Redefining Operational Excellence for High Mix Manufacturers

8/7/2019 Redefining Operational Excellence for High Mix Manufacturers

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White PaperRedefining Operational Excellencefor High-Mix Manufacturers



Table of Contents

Executive Summary 2

Introduction: The 2011 Global Manufacturing Landscape 2

The Evolution of Optimizing Efficiencies within Manufacturing

4

Redefining Lean with People, Process, and Technology 5

Characteristics of Optimal, Profitable Plants 6

Conclusion 8

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Executive Summary

Manufacturers today are under tremendous pressure to increase profitability and demonstrate

stakeholder return on investment (ROI). In order to meet these objectives and stay competitive

in the global economy, executives are once again focusing on optimizing their manufacturingand supply chain networks. By redefining optimal manufacturing operations, manufacturers are

meeting—and exceeding—business objectives.

Increasingly, manufacturing companies have embraced Lean techniques to improve

performance and optimize their factory and supply chain operations. Starting in the automotive

industry with the Toyota Production System (TPS), companies implementing lean have seen

dramatic improvements in costs, customer service, and profitability. But manufacturing

executives outside the automotive industry, particularly in complex, high-mix environments must

first understand why TPS Lean techniques do not always produce long-term or desired results.

Companies have failed to generate savings for three main reasons: trying to implement Lean

exactly as it was invented, failure to scale initial success and lack of technology to sustain

positive results.

By adapting Lean using a holistic approach encompassing people, process and technology,

companies are achieving sustained profitability. This white paper summarizes how high-mix

manufacturers that have won big share three common characteristics: a culture that promotes

continuous improvement and employee involvement, a focus on customer needs, and an

investment in technology to sustain these two characteristics. Bristol Myers Squibb, The Coca-

Cola Company, and CP Kelco are great examples of manufacturers that have succeeded in

achieving operational excellence because of their commitment to Lean using a holistic approach

(people, process and technology).

Introduction: The 2011 Global Manufacturing Landscape

Challenging economic times mean that manufacturing executives must do more with less. The

recent downturn halted investment as companies slashed budgets, shuttered factories, reduced

the number of employees, and delayed technology upgrades. Executives who once turned to

manufacturing to improve execution and profitability instead focused on survival in turbulent

times.

But as the global economy recovers, businesses are overcoming hesitation as they emerge

from the recession. Leading companies are once again re-prioritizing manufacturing and supply

chain operations planning investments in product quality and innovation to drive competitive

advantage. They are putting a strategic focus back on manufacturing and are using operations

to innovate and regain profitability.

Redefining Operational Excellencefor High-Mix Manufacturers

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Research shows that now is the time to reinvest in manufacturing. For 16 straight months,

output has expanded and exports have grown steadily.1 The Institute of Supply Management

reports that manufacturing in the U.S. rose in January at the fastest pace since May 2004.

Justin Lahard and Kris Maher of The Wall Street Journal said “with demand for goods around

the world continuing to rise . . . uncertainty is being trumped by concern about getting left

behind.”2 Companies are transitioning from “the year of stability” to “the year of ROI” as

management increasingly understands the need for investing in strategies that boost growth.3

Along with the increasing appetite for growth comes intense pressure for senior executives.

Management must not only make up for lost time, they must restore an environment and

funding for technical advancements and set the path for profitability and stakeholder ROI. As

exhibited in Figure 1, revenue, profitability and costs are top business concerns.

1 2 3 4 5

(Scale)

Business concerns over the next two years

Q. What are the main business concerns for your company in 2010/2011?

Base: Entire SampleNumber of valid respondents: 722Source: IDC Manufacturing Insights, July 2010

Revenue

Profitability

Raw Materials Cost

Manufacturing costs

Cash flow

Increasing rapidly changing

customer requirements

Demand volatility

Global manufacturing

competitiveness

Inventory carrying costs

Figure 1

1Ins&tuteforSupplyManagement™,January2011ManufacturingISM ReportOnBusiness.h=p://www.ism.ws/

ISMReport/MfgROB.cfm

2Lahard,Jus&nandKrisMaher,“SeeingEconomicRebound,FirmsStepUpSpending,” TheWallStreetJournal,

June25,2010

3“TheReturnofManufacturing:Firmslooktoshoreupopera&onsandbusinesssystemsasmarketsreemerge,”

TheMPIGroup,2010

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Meeting profitability objectives is even more challenging given a global manufacturing

landscape of fierce offshore competition, shorter product life cycles, demanding customers, and

heightened regulatory compliance. According to research and advisory firm IDC Manufacturing

