Reinventing the Factory: Managing the World Class Factory, Vol. 2 - Hardcover

Harmon, Roy L.

Hardcover

ISBN 10: 0029138620 ISBN 13: 9780029138625

Publisher: Free Press, 1991

Synopsis

The successor to Reinventing the Factory provides examples of basic techniques, such as cross-training, new generation account systems, and the empowerment of subplant managers, that can lead to failsafe product and process quality. 12,000 first printing.

About this title

About the Author

Roy L. Harmon, co-author of Reinventing The Factory founded Andersen Consulting's factory productivity practice and provides advice to its clients throughout the world.

Excerpt. © Reprinted by permission. All rights reserved.

Chapter 1

Management Perspective: Strategy, Quality, and Productivity

The imminent dawning of the twenty-first century should serve to remind chief executive officers, their boards, and their fellow officers that they owe the stockholders, employees, and suppliers a road map for continuous improvement that will last well into the world of the future. The road map will be crucial to ensuring their future livelihood. In fact, the very viability of many businesses may be threatened should such plans be lacking. "Business as usual" is an operating philosophy that competitors are sure to reject. Bold, innovative changes were the precursors of past successes and will continue to be the hallmark of future giants of industry. Fortunately, the world of manufacturing is brimming with opportunities for improvement. The challenge is to find and develop executives who note a company's imperfections -- in business operations, labor relations, supplier relationships, and product value and quality -- and refuse to accept them as necessary evils. Recognizing the imperfections is the first step toward inventing strategies and tactics for eliminating them. The executive's responsibility does not stop with the limning of a future vision. It must extend into everyday planning and execution of the myriad tactics that, taken in concert, will propel the company into the ranks of the superior manufacturers of the world.

It would be easy to become complacent with the giant strides some of our factories and offices have already taken. The author, with experience in Japan and other countries, has participated in projects that have yielded even better results than those of Japanese companies. However, these improvements have not yet advanced the state of our operations to the exciting, achievable level of the global, systemwide economic benefits that lie ahead. For example, not one business executive would deny the enormous benefits that could be derived through radical reductions of the billions of dollars in the pipelines of production and distribution. However, these inventories (in the United States) have not dropped appreciably in any recent year, as shown in Exhibit 1-1. During these years, many businesses targeted, but failed to achieve, this very important business objective. Further, the strategies the largest companies pursued most aggressively had little to do with improving their operations. Too many paid insufficient attention to nuts-and-bolts issues like reducing inventories. Instead, many of the biggest businesses have pursued mergers, acquisitions, and divestitures as their route to success in the twentieth century -- a road that turned out to be rocky for most. Those executives preoccupied with games designed to drain surplus resources from acquisitions or artificial gains from unrealistic increases in stock value have only diverted resources and executive attention away from vitally needed improvements in operations. The usual results have been to sap the vitality of the factories that have been traded from company to company like poker chips. By contrast, exceptional, successful companies have always focused most of their managerial talents and energies on their core business operations. The tide of success for the long term will continue to run with those executives dedicated to the operation, not exploitation, of their businesses. Chief executive officers, therefore, must lead the charge to radically rationalized operations. To do so will require separating facts and myths.

EXECUTIVE OVERVIEW: KICKING THE SACRED COWS

A plethora of myths have arisen to explain why Japanese companies have been so competitive. In reality, they have no shortcuts to success, no single tricky gimmick to transform the rubble from a world war into a mighty industrial machine. Superior status was won and will continue to be won only by hard work and slogging, step-by-step progress spanning several decades of continuous improvement. The popular myths, each evolving from the compulsion to find an easy way to success, have caused many companies to detour from the path of hard, dedicated work. Sadly, their alternative paths have delayed achievement of the potential improvements. Several such myths -- even today -- are considered to be the sacred cows of "World Class Manufacturing." The author takes great glee in occasionally giving these sacred cows a not-so-subtle kick.

Manufacturers worldwide have listened to a confusing array of reasons for the emergence of Japan as an industrial superpower Initially, far too much emphasis was placed on "cultural" issues. Researchers such as Dore devoted entire books to analyzing the cultural differences between Western and Japanese factories. And while these cultural issues are not completely unimportant, the first order of priority should be to focus on the easiest, fastest opportunities for improvement. Dore failed to note critically important hardware (tooling and equipment) differences such as fast setup (changeover) and poka-yoke (fail-safe) production methods. These low cost methods can be rapidly implemented, whereas changing cultural factors may require years. Eventually, however, initial studies led to a consensus that statistical quality control and quality control circles must have been the twin panaceas for solving deficiencies in productivity and quality. Unfortunately, these perceptions are passé. Statistical quality control advocates usually focus on the importance of maintaining various quality charts. Where applied with vigor, charts are found in profusion all over the factory. Shingo, the famous Japanese consultant, once told the president of an American company: "But these charts are like government statistics that tell you how many people died of cancer...posting them is no more than displaying post mortem certificates." He then proceeded, without charts and in a few minutes, to design a solution to one of the company's most persistent quality problems. As previously mentioned, state-of-the-art industry leaders have moved far beyond the perceived need for statistically sampling either products or processes to identify and solve problems. Today's best manufacturers design and produce perfect quality products and components, thus obviating the need for applying statistical techniques to the ongoing production process.

