Editor's Note: Results from the IW/MPI Census of Manufacturers will appear as a five-part series in the January 2004 through May 2004 issues of IndustryWeek. The past three years have been trying times for the U.S. economy and its manufacturers. Nonetheless, many plants cite improved operations metrics over the past three years in spite of the economy and, in some instances, in spite of themselves. As
IW/MPI Census data shows, however, not all performance measures have been moving up en masse, particularly some that matter most. One area of notable improvement is operations speed. Approximately 73% of Census plants reduced manufacturing cycle times (start of production to completion of product), and 71.6% reduced customer lead time (order entry to shipment) over the last three years. Yet with all the emphasis on speed, less than half of the Census plants (49.5%) increased total inventory turn rates. Manufacturers may indeed be satisfying customers quicker, but they may be doing so with the added expense of more inventory. Additionally, barely a majority of plants (50.7%) report that their per-unit manufacturing costs (excluding purchased materials) have decreased in the last three years, inferring that faster is not always more cost-efficient. The inability to decrease costs may have been affected by declines in production output over the last three years (i.e., overheads remain the same while production volume falls), but 44.2% of plants report output increasing, and 43.4% of plants report output decreasing -- essentially an output wash. Labor costs, too, factor into the manufacturing-cost equation. Labor accounts for a median 20% of plants' cost of goods sold. About 61% of plants with labor costs of lower than the Census median were able to decrease overall manufacturing costs over the past three years, while only 42.9% of plants with labor costs of 20% or more managed to decrease manufacturing costs. Escalating labor costs may have negated some cost reductions. But labor costs vary by industry, and those variations don't always jibe with manufacturing-cost reductions by industry, indicating other, systemic plant factors likely are at work.
(Note: Text continues after tables.)3-Year Manufacturing Changes (% of plants) | Manufacturing Cycle Times | Customer Lead Times | Manufacturing Cost Reductions* | Total Inventory Turns |
| Decreased more than 20% | 18.3% | 23.7% | 5.1% | 4.5% |
| Decreased 11 - 20% | 21.8% | 23.7% | 15.7% | 6.8% |
| Decreased 1 - 10% | 32.7% | 24.2% | 29.9% | 12.2% |
| Stayed the same | 20.1% | 24.1% | 11.5% | 27.0% |
| Increased 1 - 10% | 4.7% | 2.4% | 27.1% | 23.3% |
| Increased 11 - 20% | 1.7% | 1.1% | 8.5% | 15.6% |
| Increased more than 20% | .6% | .9% | 2.2% | 10.6% |
| 100.0% | 100.0% | 100.0% | 100.0% |
*excludes purchased materials
Operations Metrics| Medians from improvement method |
| Annual savings | 6.8% |
| Labor as % of COGS | 20.0% |
| Overhead as % of COGS | 25.0% |
| Material as % of COGS | 50.0% |
| COGS as % of plant revenue | 70.0% |
| Finished-product first-pass yield | 97.0% |
| Scrap and rework as % of sales | 2.0% |
| On-time delivery rate | 96.0% |
| ROIC | 13.5% |
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| Manufacturing cycle time | 96.0 hours |
| Customer lead time | 12.0 days |
| New product development cycle time | 90.0 days |
| Sales per employee | $150,000 |
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| Raw material turns | 11.6 |
| WIP turns | 16.0 |
| Finished-goods turns | 12.0 |
| Total inventory turns | 8.0 |
Improvement Methodologies The Census of Manufacturers data does show more widespread plant improvements, including manufacturing cost reductions, when improvement strategies are factored in. In past years the Census tracked granular plant-floor practices, such as the use of cellular manufacturing or statistical process control. But these practices, either individually or collectively, did not indicate the umbrella improvement methodology that was guiding any plant. The 2003 IW/MPI Census offers a different view of operational improvement, requesting that plants indicate the primary improvement methodology followed as well as the extent to which that methodology has been implemented. The most established methodologies among manufacturing plants are lean manufacturing, in place at 35.7% of plants; Total Quality Management (TQM), 14.1% of facilities; and the hybrid approach of lean and Six Sigma, in place at 7.7% of plants. Of the plants following TQM, 24.2% report that their implementation is "complete" and 46.7% indicate "significant" implementation. Only 5.9% of plants implementing lean report complete implementation (the second highest "complete" tally among those plants following a methodology) and 55% report significant implementation. Even with TQM factored in, just 8.9% of plants following a methodology had completed it, which is not surprising. Many methodologies, such as lean, advocate ongoing improvement toward perfection, a destination that no factory will ever attain.
