amount of chagrin, was to form a senior-level steering team to review each tool and make a judgment about its efficacy and efficiency. Some questions being asked:

• Under what circumstances do we apply each strategy or tool?

• What are each tool’s advantages and disadvantages?

• Are they compatible and/or supportive?

• Do some require other related tools to be used in conjunction for maximum results?

• When are they incompatible?

• These fundamental questions need answers in order to develop a strategy for their application that could align the organization toward a common set of goals within all of Beta’s various operating units.

  Bob also demanded an annual market review to ensure proper alignment of the manufacturing plants’ strategy to the marketing and product mix strategy (and vice versa). The review needed to identify the major steps needed for assuring growth in all markets. Growing market share required Beta to do most, if not all, of the following seemingly straightforward activities:

  • Keep the customers that you already have by creating incentives for them to stay or obstacles to their departure

  • Take business from your competition by making your products more attractive

  • Go to where the growth is by anticipating those growth areas

  • Enter adjacent markets by adapting your products to those markets

  • Invest in developing new product lines, markets and customers.

  • These principles need to be applied at Beta, along with the models for rationalizing and optimizing products, customers and markets. The marketing department will manage product and customer mix and complexity within the product range. They will work with manufacturing to understand the implications of their decisions on the manufacturing function, particularly as it relates to quality, cost and delivery.

    This communication will be a two-way street with business decisions based on what is best for the business overall and not on a single given function. The plants work to improve quality, cost and delivery through improved reliability and stability as well as reduced variability and waste. This should increase capacity and gross profits and allow the pursuit of additional market share without having to make additional capital investment. We must fully understand our business’s external realities: Are we in a growing or declining market? What is happening to prices in those markets? What is happening to our customer base? Are we in the middle of a major structural shift?

    They also suggest that we understand our internal activities relative to our external realities. Is our strategy aligned with market realities? Are our operations efficient enough to address those? Are we as executives engaging our people in supporting our improvement? Is our organizational structure aligned to meeting our objectives? And, are we meeting our financial targets in light of all this, routinely iterating and improving our performance relative to the external realities and internal activities?

    Author Information

    Excerpted from the new book, “Selecting the Right Manufacturing Improvement Tools — What Tool? When?” by Ron Moore, published by Elsevier Books, Butterworth-Heinemann Imprint. Ron Moore is the managing partner of The RM Group, Inc. He can be reached at (865) 675-7647 or by email at RonsRMGp@aol.com .

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