Another false and dangerous perception has been that management's highest priority should be increased spending on new state-of-the-art technology, commonly thought of as factory automation. For example, all but a few manufacturing executives in the world have seen a picture or film of a robot body-welding line like the one in Exhibit 1-2. Before people begin ooh-ing and ah-ing over such examples of advanced, state-of-the-art automation, they should note that process simplification could have reduced the line length, and thus the size of the factory, by as much as 50 percent. They see robots standing shoulder-to-shoulder, as densely as possible, working at top speed. What they fail to see as readily is that the factory designers fell into a common trap. Having been accustomed to human welders, they designed the line as though the robots had the same needs as humans. They do not! Robots do not need to stand on the floor. They are perfectly capable of "standing" on the ceiling and in holes, perhaps doubling the density of work on the line and cutting not only the length of the line, but also the part of the building occupied by the line, the time to weld a body, and the number of units in work-in-process inventory. In addition, the smaller physical area of each robot's work assignment should have reduced the size, complexity, and cost of the robots themselves. Programming each of the robots should also have been much simpler, since its part of the process should have been approximately one-half as complex.

While it is true that many factories have been penny wise and dollar foolish when it comes to upgrading processes through purchases of new equipment, far too little attention has been paid to the multiplicity of opportunities to achieve the "biggest bang for the buck" -- that is, making low cost improvements to existing machines and equipment. Such low cost improvements have been proved capable of significantly increasing productivity and production capacity while conserving capital for the invention and acquisition of entirely new processes. The alternative to low cost modifications of present machines and tooling -- massive investment in a few technologically advanced machines or processes -- can yield results for only a small percentage of a factory's operations since few companies could afford to replace all existing equipment in less than twenty years at best.

Another persistent myth concerning Japanese success is that the Japanese have been willing to produce new products, at a loss, for a long time, in anticipation of long-term profitability. Critics of Western manufacturers have been beating them about the head and shoulders for placing short-term profitability ahead of investments that will first begin to produce profits in future years. Of course, although true in many instances, the whole notion that investments in improvements must always be huge and must always detract from short-term profitability is nonsense. Every improvement project can be planned in such a way as to begin paying for itself in the short term. To achieve this requires only that executive management make it a condition for designing and implementing improvements.

The most astute observers of Japanese methods have seen that factory equipment can be used indefinitely, if it is continuously improved by modification, is well maintained, and is periodically rebuilt when cumulative wear has caused general deterioration in its performance. Less experienced persons have seen the most modern of factories, with completely new equipment, and have failed to realize that they have obviously been put into operation to produce new product lines or to meet increases in sales volume that exceeded the company's older existing plants' capacities. Every major Japanese company has several factories, all of which vary in construction date and equipment age. In the past, the average age of equipment in the Japanese plant was much less than in the factories of Western counterparts. This was mistakenly attributed to higher levels of spending for new technology rather than the real reason, which is new and increased demand.

Yet another erroneous perception of some Western industrialists has to do with the myth of equipment flexibility. Product changes are the bane of every manufacturer. When the product is changed, or if there is a change in the mix of products sold, the process must also be changed, and/or its capacity must be revised. The myth of flexibility is that a machine or a number of machines can be designed and manufactured in a way that provides the flexibility to produce any product or product mix. In reality, flexible machine centers and flexible machine systems are rarely flexible since they are usually most economically and physically appropriate for a specific size range, set of shape characteristics, and necessary machining operations. Further, the presumed flexibility of the machine or system is almost always provided by a design based on using a single cutting tool at any one time. Contrasted to the conventional transfer line or multiple-spindle machines, the flexible machine or system is distressingly slow.

The equipment used by most factories, if adapted to a product and continuously modified to achieve perfect quality and superior productivity, will determine the cost of production, and hence the competitiveness of the company. Therefore, the development of a long-range plan for the purchase of new equipment and for upgrading existing equipment should be the core of every company's strategy for achieving superior manufacturing.

MANUFACTURING NETWORK: THE GLOBAL SUCCESS STRATEGY

The famous kanban system is widely understood to be a vehicle for triggering shipments from vendor to customer. However, most researchers have failed to see and understand the requirement systems that work in harmony with kanban to broadcast the latest requirements to the network of suppliers at all levels of the manufacturing chain. Kanban (including electronically transmitted kanban) is an invaluable tool for triggering shipments between factories. However, each factory in the network needs a requirement schedule with which to schedule the capacity necessary to support the latest tempo of production.