Improvement Methodologies| Primary Methodology | # of Plants In Use | % of Plants |
| Agile Manufacturing | 41 | 4.6% |
| Lean Manufacturing | 316 | 35.7% |
| Six Sigma | 29 | 3.3% |
| Lean and Six Sigma | 68 | 7.7% |
| Theory of Constraints | 43 | 4.9% |
| Total Quality Management | 125 | 14.1% |
| Toyota Production System | 12 | 1.4% |
| No methodology | 186 | 21.0% |
| Other | 64 | 7.2% |
| Total | 884 | 100.0% |
| Extent Implemented | % Some | % Significant | % Complete |
| Agile Manufacturing | 31.4% | 65.7% | 2.9% |
| Lean Manufacturing | 39.1% | 55.0% | 5.9% |
| Six Sigma | 52.0% | 44.0% | 4.0% |
| Lean and Six Sigma | 32.8% | 62.5% | 4.7% |
| Theory of Constraints | 47.6% | 50.0% | 2.4% |
| Total Quality Management | 29.2% | 46.7% | 24.2% |
| Toyota Production System | 27.3% | 63.6% | 9.1% |
One in five
IW/MPI Census plants indicate that they have no improvement methodology in place -- an executive decision that ultimately correlates to poor manufacturing performance. Where there is not a way, there is not the will nor the means to improve. As an indication of how this management oversight affects a plant's capabilities, consider how improvement methodologies correlate to world-class manufacturing status. Nearly two-thirds of plants that report complete implementation and more than one-third of plants with significant implementation
of any improvement strategy say they have made significant progress toward or fully achieved world-class; just 5.9% of plants with no methodology report such a level of achievement. Performance among Census respondents across a number of manufacturing metrics also supports the argument that operations improvements do not come as readily without a methodology. Additionally, the Census data shows that a plant doesn't need to complete the improvement journey to reap benefits -- in other words, pick a methodology and get going:
Manufacturing cost reductions: 30.4% of plants with no methodology had decreased manufacturing costs compared with 62% of plants that had complete or significant implementation of any methodology.
Return on invested capital (ROIC): 43.6% of plants with no methodology reported ROIC at or above the median figure of 13.5% compared with 58.6% of plants with complete implementation and 57.1% of plants with significant implementation.
Anticipated revenue increases in 2003: 45.2% with no methodology anticipated revenue increases in 2003 compared with 64% of complete implementers and 53.6% of plants with significant implementation.
Manufacturing cycle time reductions: 54.7% with no methodology reported manufacturing cycle time reductions compared with 69.2% of plants with complete implementation, 83.6% with significant implementation and 74% with some implementation.
Inventory turn increases: 29.4% with no methodology reported increased inventory turns over the last three years compared with 45.9% of plants with complete implementation, 57.6% with significant implementation and 58.1% of some implementation. The cycle time and inventory turn measures hint that even in the early stages of methodology implementations there can be significant and early fruit.
Improvement Methodologies & Performances3-Year Improvements
(% of plants) | Agile Mfg. | Lean Mfg. | Lean & Six Sigma |
| Increased total inventory turns | 43.5% | 59.6% | 74.2% |
| Decreased manufacturing cycle time | 78.0% | 82.9% | 85.1% |
| Decreased manufacturing costs | 47.5% | 60.1% | 76.5% |
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| Median Performance |
| Annual savings due to methodology* | 10.0% | 7.0% | 6.0% |
| Scrap/rework costs as % of sales | 2.3% | 1.6% | 2.0% |
| Total inventory turn rate | 5.5 | 7.5 | 8.7 |
| ROIC | 12.0% | 17.0% | 16.0% |
| Machine availability | 87.5% | 90.0% | 87.2% |
| OEE | 80.0% | 77.0% | 75.0% |
| Sales per employee | $150,000 | $165,000 | $190,000 |
* methodologies with at least 30 plant responses ** as % of COGS
Improvement Methodologies & Performances3-Year Improvements
(% of plants) | TOC | TQM | Other | No Method |
| Increased total inventory turns | 51.2% | 48.2% | 43.1% | 29.4% |
| Decreased manufacturing cycle time | 78.5% | 61.0% | 71.6% | 54.7% |
| Decreased manufacturing costs | 59.5% | 39.7% | 47.6% | 30.4% |
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| Median Performance |
| Annual savings due to methodology* | 10.0% | 6.0% | 5.5% | 3.0% |
| Scrap/rework costs as % of sales | 2.0% | 2.0% | 2.0% | 2.0 |
| Total inventory turn rate | 6.2 | 8.0 | 10.0 | 6.0 |
| ROIC | 10.0% | 11.0% | 14.5% | 10.1 |
| Machine availability | 88.0% | 90.0% | 85.0% | 85.0% |
| OEE | 70.0% | 80.0% | 83.0% | 75.0% |
| Sales per employee | $128,000 | $150,000 | $163,000 | $127,500 |
* methodologies with at least 30 plant responses ** as % of COGS
Which Methodology? Are all improvement methodologies created equally?
IndustryWeek and MPI examined how the specific methodologies are impacting plant performance. The results are intriguing but warrant caution. A methodology will only be as good as those guiding and executing it; methodologies applied in various industries likely yield varied results; and sample sizes for some methodologies reported here were relatively small, and smaller samples require a larger difference to be statistically significant. So while Census data should not be used to crown any single methodology as manufacturing king, the findings do support the argument that any methodology is better than no methodology at all.
********** For a summary of the complete results or industry-specific data from the 2003 IW/MPI Census of Manufacturers, contact the Manufacturing Performance Institute, (800) 603-2272, or
[email protected].
