Fred Hapgood writes in the latest issue of CIO magazine about the hstory and future of manufacturing (see Factories of the Future). He goes back about 100 years when the US manufacturers gained supremacy by applying continuous manufacturing techniques. We lagged behind on adopting lean technics and have had to catch up. Mr. Hapgood thinks that the next turing point might be adaptive manufacturing.
In order to thrive in the current globablized ecomnomic environment, enterprises need to be able to offer a wide variety of products/services and be able to quickly throw resources behind the ones that sell. Economic forces are in constant change in today's world. The US dollar is kept high because Asian countries purchase and hold so many dollar assets. If (when) this trend reverses and the value of the dollar falls, industries depending on imports will be impacted negatively. US based enterprises that produce goods and services will be able to offer them competitively.
The US manufacturers who can respond rapidly to global demand and deliver needed goods/services will be at the forefront of this wave. Some of the tools that will help compete are:
How well are you positioned on these abilities? Will your enterprise be able to quickly respond to global demands?
A couple of weeks back I was with a group that gets together quarterly to discuss business metrics and innovation issues. Our region has received one of the 13 US Department of Labor WIRED (Workforce Innovation in Regional Economic Development) initiative grants and we talked with some of the people involved. A lot of what our region is going to focus on involves encouraging innovation: how do you generate ideas, how do you select from those ideas, how do you pilot prototypes, and how can you fund the startups.
In the broad sense this involves contributions from Workforce, Economics, and Education sectors. If you are interested in more detail on the innovation strategy, you can go to John Cleveland's paper "A Framework for Manufacturing Innovation" and see the detailed plan that we are trying to follow.
Having innovative enterprises involves blending the two key areas of Workforce and Education together. Who is better suited to lead process improvement and new product innovations than a trained, empowered employee? Your people should have strong shared values, an investment in the enterprise, and be rewarded for their innovation. See my earlier thoughts on innovation from employees for more ideas on that angle.
Education is needed to communicate a clear strategic direction to your employees so they understand the mission, vision, goals, and objectives or your enterprise. One of the companies in the group has an individual one page business plan for every employee in the organization. They use the format suggested by Verne Harnish and find it useful. It was mentioned that Jim Moran also has a good plan, but I'm not familiar with his suggestions. The goal of either of these is to link strategy to my actions.
I asked a successful corporate implementer of shop floor metrics how he trains his operators. His response was that he follows these steps.
Sounded like a pretty good idea to me. So how do you educate and empower your workers?
Many processes can be managed by just observing and asking good questions. In fact, if your processes are not able to be understood by observation, you might want to consider some simplification.
On the other hand, in order to engage in any continuous performance improvement you must have measurements to gauge your improvement. When you measure you will also gain the following.
MESA International did a study earlier this year called "Metrics that Matter" to learn about how manufacturing organizations use shop floor measurements. The public version is available here. (You have to be a MESA member to get the full study.) The study divides those that participated into two categories. The "Business Movers" improved significantly in the 11 business/finance metrics that Industry Directions (the consulting firm who performed the survey) used to create the survey. These organizations also shared other attributes:
You might expect some of these results, but these organizations also showed significant improvement in operational measures such as: quality, customer service, throughput, flexibility, compliance, asset utilization, and inventory reduction. Also reported safety incidents were lower and on-time delivery rates were higher in those organizations.
I think that this goes to show what I have seen working with our clients. Excellent organizations will train and motivate their people to take objective measurements and use these to improve the organization. How are you doing with your measurements?
Harbour Consulting produces their Harbour Report North America on the productivity of Automobile manufacturing in North America every year. This year shows the gap between the automakers is narrowing.
One of their key measurements that Harbour uses is the Hours per Vehicle. This year's numbers ranged from 28.46 hours at Nissan to 35.82 hours for Ford. This is the smallest gap between manufacturers yet. For a thought provoking discussion about whether this is a good measure of profitability, see Dan Slater's editorial about Quality and Productivity from Manufacturing & Technology News.
The two most productive assembly plants belong to Ford (Atlanta GA) and GM (Oshawa Ont.). Ironically both of these plants are scheduled to be closed in the next 2 years. The reasons behind this have more to do with the capacity utilization of the North American plans with Ford at 79% and GM at 90% utilization. Toyota is running at 106% utilization with the other manufacturers in between. With the announced plant closings Harbour estimated that GM will be at 105% and Ford at 113% utilization.
Even more interesting than the total utilization is the range for individual plants. GM ranges from 23% utilization to 143% utilization, Ford is 33-138%, and Daimler/Chrysler 43-132%. Compare this to Toyota's 97-109%, Nissan at 89-107%, or Honda between 78% and 100% utilization. Is Toyota's planning that much better? Is GM too saddled with restrictive union work rules and old facilities? What do you think?
Last night I saw an advertisement for a movie (Dejavu) coming out where the police were predicting the future by being able to look at the recent past. Wouldn't that be a useful skill to predict the future? But wait a minute, we should be able to predict the near future by looking at the near past. As long as the processes we are managing are relatively stable and our ability to measure is good, we only need to know what to measure.
A recent American Express survey (download here) found that 64% of respondents from mid-size companies had difficulty "gathering, analyzing, and using" data about expenses. One of the factors that is critical is the speed at which you need to react. Waiting until you get the monthly financial statement and then trying to analyze the high level information presented there is deadly. For most companies, this information isn't available until around 45 days after the start of the fiscal period.
So how can you create the capability to react faster? First of all you need to identify metrics at every level of the enterprise that point to the organizational goals. If a goal is to reduce the time from customer order to shipping, the order department must be viewing their order processing time while manufacturing must be viewing their manufacturing time. Second, you need to put in place measuring that gives you the information in time to react.