Insights, the manufacturing industry as a whole is struggling with increasing complexity, rapidly

changing business environments and volatile raw materials prices.4

To remain competitive in the global economy, manufacturers must become more productive,more efficient, and more responsive. According to “Business 2010: Manufacturing,” a white

paper from The Economist , manufacturers can stay competitive by accelerating the pace of

innovation and adapting swiftly to change.5 And, despite the recent pressure to reduce costs, a

KRC Research survey of more than 300 senior manufacturing executives indicated that they

have been investing in their companies, especially in the areas of quality improvement systems

and research and development (R&D).6

Manufacturing executives must continue to invest in innovation. Optimizing manufacturing and

supply chain network operations is not about improving operations—itʼs about coming up with

realistic solutions that contribute to the bottom line. Shortening cycle times, meeting customer

deadlines, reducing inventory and shipping more products translates to meeting profitability

objectives.

The Evolution of Optimizing Efficiencies within Manufacturing

History shows that an optimized factory and supply chain contribute to company-wide

profitability. For this reason, leading manufacturing companies are once again focusing on their

factories. They want to retain their core competency, guard intellectual property, and be near

customers. However, C-level executives are hesitant to reinvest in Lean and Six Sigma

techniques that have previously failed to generate results (namely, shareholder value and

profits). Unfortunately, failure to produce less-than-stellar results is not uncommon. A survey

from consulting firm Bain showed that only 19% of companies that had tried Lean were happy

with the results.7

So where has Lean gone wrong for these manufacturers? Namely, itʼs that traditional Lean is

not effective to high-mix manufacturers in complex environments. According to Michael

Mahoney, author of High-Mix, Low-Vol u me Manufacturing:

4Dahlgren,MeganandPierfrancescoMane&,“Bea&ngComplexity,AchievingOpera&onalExcellence,”IDC

ManufacturingInsights,July2010

5TheEconomistIntelligenceUnit,Business2010:Manufacturing,EmbracingtheChallengeofChange,April2005

6BakerTilly,ThoughtsontheEconomyandGlobalBusiness:SurveyofU.S.ManufacturingExecuIves,July2009

7Jones,Del,“Toyota’sSuccessPleasesProponentsof‘Lean’,” USAToday,May4,2007

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The fundamental operational dynamics for high-mix manufacturing requires a different approach

that TPS-Lean is ill equipped to address. In the original translation of the book, Toyota Production

System from Industrial Engineering Viewpoint, it states that the TPS Kanban system could be

adapted only in the case of repetitive production and impossible to utilize for individual production.8

Manufacturers that have applied traditional Lean principles for complex environments have

ultimately failed to see results for three main reasons:

1. Companies are trying to implement Lean exactly as it was invented. The TPS

principles that worked in the automotive industry wonʼt be successful withoutadapting techniques to work in a high-mix, complex environment. For example, high

volume Kanban techniques doesnʼt work well if you have multiple products on shared

equipment, or have a significant demand variability or changes in product mix, or if

you manufacture engineered-to-order or make-to-order finished goods.

2. Companies struggle to scale initial successes from pilot projects. Although

manufacturers might have an initial pilot project with tremendous results, they

struggle to get the same success across all lines in a factory or all factories across

the globe. This is often because the initial pilot focused on high-volume products,

while scaling across the business requires expanding to lower volume, higher

variability products.3. Companies cannot sustain initial success. Although companies may experience

initial successes in the first few months, operations often gradually revert to the way

they were. Thatʼs why itʼs imperative to automate use of these approaches and to

measure performance. If manufacturers automate and use high-mix Lean techniques

as scorecards, they are more likely to sustain results.

So what is the answer? Sustained success requires holistic Lean methodologies, encompassing

people, processes, and technology.

Redefining Lean with People, Process, and TechnologyManufacturers that have tried traditional Lean and Six Sigma have learned itʼs not as

straightforward as they expected it to be. Companies that use a holistic method—encompassing

people, processes and technology—are winning big.

Sath Rao, vice president at consulting and research firm Frost & Sullivan, says itʼs these three

things – people, process, and technology – that mitigate risk for complex manufacturing

ecosystems.9 By optimizing the high-mix factory floor using this methodology, time to results is

reduced, and companies are realizing significant savings in the second month of deployment.

The matrix in Figure 2 compares these three characteristics at a company low on the maturitylevel scale of achieving holistic Lean results vs. a company that has accomplished competitive

advantages through holistic Lean.

