Editor's Page -- Educating Wall Street

Dec. 21, 2004
Analysts and shareholders pay little attention to what occurs on the plant floor.

It's a situation that has dogged U.S. manufacturing companies for years: how to get plant-floor productivity improvements to show up in financial statements and, ultimately, influence the company's stock price. Said one sell-side analyst who visited the IW staff last year: "Nobody pays any attention to plant-floor cost cutting and quality improvements. Continuous improvement is a given. It's the ante that gets you in the game, but it doesn't translate into improved valuations of the company." Ouch. It shouldn't be this way, but I'm not surprised. Manufacturing executives -- the very people who should be extolling the bottom line benefits of productive plants -- haven't done the heavy lifting required to educate analysts and shareholders. Granted, taking this message to analysts is a thankless -- some would say quixotic -- job. Many of them long ago determined that manufacturing is a necessary evil best done by off-shore cheap labor, and they will not easily be convinced otherwise. What is surprising -- even frightening -- is that many top executives at manufacturing companies seem to agree. Even as they give lip service to the importance of their U.S. production facilities and employees, they still undervalue and pay scant attention to what goes on on the factory floor. How else to account for the fact that most U.S. plants fail to implement productivity-enhancing strategies that IW's Best Plants program has shown consistently and dramatically improve a factory's financial performance? According to IW's Census of Manufacturers some of the most effective strategies are employed by only a fraction of U.S. facilities. For example, only around 20% of plants have implemented lean manufacturing strategies such as continuous flow production and cellular manufacturing. How do we convince the skeptics? It falls to those of us who truly believe in the efficacy of plant-floor strategies -- those of us who feel that we've already done everything we can to promote world-class manufacturing -- to keep up the effort. You can start anew by sharing with them the Best Plants stories and the Best Practices story ( Cost Accounting Undercuts Lean) that appear in the October 2002 issue. The former will give them an appreciation of the phenomenal results that can be achieved when proven strategies are implemented. The latter alerts them to how traditional accounting methods can undermine efforts to calculate -- and thus communicate -- the bottom-line benefits of lean manufacturing. Even better: Get them to go see a Best Plant winner's facility. Many of the winners, having benefited from visiting other high-performing factories, will now host tours. Or take them to the AME/Best Plants conference in Boston next spring, where they can both hear the stories and tour a winning plant. Whatever you choose, keep up the fight. And we will too. Patricia Panchak is IW's editor-in-chief. She is based in Cleveland.

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