The manuscript of the author's last book contained a statement that seemed too radical to the editor. The statement was that we should be able to reduce the cost of virtually any product by as much as 50 percent by implementing all of the improvements that are waiting to be designed. At the time, the author deleted the reference rather than delay the publication by taking the time to explain why this should be possible. The largest roadblock to achieving such an ambitious goal would naturally be that purchases are 50 to 60 percent of the cost of most companies' products. Thus, if in-house costs were slashed by 50 percent, over 75 percent of the original cost would be untouched. This being the case, no single company would be able to cut its product costs in half. Thus it is obvious that improvement efforts must encompass vendor operations as well as the operations of other company factories that are part of the manufacturing network. The "pipeline" of supply, from the lowest level in the supply chain to end customer, is the arena in which the most work remains to be done; it is also the area that holds the greatest potential for improving the cost of manufactured products. Initial pipeline projects have clearly demonstrated the impressive magnitude of improvements just waiting to happen in every corner of the world. For example, Nabisco's operations in Venezuela reduced the time and inventory in the pipeline by 30 percent in the first year of the project. The factory's contribution to this improvement sprang mainly from drastically slashing the time required to change production on cracker and cookie lines from one product to another. Samples of Nabisco's low cost line modifications are included in Chapter 8.

Superior performance of all factories in the pipeline makes vastly improved systems a paramount priority. The lightning response time of the pipeline cries out for corresponding lightning-fast transmission of the latest requirements through all levels in the network of vendor and company factories. Such systems, for many companies, will do even more to reduce pipeline inventories and slash lead times than will factory improvements. Nor do such systems need to be complex and costly. As discussed later, a short-term, manual transcription of requirements from computer output into vendor schedules permitted Harley-Davidson to get revised schedules to their first-tier suppliers in a few hours. Although better, faster schedule communication will provide immediate and substantial benefits, it will take considerably more time and numerous operating improvements to achieve anywhere close to the 50 percent cost reduction. In fact, the author believes that the effort will take most companies at least five to ten years. Therefore, because it will take so long to accomplish, will have such tremendous payback, and will require the cooperation and participation of so many company and vendor factories, developing and maintaining a strategic plan for its eventual achievement is of utmost importance. So much so that no company should be without such a plan today. Chief executive officers should all ask themselves if such a plan is in place and, if not, need to get the ball rolling.

SPEEDY VENDOR PIPELINE REQUIRES BOLD EXECUTIVES

It is relatively easy to cut manufacturing lead time, and therefore work-in-process inventory, by 90 percent or more. This should be a powerful incentive to implement rapidly the necessary changes to all manufacturing operations. However, in most factories, the inventory reduction is most often pushed back into raw material and forward into finished goods. To derive ultimate benefits from lowering work-in-process requires reductions in three areas: in materials stored at all levels of the pipeline, in manufacturing operations, and in finished goods. Few companies are able to marshal both the manpower resources and the courage to reduce all three in concert, and permanently. Many executives place a higher value on inventory availability and resulting customer service than on tight inventory control. Hence they are reluctant to gamble on approving pipeline inventory cuts until they see convincing proof that such reductions do not cause customer service to deteriorate.

Bold, informed executives, however, insist on moving to pipeline reductions as quickly as practical. They recognize the competitive advantage of being the producer with the shortest pipeline. These executives have heard enough success stories to understand that reducing inventory in the pipeline automatically increases customer service. A pipeline that is not clogged with inventory sharply reduces the amount of time required to respond to new and changed requirements. Thus, canny executives instruct their managers responsible for raw materials and for finished goods stock levels to play an important role in synchronizing material reductions with those of the factory inventory to get the inventory out of the entire pipeline. Even better, where practical, they can design improvements in their own areas for additional, permanent inventory reductions.

PRODUCT ENGINEERING: THE NEW FRONTIER

The world abounds with examples of poor product engineering. Design improvement therefore offers one of the most exciting opportunities for dramatically improving a company's competitive stance. As manufacturers, we see this most clearly in the large number of engineering changes that follow the first production of new products on production tooling. As consumers, we have almost come to expect that products will start to deteriorate or even fail shortly after we buy them. And, rather than complain, we buy replacements. Nor are we able to see products delivered to the marketplace right on the heels of innovative design breakthroughs. It takes years to get products like General Motors' Saturn automobile off the drawing board and onto the showroom floor. Further, every time our companies have taken the time to rationalize a product line and to standardize and improve the design of products and their components, the improvements have been startling. This is clear evidence that the first design was not as good as it might have been.

Too few companies have realized that improved productivity, cost, and quality start with improved designs. Nor have they realized that product designers -- brilliant, imaginative people -- have been working in isolation both from the factory engineers who must design equipment to produce their brainchildren and from others who could contribute valuable ideas -- if only they had the opportunity. The results are often impressive and technologically advanced products that are more complex than they should be, more costly to produce than necessary, and laden with major opportunities for improvement in function and reliability. The solution lies in organizing a new design team similar in concept to that of a factory cell. The design team of the twenty-first century company will be cross-trained to work cooperatively. Its responsibilities will span both product and process design and will incorporate new techniques for controlling component standardization across all product families. Such standardization will help lower product costs by increasing the purchase leverage of the standard items used. In addition, emphasis on doing the design job right the first time will reduce the time spent in correcting previous oversights and errors. This will mean more time for new product development.

