What Is World Class?

Dec. 21, 2004
Census respondents excel in five key areas.

Think of the phrase, "keeping up with the Joneses." It is human nature to want to be the best. We put a great deal of effort into discovering what the "best" do and how they do it. Professional sports teams have legions of advance scouts; countries develop secret agencies and spy networks; and companies engage in exhaustive competitive research. In business, it is crucial to be better than your competitors. The Second Annual IndustryWeek Census of Manufacturers provides a unique investigative tool and discovery method. Are those firms that identified themselves as having "fully achieved" world-class status really the best? We have taken a closer look at the plant-level survey to see what practices and performance metrics these self-assessed world-class plants are using to run their operations and surpass the competition. Plant-survey respondents who say they have "fully achieved" world-class status are, in every instance, more likely to have adopted the leading trends and practices that help them leap frog over their competition. Specifically, world-class plants enjoy significant implementation advantages in five key practice areas: customer and supplier relations, technology, continuous improvement, quality, and human resources. Customer and Supplier Relations Developing strong relationships with customers as well as suppliers is fundamental to achieving success as a manufacturer. "Fully achieved" world-class plants have recognized the importance of customer-focused initiatives. For instance, consider the use of customer-satisfaction surveys. World-class plants are not guessing what satisfies their customers. Plants are listening to customers' needs and striving to meet customer expectations in areas such as service, delivery, and quality. Data analysis shows that "fully achieved" world-class plants are more than twice as likely to use such surveys as plants that have made no progress or "some progress" toward world-class status. Another leading customer-focused practice is the use of continuous-replenishment programs. "Fully achieved" world-class plants are nearly three times as likely as the total plant survey to extensively implement continuous-replenishment programs for customers (27.8% compared with 10.7%). Such programs allow suppliers to monitor their customers' inventory levels and automatically restock depleted materials. These programs also help eliminate unnecessary paperwork, as well as enhance communication and foster partnerships between plants and their customers. On the supplier side, world-class plants are implementing practices to improve supplier relations as well. Almost 42% of "fully achieved" world-class participants indicate that their suppliers are extensively delivering to plants on a just-in-time (JIT) basis, compared with 19.6% of the total plant survey sample. JIT programs offer benefits similar to those gained from customer-replenishment programs. Technology Self-assessed world-class plants also lead in the implementation of technology. Significant differences exist between the percentage of "fully achieved" world-class plants and the percentage of the total survey sample that has implemented numerous technologies, including computer-integrated manufacturing, advanced planning and scheduling, advanced MRP II, and activity-based costing. The area of technology contains the most obvious improvement opportunities for plants that have not yet achieved world-class status. The world-class firms appear to take advantage of new technologies as they become available. Investments of this type are crucial to achieving and maintaining high performance levels. In addition to enhanced information flow, more time is made available to perform value-added activities. Employees can shift their focus from transactional data crunching to productive analysis. Continuous Improvement World-class plants, in addition to recognizing the importance of continuous-improvement programs, are making great strides in implementing such programs. More than two-thirds of the "fully achieved" world-class respondents extensively implement continuous-improvement programs compared with only 24% of the total survey sample. Having a formal method to encourage, document, and evaluate improvement efforts is essential to achieving desired results. Quality is another initiative of utmost importance to manufacturers. The survey asked plant managers to identify the extent to which they are implementing quality-management programs, and, more specifically, total quality management. In both cases, world-class respondents have a much greater degree of implementation than the total survey sample. For example, 64% of "fully achieved" world-class plants report "extensive" implementation of quality-management programs, compared with 31.3% of the total plant survey. Human Resources Manufacturers place a great deal of emphasis on technology, equipment, and processes -- and rightfully so. However, one very important ingredient of business success is often overlooked: people. Employees are still involved in many activities, including operating machines, performing services, conducting analysis, and assembling parts. The abilities and skills of each employee, along with their attitude and morale, can affect plant performance. One way to enhance an employees' abilities and skills is through formal training. "Fully achieved" world-class plants are almost three times more likely than the total survey sample to provide more than 40 annual hours of formal training per employee (42% compared with 15%). Formal training programs may enhance employees' skills while also sending a message that the company cares enough to make the training investment. In addition, world-class plants are twice as likely as all other plants to have more than one-half of their employees working in self-directed or empowered work teams (42% compared with 21%). Performance World-class plants are adopting and implementing the current trends in manufacturing to a greater extent than less-advanced plants. But are they seeing improved performance as a result? The Second Annual IW Census clearly illustrates that world-class plants are performing at a higher level. Three metrics merit further discussion: labor turnover rate, on-time delivery rate, and first-pass quality yield. A high turnover rate is often indicative of a dissatisfied workforce. To satisfy the demanding needs of today's workers, world-class manufacturers dedicate more hours to training their employees, implement self-directed or empowered teams to a greater extent, and experience less downsizing. Although the survey draws no absolute conclusions, adopting these practices may contribute to the lower turnover rate experienced by self-assessed world-class plants. The Second Annual IW Census reports that world-class plants are nearly twice as likely as all plants to report the lowest turnover rates. More than 40% of these respondents experience a labor turnover rate of less than 3% compared with about 25% of the total survey sample. Outstanding service begins with reliable delivery dates. Almost 45% of the fully achieved world-class plants report on-time delivery of 98% or better, compared with 32% of the total plant sample and 22% of plants that reported having made "no progress" toward world-class status. The survey reveals that "fully achieved" world-class plants achieve better finished-product first-pass quality yields -- 22.2% of "fully achieved" world-class plants have a finished-product first-pass quality yield of 99% to 100%, compared with 13% of all plants and 9.4% of "no progress" plants. Summary What does it mean to be to world class? Is the world-class moniker justified? The answer is "yes." The results of the Second Annual IW Census show that the world-class plants are not only taking the right steps to be on the leading edge of manufacturing, but they are realizing significantly higher results in many performance metrics. Jamie Chevalier is a consultant with PricewaterhouseCoopers, St. Louis, and Carrie Riker is a consultant with PricewaterhouseCoopers, Chicago.

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