Long-Term Commitments

Dec. 21, 2004
Practices and performances validate world-class plants.
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. What makes a manufacturing facility world-class? The Census of Manufacturers has been seeking to answer that question for years, examining operational metrics and practices that differentiate those that believe they're on the path to world-class from those that admit they're mired in manufacturing mediocrity. With this 2003 Census, IndustryWeek and the Manufacturing Performance Institute (MPI) hoped to better delineate the world-class con tenders from pretenders by exploring the relationship of these groups to bottom-line measures. Here, too, as with operational comparisons, the world-class tend to stand out. Before determining world-class fact from fiction, it's helpful to know just who thinks what of their operations and what those operations look like. More than one in four Census respondents (25.9%) believe their plants have made "no progress" toward world-class. Approximately half of Census plants (49.2%) have made "some progress" toward world-class. Approximately 23.0% of plants have made "significant progress," and 2.7% say they have "fully achieved" world-class performance. Because of the small number of plants in the fully achieved category (19), in subsequent analysis we combine the latter two groups (24.8%) for simplicity and improved statistical significance, referring to them as the "plants closest to world-class." While the profile characteristics of plants closest to world-class resembled those of all plants, a higher percentage of world-class plants were likely to be within public companies; with corporate parents of revenues greater than $1 billion; participating in an automotive industry value chain; and employing 250 or more people at the location. (Note: Text continues after tables.)World-Class Progress Progress toward achieving world-class manufacturing status
# of plants % of plants
No progress 236 25.9%
Some progress 448 49.2%
Significant progress 207 22.7%
Fully achieved 19 2.1%
Who's More Likely To Be World-Class
% of no-progress plants % of some-progress plants % of significant/full plant % of all plants
Public company 13.2% 25.6% 33.9% 23.8%
Corporate revenue of $1 billion or more 10.4% 17.5% 31.9% 18.8%
Automotive value chain 6.9% 12.4% 27.3% 14.1%
250 or more plant employees 6.3% 20.5% 32.3% 19.2%
Are They World-Class? By most operational and financial measures embedded with the IW/MPI 2003 Census of Manufacturers, it's fairly easy to argue that the plants that report themselves as closest to world-class know what they're talking about. Two of the most striking areas where plants closest to world-class beat other factories were return on invested capital (ROIC) and sales per employee. World-class plants had a median ROIC that was 6.5 percentage points higher than no-progress plants (18% vs. 11.5%) and they recorded median sales per employee 41% higher than no-progress plants ($189,000 vs. $134,000). Another key bottom-line measure where disparity exists between no-progress plants and those closest to world-class was manufacturing cost reductions over the last three years. Almost two-thirds of the plants closest to world-class have reduced manufacturing costs, while just one-third of no-progress plants were able to do so -- and just half of all Census plants. Not only have more of the best plants reduced costs, they've reduced them more dramatically. More than a third of plants closest to world-class reduced costs by more than 10%, while just 6.8% of no-progress plants did so (and just 20.8% of all plants in the Census). While revenue-growth predictions explored through the world-class lens weren't in as sharp a contrast as other measures, the better numbers did favor plants closer to world-class, particularly for the current year: (55.1% of plants closest to world-class anticipate increased revenues vs. 44.4% of no-progress plants). Similarly, plants closest to world-class report slightly higher capacity utilization (as measured by production volume as a percentage of designed plant capacity): median 70% vs. 65%. Talks Like World-Class, Walks Like World-Class
No progress Some progress Significant/full All plants
Median Performances
Sales per employee $134,000 $146,000 $189,000 $150,000
ROIC 11.5% 13.0% 18.0% 13.5%
Scrap and rework % of sales 2.0% 2.0% 1.3% 2.0%
On-time delivery rate 95.0% 95.0% 98.0% 96.0%
Annual labor turnover rates 10.0% 7.0% 5.0% 6.0%
Production volume as % of designed plant capacity 65.0% 66.5% 70.0% 66.0%
Total inventory turn rate 6.0 7.0 9.0 8.0
Revenues (% of plants)
Anticipate 2003 revenues increase 44.4% 54.1% 55.1% 51.3%
Anticipate 2004 revenues increase 74.8% 83.8% 82.3% 80.1%
3-Year Improvements (% of plants)
Decreased manufacturing costs 33.9% 52.9% 65.4% 50.7%
Decreased manufacturing time 56.2% 78.9% 80.5% 72.8%
Increased inventory turns 36.6% 54.5% 55.8% 49.5%
Most operational measures tracked by the Census support plants' claims to being at or close to world-class, with some obvious exceptions. No pattern of differentiation appears between world-class groups when comparing measures that varied considerably by industry and/or value chain, such as manufacturing cycle times, customer lead times, unit-volume output and cost of goods sold. The Path to World-Class Plants heading toward world-class don't get there without the right navigational tools. More than 95% of plants closest to world-class indicated that they have an established improvement methodology in place. About half of no-progress plants report no improvement methodology. Getting to world-class also requires sticking to an approach. A very low percentage of plants that made significant progress or fully achieved world-class performance did so with a half-hearted implementation of an improvement methodology. Plants on the road to world-class are far more likely to have made a significant or complete implementation of such a strategy. Along with an approach, world-class also involves giving employees the tools and accountability to follow the approach. Plants closest to world-class were far more likely to report greater percentages of production employees in empowered or self-directed work teams; more spending on training; and more hours of formal training for each plant employee. For example, more than two-thirds of plants closest to world-class spend 2% or more of their labor budget on training, and almost one-quarter spend 3% or more.. This compares with about one-third of no-progress plants that spend more than 2% on training, and less than one in 10 plants that spend 3% or more. World-class facilities also have more effective human-resource programs. Plants closest to world-class are three to five times more likely to report "highly effective" human-resources programs than no-progress plants. For example, 31.7% report highly effective recruiting and hiring programs compared with 7.2% of no-progress plants. World-Class HR Practices
% of no-progress plants % of some-progress plants % of significant/full plant % of all plants
More than 20 hours of annual formal training per plant employee 18.8% 32.2% 46.7% 31.8%
2% or more of labor budget spent on training 35.5% 57.6% 68.1% 53.7%
More than 50% of production employees in empowered or self-directed teams 16.6% 19.6% 40.8% 24.3%
World-Class & "Highly Effective" HR Programs
% of no-progress plants % of some-progress plants % of significant/full plant % of all plants
Recruiting and hiring 7.2% 16.7% 31.7% 17.7%
Performance management 9.4% 12.6% 30.2% 15.8%
Employee development and training 5.6% 10.1% 28.6% 13.2%
Leadership/supervisor development and training 4.7% 7.4% 22.2% 10.7%
Teaming 7.2% 9.0% 25.4% 12.7%
Safety and health 35.5% 44.9% 59.1% 45.7%
The management tools in use at plants closest to world-class also include quality certification programs and information technology. More than three-fourths of plants with no progress toward world-class report no quality certifications in place, while 72.9% of plants closest to world-class indicate at least one quality certification in place. Nearly 40% of plants closest to world-class are registered ISO 9001:2000 compared with 9.1% of no-progress plants. Plants closest to world-class were more likely to use every single IT application listed on the Census questionnaire than no-progress or some-progress plants, and this group was able to reap more profit from their IT tools than the other plants. (The Census asked plants, "To what degree has the use of each application improved the plant's profitability?") IT applications more likely to be leveraged into "major" profitability improvements include customer relationship management, design systems, electronic data interchange, financial management systems, MRP and warehouse management systems.
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].

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