Further, all products have the potential for simplification. The most dramatic result of simplification is the reduction of components and materials. Fewer components means lower costs of material and of the labor and equipment required to manufacture and assemble the product. Perhaps equally important is the reduction of white collar personnel and system expense necessary to control the number of components. Even before simplifying product design, many companies need to redefine their product lines. The options include offering fewer products or increasing the modularity of design in such a way that a large number of product variations can be provided from a relatively small number of design modules.

PERFECT QUALITY: TODAY'S TECHNOLOGY MAKES QUALITY CONTROL OBSOLETE

All of us are inclined to look for the easy way out, the "magic bullet" medicine capable of curing all factory ills. Thus, when the first few Western observers heard about Japan's fabled quality control circle, it was immediately adopted as fundamentally vital to factory improvement, perhaps because it had the advantage of not requiring factory management or responsible technicians to spend much time on developing and implementing new process designs. Working together in small groups was a traditional, cultural way of life in Japan centuries before quality circles. Therefore, forming small circles, training them, and using them to initiate operational changes was relatively easy. Nevertheless, it is a myth that the productivity and quality advances in Japan are solely or even mainly due to circle effects. In the first place, numerous Japanese companies have not found it necessary to operate circles but are nevertheless dazzlingly successful. Further, the accomplishments of most circles, while important, are seldom more than a small part of the story. When the author visits Japanese companies, for example, he always asks for an informal estimate of the circles' contribution to improved quality and productivity versus that of the full-time engineering staff responsible for process and product design. Estimates of the contribution of the engineering staff typically range from 80 to 95 percent! A Japanese-American joint venture case example will help explain the applicability of this lesson to the West. The New United Motor Manufacturing, Inc. (NUMMI), company, formed by General Motors and Toyota in a Fremont, California, plant, shows just how unimportant quality circles might be. Productivity in this factory was almost doubled and quality defects were virtually eliminated. However, three years later, quality circles were demonstrated to have played no part in this phenomenal level of improvement. At Andersen Consulting's annual advanced manufacturing seminar in 1987, two NUMMI guest speaker executives, American and Japanese, somewhat ashamedly revealed that they had not a single circle and had no specific plans for establishing any at that time. (They had merely achieved the tremendous results previously mentioned).

What did and what did not contribute to this outstanding success is of extreme importance. NUMMI executives credit the engineering design, the kanban system, and the human development philosophy. They are quick to point out that they used existing plant and equipment. Thus, massive investment in new factory automation played no role in the transformation of the plant from a troublesome loser to a superior manufacturer. This valuable NUMMI lesson is not unique. Hundreds of Andersen Consulting clients have had comparable experiences. The best results have occurred when fail-safe process and product designs, teamwork, and practical low cost automation have been among the focal points of management's strategy.

The Japanese, perhaps unintentionally, have hoodwinked the majority of industrial educators and even factory operations personnel. Those bamboozled have ardently pursued the holy grail of statistical quality/ process control and even its companion, the quality circle. Considering the historical Japanese culture, it is little wonder that the outcome of thousands of fact-finding visits to Japan and thousands of presentations by the Japanese have led to a false understanding of the reasons for their rapid rise to world leaders in industry, and of the real techniques that all other companies can and must pursue in order to catch up and even to leave them in their dust. Almost every Japanese presentation describing the genesis of superior product design and process operations has started with the milestone visit of Dr. W. Edwards Deming, the statistician, in the 1950s. Indeed, the messages Dr. Deming delivered were of major importance to the long subsequent pursuit of defect-free quality. However, forty years later an entirely new awareness of how to achieve perfect quality has evolved. What folly it is, then, to set out on the road to improvement back where leading Japanese companies began forty years ago! It is infinitely better to recognize that the solutions to perfect quality and to superior productivity result from designing better products, fail-safe processes, and operations that are incapable of producing defective products. In the instances where perfect quality cannot be guaranteed, perfect quality can be achieved only through 100 percent inspection!

Western industrialists are not alone in falling into the trap of starting their productivity and quality improvement projects based on the 1950s concepts of quality management (meaning statistical quality/process control.) One of the most experienced Japanese consultants explains that he wasted twenty-six years trying to apply statistical techniques before finally realizing that one does not need statistics to control quality. Whereas heeding Shingo's message can help to avoid reinventing the wheel, there is a new danger that some companies could mistakenly start to work on a project of such broad scope that it will be impossible to achieve success. For example, the very latest in quality control catch phrases is "total quality control." The scope of total quality control is breathtakingly global, encompassing an integrated network of a company's customers and factories, the factories of its suppliers, and even of those of the supplier's vendors. The total quality control concept envisions all of these working harmoniously on every aspect of quality. This process would start with the definition of the customer's needs and his special wishes and continue through the design of products to meet the product definition and then through the production of the product in company plants on equipment designed to produce defect-free quality using components and materials produced by suppliers on their own fail-safe equipment and tooling -- all at the lowest possible cost. Even after production is completed, the integrated network continues through the distribution channels and through the entire productive life of the product, encompassing field service, warranty, and spare parts distribution. What an impressive vision of an integrated quality network!