8Mahoney,Michael,“LeanwhenBasedonToyotaProduc&onSystemFailsforHigh‐MixManufacturers,”July20,

2007

9Rao,Sath,“CanManufacturersDrivetheCEO’sGrowthAgenda?” ManagingAutomaIon,October11,2010

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As consumer demand fluctuates, holistic methodology gives manufacturers the competitive

advantage of having the ability to respond to changes in the marketplace. The holistic

methodology is based on three ideas:

1. Training and empowering employees

2. Refining plant processes with best practices3. Implementing technology to improve responsiveness to the customersʼ needs

When companies leave out one of the three important characteristics, failure is inevitable. First,

many manufacturers underestimate the importance of people and instead make technology

investments that donʼt yield any benefits. For example, some companies pour millions of dollars

into ERP systems that arenʼt well suited for the organizations or their people, leaving the

company with a lot of expensive shelf ware.

Second, some managers run into internal obstacles, such as traditional financial metrics that

encourage them to produce tons of inventory. Or, short-term thinking leads executives to pursue

investments that help them achieve quarterly goals, but doesnʼt consider long-term investments

in people or technology.

The last missing critical component, which also is the easiest to fix, is using the right technology.

Homegrown tools arenʼt conducive to scaling and are difficult to maintain over time. The

company may realize short-term results, but they cannot sustain those results and often

abandon the process.

Characteristics of Optimal, Profitable Plants

Despite the fact that some organizations have failed to achieve scalable, sustainable results,

many high-mix manufacturers are succeeding using Lean methodologies to support increased

efficiency and sustained profitability. Successful manufacturers share three characteristics:

1. Employee involvement and a culture that promotes continuous improvement2. A focus on customer needs and value3. Technology to support the Lean initiative

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Ma urity Levels

Needs Improvement Competitive Advantage Through Holistic Lean

PeopleLack of employee engagement

Poor communications

Significant investment in training

Ideas from workforce

Process

Forecast-driven push

Financial metrics based oninternal efficiencies

Demand-driven pull

KPIs based on velocity & customer satisfaction

Technology

Lack of investment in equipment

Manual, ad hoc decision

support tools

Focused investment in tools to support people and

sustain processes

Automated, scalable business intelligence analytics

C h a r a c t e r i s t i c

Figure 2



Characteristic #1: Employee involvement and a culture that promotes continuous

improvement.

Itʼs never just about the technology. Itʼs about the people. Modern equipment or software is

never sufficient. Itʼs the people who make good decisions and who identify improvements to

operations and the supply chain. As Andrew Carnegie famously proclaimed, “Take away my

people and leave the factories, and soon there will be grass growing on the factory floors, but

take away my factories and leave my people, and soon we will have bigger and betterfactories.” 10

Bristol Myers Squibb provides an example of best practices for fostering a culture of continuous

improvement new plant manager, who was determined to save his factory from being shutdown,

led a transformation that resulted in saving not only the plant but also achieving industry-wide

recognition for company performance. The plant manager empowered his people to design

Lean processes, leveraging outside consulting expertise and software tools to implement

demand-driven pull replenishment. The organization utilized these resources to improve the

velocity of value and inventory and constantly looked for techniques and technology that would

help them thrive and grow.11

Characteristic #2: A focus on customer needs. This characteristic shifts the focus from

internal metrics to customer needs and the value that the plant provides in order to eliminate

waste, or non-value-added activity. The objective is to get value flowing to the customer as

quickly and reliably as possible.

Many manufacturers still maintain a forecast-driven push approach using sophisticated

forecasting systems that predict, often with dismal accuracy, what customer will buy.

Unfortunately, these push methods tend to isolate factories and the supply chain from true

customer demand signals, leading plants to produce too much of what customers donʼt want,

and not enough of what customers demand today. That is why leading manufacturing are

transitioning away from forecast-driven push towards demand-driven pull – it focuses

manufacturing and the entire supply chain on replenishing customersʼ immediate needs, putting

the customer in the driverʼs seat instead of an inaccurate forecast.

For example, The Coca-Cola Company recently embraced demand-driven pull replenishment.

They have seen a dramatic increase in demand variability and forecast error, caused primarily

by an explosion in the number of brands, flavors, and sizes they must bottle and distribute.

Working with outside consulting expertise, they designed demand-driven pull processes that

work in the face of high demand variability and rapid new product introductions, and enable

them to meet changing customer tastes much more responsively than their older, forecast-driven methods

10Blache,KlausM.,“SuccessFactorsforImplemen&ngChange:AManufacturingViewpoint,”June,1988

11Bristol‐MyersSquibb:EmpowermentandMetricsTurnPlantsAround. PharmaceuIcalManufacturing

Magazine,2005.h=p://www.pharmamanufacturing.com/ar&cles/2005/231.html

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