This viewpoint is based on results of the Fourth Annual IndustryWeek Census of Manufacturers, a massive editorial research project that was designed to collect information about U.S. manufacturing trends, best practices, and specific manufacturing performance metrics. To that end, two questionnaires were developed: a mail survey that targeted plant-level manufacturing executives and a telephone survey aimed at corporate-level manufacturing executives. The research was conducted in association with PricewaterhouseCoopers. More than 3,300 survey responses were collected during the spring of 2000. Many exciting things are happening in plants and operations around the world. Lean manufacturing concepts are taking hold, manufacturing-execution and advanced-planning-and-scheduling systems are improving performance, and supply-chain partners are collaborating to drive down end-to-end conversion and replenishment costs. Workers are more empowered, and managers are better educated and trained. Nevertheless, the lessons that many learned long ago have not been learned by everyone. And truth be told, almost every plant still is employing some of the management no-no's that we supposedly got past long ago. While pursuing the next big thing in operations, management must constantly review its performance and management style with respect to the basics. Avoid or eliminate these management no-no's:
Overproduce to absorb overhead burden instead of producing to demand requirements. This lesson is just as important today as it was in the 1970s and 1980s when managers first started thinking of inventory as a cost. At quarter-end, year-end, or bonus time, manufacturing managers still return to the fact that each additional pallet of finished-goods production absorbs $100 to $500 -- or more -- of factory overhead that would have been spread among the other produced items. This may help short-term cost-per-unit performance, but most of the time the savings are solely a function of accounting. Long-term fixed overhead costs remain unchanged while the very real costs of incremental product storage and inventory capital costs accumulate and the risks of product obsolescence soar. Managers should treat inventory as a liability rather than an accounting asset.
Plan production based on targeted or budgeted performance efficiencies instead of demonstrated rate. Everybody needs targets and stretch goals. This is true in managing plant efficiency and reliability, but managers make the mistake of mixing up the expectation for improvement with the planning for improvement. Planners who assume better-than-demonstrated production performance end up with poor service levels, daily scheduling chaos, last-minute changes, and a general feeling among the workforce that the schedule is merely a goal, not an absolute requirement. Once that happens, a great deal of management effort will be required to resume scheduling control and compliance. The converse of this is the sin committed by assessing performance based on standard throughput rather than capable throughput. Everyone loves to see 99% productivity, but generally the denominator is based on run rates that are 60% to 70% of the true system-capable rates. As a result, manufacturing managers are satisfied with current performance rather than breaking bottlenecks to reach capable rates.
Run a policy-of-the-month club. Don't communicate a new objective monthly or quarterly while letting other implemented programs deteriorate or be discontinued. Yes, businesses must be able to adapt quickly, but operations personnel will not dedicate themselves thoroughly to changing a process or managing toward key performance indicators unless they know that these processes and measures will have some commitment behind them.
Focus resources on more projects than reasonably can be managed. This practice clouds the true objective and ensures failure or diluted effectiveness of every initiative undertaken. Management is responsible for understanding the limitations of its management and staff to take on new projects. When management focuses on everything, staff often executes nothing in completion, and the sustainability of changes made is jeopardized. Focus must be placed on capability development rather than project completion to avoid redoing the same project two to three years down the road.
Make disparaging and polarizing comments about the expectations imposed by sales, marketing, and other "non operations" teammates. Plant personnel often come across as thinking that their jobs would be a lot easier if it weren't for pesky sales plans and customer requirements. Often they push logical concepts like stock-keeping-unit (SKU) rationalization but fail to make their point because they do not adequately depict the cost of complexity that is imposed on them. By taking the discussion back to a data-based issue, the logic of sales programs or customer-service initiatives can be addressed in a less emotional manner, making action more likely.
Use a one-size-fits-all inventory policy for replenishment planning. Different products exhibit different demand patterns, forecastability, strategic importance, and customer bases, yet often the inventory policy that governs the replenishment process is undifferentiated. With some simple statistical approaches to determining inventory buffer stock, a smooth replenishment plan can be realized.
Set performance measures that polarize managerial objectives and encourage conflict among departments. What gets measured gets done. Cost-per-unit for manufacturing results in piles of inventory manufactured at the lowest cost, but not the lowest end-to-end supply-chain cost. Long runs are believed to provide lower cost per unit by amortizing the set-up cost over more units. One could argue that for an organization with available production capacity, set-ups are virtually free if start-up scrap is minimized.
Outsource processes that were completely uncontrolled when performed in-house, then complain that outsourcing doesn't work when the third-party relationship fails to deliver improved performance. Out-of-control processes often are a result of poor designs and process understanding. Organizations that do not understand process performance and data-driven quality metrics -- along with detailed work instructions and process set points -- will continue to receive defective product, only in larger batches that will require significant incoming inspection. Building vendor-management capabilities often is considered a waste of money because failure costs are not accurately tracked.
Make huge investments in information technology and automation without clear strategic process design to ensure that the right processes are being automated and streamlined. Too often managers think that purchasing and installing an advanced planning system or information-technology tool will solve all problems. The key issue here is that the system only will provide optimized solutions if the user properly loads accurate operating data into the system initially.
Manage purely to EBIT (earnings before interest and taxes) objectives and ignore RONA (return on net assets) impact when developing a plant asset strategy. Organizations focused purely on EBIT will make whatever capital investments they deem necessary to hit the short-term operating budget. Plants full of underutilized equipment are the result of no economic-value-added analysis to justify major investments. Intelligent analysis to define an asset strategy (plant, equipment, inventory) is considered a waste of time by too many manufacturing managers. Tom Nicholas is a Chicago-based practice manager for PricewaterhouseCoopers.