In a few instances, mainly the largest export-oriented Japanese companies, most of the links of the network have been joined. Few, if any, have yet achieved the near-ultimate, total integration. Few are likely to come close to this exalted target in the next two decades because of the magnitude of the envisioned scope and the impracticality of direct, ongoing, simultaneous communication with all links. There is a distinct and ominous danger that a company might unrealistically charge operating personnel of all of the links with the responsibility for short-term achievement of total quality control, not comprehending that the resources required to do so might be hundreds or even thousands of man-years. Since operating personnel in the most productive organizations work full-time on necessary tasks, how can they be expected to implement sweeping companywide reforms, solving, in the process, serious problems that heretofore had been deemed unresolvable? Radical improvement requires a major investment of the time of creative people to design and implement the required changes.

The almost universal solution to the dilemma of working aggressively against an ambitious schedule while limiting the scope to a reasonable number of man-years is either to focus on a limited number of links in the chain or to pick a single product or product family on which to concentrate on the vertical integration of the most important total quality control links. Subsequently, step by step, the network can be as smoothly expanded as is feasible with the resources available and the experience gained in the initial links. The logical step-by-step process also helps to avoid failures attributable to trying to do too much without adequate resources. Many companies, after initial failures, hesitate for years before trying again, having been convinced by an inadequately funded first attempt that the concept rather than the implementation approach was at fault.

MACHINE BREAKDOWN: BUSINESS BREAKDOWN

Machines and other factory equipment can be manufactured, modified, and maintained in such a way that they can operate almost infinitely without loss of time due to unplanned breakdown. However, when machines are not properly maintained, no matter how well designed and constructed, they will frequently be out of commission. Breakdowns disrupt the entire manufacturing process and are one of the most common reasons for failure to meet production schedules. Large inventories are an inevitable result of poor machine reliability. Companies with a history of frequent downtime eventually resort to maintaining higher than necessary stock balances in an effort (typically unsuccessful) to minimize production disruption. And downtime is not the only dolorous aftermath of inadequate maintenance. Quality suffers, and rework and scrap costs rise when wear on a machine's components renders it unable to hold the tolerances for which it was designed. Shifting the costs of carrying inventory into improved preventive maintenance and permanent maintenance improvements is a sound tactic that often has fast benefits. Unfortunately, it is not always practical to calculate and predict scientifically the specific cost savings that will be achieved. Perhaps this is one of the reasons that maintenance improvement is often tackled long after other aspects of superior manufacturing have been implemented and have become an integral part of routine operations.

The new methods of performing maintenance, whether repair or preventive, should permit most companies to achieve more at lower cost. Amazing as it sounds, it is really very basic. All that is required to lower maintenance cost is a lot of common sense, hard work, and dedication to drastic improvements in maintenance productivity. Further, by decentralizing maintenance people and responsibility, and through simplification of maintenance accounting and scheduling procedures and systems (possible only by focusing the maintenance responsibility in the factory-within-a-factory), companies can minimize maintenance overhead costs and control real repair priorities based on current production schedules.

Finally, improved maintenance requires very little capital investment. Since more maintenance can be performed with fewer, lower cost employee hours, the pilot maintenance productivity improvement project can contribute to increased profitability right from the start.

COMPUTER INANE MANUFACTURING: CIM

Twenty-first-century computer systems hold the potential for finally delivering on their promise of increasing people productivity and improving operating results. Neither of these potentials has been the hallmark of the continuous expansion of computer usage in either manufacturing or other industries. Only a few leading-edge systems are starting to provide some of the new management information needs of the modern, focused factory-within-a-factory. Past misconceptions of the way executives and their managers operated their businesses led to an overwhelming avalanche of information. In fact, many speak of the information explosion age in awed terms, deeming the sea of data delivered to the hands and computer displays of executives and managers to be somehow beneficial. Somewhere along the line we seem to have overlooked the simple fact that if we choose to have our computer systems know everything about every business event, it is necessary for people to feed in the information. Once captured, the resulting massive amounts of information require additional armies of people who must review it if the intended purpose is to initiate some important reaction.

The capture and use of computer data can be of tremendous value when the pitfalls that have led to the costly misuse of data are avoided. For decades, for example, many computer technicians have extolled the advantages of the massive, centralized data base to which everyone in the organization has access and with which staff employees can police operations from their ivory towers. In the new world in which small, focused factories-within-a-factory are treated as entrepreneurial business units, the business manager is his own policeman. His detailed personal knowledge of the operations of his business come not from a written report but from direct observation and involvement in daily operations. These focused factory mangers need small, local computer system support. They do not need, and should not be burdened with, permanent systems that perpetually require input information in order to report on operations that never vary significantly from year to year. Relatively few have grasped the manager's true information needs. First, the average manager uses relatively few types of information in his daily job, and second, his needs vary from period to period. Managers should be able to initiate data capture, processing, and reporting when a problem first surfaces or when an opportunity triggers the launching of an improvement project. This is not to say that there is no need for a limited number of computer systems spanning the operations of all focused factories and extending out to the pipeline of supply. In fact, the clusters of customer and supplier factories described in Chapter 2 can achieve optimum competitiveness only when they are supported by systems that can instantaneously broadcast the latest production rates throughout the pipeline.