And finally, you need to present the information in a manner that can be used. Charles Chewning, Jr. makes some good suggestions in "Throw Away Your Financial Statements: Managing by Metrics". In this article, he suggests that KPIs must be
The National Association of Manufacturers (NAM) released two reports that, taken together, point to a worrisome trend.
The first report "The NAM Annual Labor Day Report" points out the correlation between manufacturing output, productivity and employment. They have tracked these three measures since 1950 and found that employment is related to output less productivity. In other words, as long as our productivity is increasing we can produce more with the same amount of people. Seems pretty obvious. Although manufacturing productivity has been increasing faster then ever before (3.8%), the last four quarters have shown that the output is rising even faster (5.8%).
This has caused increasing employment in the manufacturing sector. These new manufacturing jobs are also higher paying and have been increasing in real hourly compensation (10% since Q4 of 2001). So far, so good, but we also need to be increasing productivity. Another downside is that health care and energy costs are consuming a larger amount of living expenses and this is leaving less disposable income.
The second report is the "2005 Skills Gap Report - A Survey of the American Manufacturing Workforce" was produced in cooperation with Deloitte and The Manufacturing Institute. This report found that more than 80% of the companies surveyed reported being unable to hire people with the necessary skills.
The survey concludes "Skills shortages are having a widespread impact on manufacturers’ abilities to achieve production levels, increase productivity, and meet customer demands." Engineers and scientists are in short supply and we are graduating fewer and fewer as the foreign universities graduate more and more. The survey points out "Also worrisome is the finding that 90 percent of respondents indicated a moderate to severe shortage of qualified skilled production
employees, including front-line workers, such as machinists, operators, craft workers, distributors, and technicians."
You might wonder what impact this is having. Well, the Skills Gap Report concludes that "83 percent of respondents indicated that these shortages are currently impacting their ability to serve customers. Specifically, the survey found that skill deficiencies are causing difficulties for manufacturers in terms of their ability to maintain production levels consistent with customer demand (56 percent), to achieve productivity targets (43 percent), and to achieve or maintain target levels of customer service and satisfaction (33 percent)."
In order for manufacturing to survive we must keep up the innovation in products and processes and continue to improve our productivity. This can only be done with a highly educated and motivated workforce. This will require many changes in training and workforce environment. What do you think they might be?
This weekend is the Labor Day holiday in the United States when we pause to honor all those who work. According to the U.S. Department of Labor website this holiday is "a yearly national tribute to the contributions workers have made to the strength, prosperity, and well-being of our country". The "Arther D. Little Innovation Excellence Study" of 2005 showed employee innovation ideas in a single area can lead to as much as a 7.9% increase of sales.
Soliciting innovation from your employees pays dividends in many ways. It can increase your sales, profits, and your employee satisfaction. The Employee Involvement Association reports from its research that nearly 50% of employees will identify and implement improvement ideas. It is when these ideas are not responded to that employees disengage from the process.
Jennifer Rosenzweig wrote an article entitled "Rethinking Innovation: Employees as R&D Assets" in the latest 1to1 magazine. She suggests 3 elements that need to be present for employees to make a difference.
How is your employee innovation program going?
This phrase has been used in many contexts, including by the SAS Institute in the book Customer Data Integration: Reaching a Single Version of the Truth. It is particularly applicable to the manufacturing shop floor where fact-based information can drive improvements. Many improvements can be traced to somebody looking at accurate data and wondering why or how. The lean objective of continuosly improving value for your customer needs to be supported by accurate process measurements.
Part of the problem is that there is not always a common language used to define terms. This is needed not only within an enterprise, but between the enterprise and its suppliers and customers. A supplier may argue that they were on time with a delivery because the units arrived on the agreed upon day. However, the customer may disagree because some of the material failed to pass incoming inspection and needed to be replaced.
It is difficult to argue that the actual collection of data creates value. However, converting this data into actions creates value. Continuing to collect and monitor for improvement protects the value that has been achieved for your customers. Using monitoring information to produce consistent value for your customers will lead to product superiority and market leadership.
In order to create this value, you must follow these steps.
Last time I gave some of my thoughts after re-reading "Process Optimization That Measures Up" from Optimize Magazine. Even though this article is written for Information Technology managers, I think that there is some application to productivity in all areas. Bruce Rogow, the writer, suggests 6 areas that can provide a vision for improving the efficiency of an entire enterprise.
If this sounds like a lean or Six Sigma approach I agree. There are many tools that are available for manufacturing that can assist in achieving this type of an optimization.
A lot of time and energy has been focused lately on business process optimization. Thinking about individual business processes is a good thing and can lead to improvements that pay real dividends. Reducing every aspect of a business to a process diagram misses the fact that organizations are organic. Looking at the overall business goal will bring orders of magnitude larger improvements when it is consistently applied at all levels.
An organic organization grows, adapts, and learns how to make things better. When a major process optimization effort is implemented it is unusual that it is readily adopted by the humans it is designed to help. This is because within a domain of expertise informal methods are better at adapting and overcoming obstacles.
Examples of processes that really can't be statically diagramed are product design/development, innovation, marketing, motivational programs, customer service, and others. These processes critically affect customer satisfaction and profitability. What needs to be done is to work from a business model rather than from a collection of processes. The business model approach adds the "Why". Without keeping "Why" in mind you are just manufacturing a product to fill a warehouse.
A model of how this works is to consider how a real estate developer brings a development to completion. A team of financiers, architects, engineers, contractors, geologists, property managers, and more are assembled to scrutinize the project from every angle. The developer articulates the vision of what is to happen and the team brings it to fruition.
An article from last year's Optimize Magazine ("Process Optimization That Measures Up") talks about how this approach can be applied to Information Technology initiatives and was a starting point for my thoughts.