In a handful of leading edge companies, direct computer data transmission links between customers and suppliers arder to report on operations that never vary significantly from year to year. Relatively few have grasped the manager's true information needs. First, the average manager uses relatively few types of information in his daily job, and second, his needs vary from period to period. Managers should be able to initiate data capture, processing, and reporting when a problem first surfaces or when an opportunity triggers the launching of an improvement project. This is not to say that there is no need for a limited number of computer systems spanning the operations of all focused factories and extending out to the pipeline of supply. In fact, the clusters of customer and supplier factories described in Chapter 2 can achieve optimum competitiveness only when they are supported by systems that can instantaneously broadcast the latest production rates throughout the pipeline.

In a handful of leading edge companies, direct computer data transmission links between customers and suppliers are already becoming precursors of the future. However, far too few manufacturers have realized that these systems not only speed the flow of requirement information but also provide customers and suppliers with services that can significantly, differentiate the company from its competitors. Imagine, for example, the tremendous promotional value of a superior inventory and material requirements planning system given gratis to a customer. The end objective of the system would be to transmit requirements and shipping authorizations automatically to the manufacturer that provided the system. Realistically, this would be of major interest to smaller customers who do not yet have, and otherwise could not afford, computer systems. However, larger customers would already have their own systems and would naturally prefer to continue to use them. Thus, a concerted effort to work with them to develop interfaces for automatic transmission of requirements and shipping authorizations would (for a while) be an important differentiating factor. After a while, all suppliers would be offering similar systems and interfaces since all would shortly learn the competitive advantage of being the supplier with the fastest linkage to the customer. When designed to be the best, such systems and interfaces have the potential for virtually eliminating entire order entry and purchasing order placement departments with automated data transmission.

Too few businessmen recognize just how much information is reported, processed, and distributed in the normal organization. As a consultant, the author has come to grips with systematic cataloging of the staggering volume. Project teams have collected samples of various data forms, reports, and displays in the process of reviewing operations. The typical results fill project team file cabinets. But, viewed objectively, the vast majority of data falls into one of two categories: either it is of use only to the operation at which it originates, or (2) the volume of data is so overwhelming that it precludes any meaningful use by staff or executives in higher tiers. Nevertheless, the thundering cry for improved reporting continues to be heard -- interestingly, for data that is often already available. (This occurs for two reasons: first, many people do not consider information to exist unless it is in computer files and second, there is too much data available for most people to master knowing what it is and how to find it). As Davidow and Uttal point out, "Over time, the number and variety of quality measures tend to mushroom close to the point of unmanageability." The same applies to every other form of performance measurement.

The pursuit of computer integrated manufacturing, in the context of elaborate computer systems, is all too often the errant focus of management attention intended to improve operations. Certainly no evidence supports the notion that computer integrated manufacturing systems have played any major role in the success of Japanese companies. As Sakurai points out, only 4 percent of these companies have such systems. Our best computer specialists understand that business first needs to simplify and improve operations -- and then begin the process of computer systems integration.

FINANCIAL AND ACCOUNTING SYSTEMS: COUNT BUSHELS, NOT BEANS

Manufacturing should be standing on the verge of an exciting new world of accounting practices designed to produce simple, practical results with a modicum of effort and cost. There should be a dawning recognition that precision in numbers is impractical when one product's actual results and costs are influenced by fluctuating demands and investments that routinely benefit other products' sales and production. On any one day, some good business decisions are made and some bad business decisions are made -- both based on relatively inaccurate cost information. However, no decisions will be as far from hitting the mark as those based on the assumption that a forecast level of sales and production will prove accurate. Unfortunately, the volume forecast, at the level of individual products, is universally found to be the least accurate number of all of the components of accounting calculations.

The hard truth is that some things are terribly wrong with generally accepted financial and accounting practices. But the good news is that a lot more is terribly right. When the author reads the annual report of an audited manufacturing company, he usually feels quite confident that it reflects the earnings and stockholder equity as accurately as possible. However, arriving at the reported results involves an archaic set of procedures and systems that demand extremely precise calculations of product costs and allocations of overhead to products that have no chance of either representing real product costs or providing a sound basis for decision making that is based on the assumption that the numbers are or will be accurate reflections of reality. While sweeping changes are revolutionizing the way in which products are manufactured, relatively few advocates have applied comparable changes to accounting practices. Many of the contemplated changes are merely repetitions or increased detailing of practices that have been advocated for many decades -- almost all of which involve a quest for precision that cannot help but will add to existing complexity and cost.

The author is one of many who have not yet been able to describe or find a model new system; thus there is no point in trying to set forth a detailed approach here. The author's comments on the need for new, productive practices and systems are therefore intended as an exhortation to chief financial officers and chief accountants to throw off the restrictive bonds of tradition and to start developing the radical improvement needed if accounting is to keep pace with developments in the new, focused factory-within-a-factory.

PERFORMANCE MEASUREMENTS: MEASURE MONEY, PROBLEMS, AND OPPORTUNITIES

The universal complaints about performance measures arise mainly because some of the information routinely provided by financial and cost systems indicates past performance in an inaccurate light or points to decisions about future operations that are wrong in terms of the real profit impact. The result has been an army of advocates demanding ties (integration) of financial and cost reporting with nonfinancial reporting and "cost generating activities." In reality, all but the least competent managers, or those in the most bureaucratic companies, do what is necessary and most profitable for the company. They and their bosses, if capable and experienced, understand the real meaning of the numbers. The vast majority of managers and executives who complain, although doing what is right, resent the fact that the financial and cost system shortcomings often force them to contravene policies and procedures in order to do what must be done. For those few others who blindly "manage by the numbers," the author has little sympathy.

Being of relatively advanced age, the author can see that most of the latest thinking on performance measuring systems has changed not one iota from what it has been for the past thirty years. And the manufacturers that have worked continuously on expanding performance measuring systems have not, for the most part, wrought any enduring improvements. What those who advocate a performance measurement approach fail to see is simply that the person responsible for operations is the same person who routinely sees problems and opportunities in his bailiwick as they occur (in real time) and goes to work on improvements at once. In those instances where the individual does not manage in this way he has probably not yet been adequately trained in the science of management or provided with the resources and authority necessary to do so. It is vitally important for companies to start spending their resources immediately on improving manager skills and production operations rather than invest in reporting systems designed to force people to action by policing their operations. Solving the operating problems and capitalizing on opportunities for improvement will eliminate the need for most of the numerous performance measures that have always been advocated by those who prefer policing operations rather than go to work on improving them.

Although much has been said about performance measures, the most vital features of effective reporting are probably different from those most frequently extolled by the measurement gurus. The author's list of measurement zingers includes the following:

1. The purpose of being in business is to make money for the business owners. Therefore, the profitability of operations is the single most important measure of success.
2. Performance measures should serve the person or organization (team) being measured. If they coincidentally inform superiors, good. But these same superiors must not view the measures as policing tools. If superiors do not know the performance of subordinates without resorting to formal measurement systems, they are simply failing to perform their own jobs. As Sink and Tuttle so aptly implied, performance measures must not be permitted to become "hammers looking for a nail to pound."
3. Replacing conventional budgeting (responsibility reporting) systems with new measurement tools is unnecessary. There is, however, an urgent need to get the reports into the hands of the individuals and teams who can, should, or do control the budgeted costs. This is not to say that these systems cannot be improved. Cross and Lynch said it best: "Feedback has been too aggregated, too late, too one-dimensional, or too irrelevant to be useful to operating managers."
4. Effective performance measuring systems must be simple and must be limited to the smallest possible universe. The measures that the person being measured considers to be most critical are the ones of real importance. They must be useful in helping him to do his job.
5. It would unnecessarily complicate budgeting and cost and financial reporting systems to integrate them with quantitative reporting of related performance such as customer service, defects, employee grievances, ad infinitum.
6. Perpetually measuring an element of performance that never changes is nonsensical. When an operation is totally under control (well managed), the only activities warranting measurement are those on which improvement studies or implementation is under way.

In summary, performance measures will never be eliminated. As long as problems and opportunities for improvement arise, measurement will be necessary. But it should be limited to the periods when someone is actively working to design improvements. A handful of measurements will still be appropriate even when operations are improved to the point where improvements no longer address problems, only opportunities. The very best measures of a business's success are those that report costs and profits. Product costs are more efficiently measured by totaling estimated labor and actual material cost plus overhead. Other expenses are best planned by simple budget systems that systematically establish improvement targets.

FAD OF THE MONTH: AN EXECUTIVE PITFALL

The author can reflect on decades of fads that have burst on the industrial scene -- all with a short-lived blaze of universal acclaim. The recent preoccupation with the word paradigm is a case in point. Its use has unaccountably spread like wildfire, sending most of us scurrying to our dictionaries. (Webster lists the following synonyms: archetype, example, exemplar, framework, ideal, model, original, pattern, and prototype.) J. A. Barker, the fad originator, had a more complex definition, as reported by Bane and Garwood. The author will not use the word paradigm again, preferring to use more commonly familiar words and to avoid furthering the cause of fadism.

What is the appeal of most fads? They either appear to get the job done with little effort on the part of responsible management (zero defects and quality circles, for example) or else offer an approach seemingly (but mistakenly) rooted in a logical methodology (benchmarking and value analysis, for example). While few fads have had universal or even notable success, most have a solid business basis, and most companies study (benchmark) competitors and their products as they should and as Camp so aptly advocates. Therefore, even after the intense initial interest fades away, some new practices remain in operation in perpetuity. And although the author detests the "Just-in-Time" label as inadequate and misleading, the label might just have helped to establish the initial impetus and subsequent dedication to permanent pursuit of superior manufacturing practices. In the author's mind, contrary to McGill's opinion, just-in-time will prove to be more than just one more fad of the month. When one reads about the simple techniques for the reorganized factory layout, the machine and tooling modifications, the low cost automation principles, and the personnel organization structures one cannot help but wonder why every enterprise in every country is not working at breakneck speed to implement one of these elements of the new industrial revolution. The fact is that there are numerous roadblocks barring the path toward superior manufacturing. Take misconceptions, for example. In the early years of the phenomena then commonly thought of as the Japanese methods, executives in every country found it convenient to view Japan's success as uniquely culture-based. In the intervening ten to fifteen years, we have been able to adopt and to improve upon the original ideas -- on every continent and in almost every free country with a manufacturing industry. Thus the issue of cultural differences is being laid to rest. After all, if Indonesians, Brazilians in Manaus, and even justifiably proud Germans can benefit from simple, low cost but powerful new methods, why shouldn't the rest of the world roll up its sleeves and get to work?

MANUFACTURING VISION: A SYNOPSIS

The vice president of manufacturing must have his own future vision. His vision must be interwoven with the overall business strategy, but it is his prime responsibility since he must plan and execute the implementation of manufacturing's new methods. The author, whose experience lies in manufacturing process and product engineering, is equipped to contribute food for thought in these areas. Other authors can better address marketing, distribution, and high finance issues. The chapters of this book, in concert with the author's previous book, parallel the areas in which executives should focus improvement efforts in preparation for the twenty-first-century competitive race. Following is a brief synopsis of the key issues that must be included in manufacturing's vision and reference to the relevant chapter in which they are discussed.

The opportunities of the future lie in optimizing the cost effectiveness and responsiveness to customer needs of the entire manufacturing network of company and vendor factories. Thus, planning for the future operation of the network is the subject of Chapter 2, "Strategic Planning: The Manufacturing Network." The new mode of operating the network puts both responsibility and authority for the performance into the hands of those operating a company's new small, focused factories-within-the factory. The bureaucratic overhead that is so symptomatic of companies that have become too big to control by direct meaningful involvement of corporate executives needs to give way to the empowerment of entrepreneurs of small businesses within the big company. Training in the new concepts of management and supervision is important, but on-the-job experience in the modern, reorganized plant is by far the more effective way to learn. Since new organizations and methods can be speedily adopted in the first focused factories, training can start almost immediately. Chapter 3, "Managing and Supervising the Focused Factory," deals with the issues of the management skills that must be cultivated in order to master the new science of management.

Far too little has been done to weld customer and vendor interests into a powerful competitive force, concerned with expanding the market share of both, in a partnership in profit, to improve the value of their products to the ultimate customer. The chief executive officer has a vital role to play in cementing this new spirit of long-term cooperation, as detailed in Chapter 4, "Supplier Network: Pipeline to Profit." However, neither an end product manufacturer nor its vendors will be successful if their products are inferior in design to those of competitors, or are well-designed but prohibitively expensive. Further, many companies make the mistake of trying to offer something for everyone. Too many products cause control of operations to be vastly more complex than it need be. Those companies need to concentrate on improving product design, with an eye toward "design for manufacturability." Product and product line are the subjects of Chapter 5, "Faster, Better Product Design: The Second Wave."

The traditional solution to quality production has been to detect defects by inspection, with recent fads involving new forms of statistical sampling. Pursuing these types of defect control channels resources away from the read need: fail-safe manufacturing equipment and methods that make it impossible to produce defects, and product designs that are of inherently better quality. These objectives can be met only when quality has been engineered into the product during its inception. These issues are discussed in greater depth in Chapter 6, "Quality Engineering: Replacement for Quality Control."

The systems with which today's executives control operating costs run on high-powered computers. However, these computers could well be characterized as being perched on tall stools and wearing green eyeshades and sleeve garters. Cost management systems and their underlying theory have not progressed in the past century, except perhaps to become more complex, more theoretical, and less meaningful. An immutable fact of business operations that is often forgotten is that all business decisions are and must be firmly founded on forecasts and predictions of highly questionable accuracy. Executives need to awake to this fact when they say they must make decisions contrary to and in spite of accounting systems. It has always been necessary for executives to apply their experience (often mistakenly called gut judgment) and business acumen to the imponderable future, to gamble regularly with the odds, and to make the bold, tough decisions on which business success depends. The fact that cost accounting relies on forecasts and predictions of the future is one of the important messages of Chapter 7, "Cost Management for Focused Subplants."

The most basic issue of manufacturing strategy is how much capacity, should be provided, of what type, and when it should be acquired. High cost automation is rarely economical when all related costs are accounted for and when automation is applied to operations and products that are much more complex than they need to be. Further, most factories have a great untapped source of additional capacity -- the equipment already in operation. Additional capacity can be squeezed from existing equipment by upgrading it and cutting the hours lost to repair and maintenance downtime. These related issues are discussed in Chapter 8, "Capacity: Constraint or Opportunity?" and Chapter 9, "Instant, Free Machine Maintenance and Repair."

SUMMARY

Executives, managers, and their employees need not wait to manage the factory of the twenty-first

Edition details

• Publisher: Free Press
• Publication date: 1991
• Language: English
• ISBN 10: 0029138620
• ISBN 13: 9780029138625
• Binding: Hardcover
• Number of pages: 320