Tried And True

Dec. 21, 2004
Time hasn't tarnished the luster of quality and continuous improvement as drivers of change.

The good news is that American manufacturing is not standing still, and, for the most part, its performance appears to be improving rather than declining. So indicate the results compiled in the Third Annual IndustryWeek Census of Manufacturers. For example, almost 80% of the plant-survey respondents to the IW Census say their finished-product first-pass quality yields have improved during the last five years. During that same period, productivity (as a value of annual plant shipments per employee) has increased for 82% of those survey respondents, while 58% declare that per-unit manufacturing costs, excluding purchased materials, have declined. Complacency does not seem to be a factor hampering many manufacturers. All IW Census signals indicate that manufacturers are actively seeking to improve and are using a variety of methods toward that end. A majority of corporate and plant-level executives alike claim that initiatives that promote quality and continuous improvement are critical to their success and that they are implementing such programs. The emphasis they place on initiatives such as lean manufacturing and the introduction of new products indicates that executives recognize that beating the competition means bringing new and better products to market faster and keeping costs down at the same time. But the picture painted by the results of the Third Annual IW Census is not entirely rosy. It shows plenty of room for improvement. More than a handful of U.S. manufacturers admit that their manufacturing performance has taken a negative turn in the last five years or has stayed the same, or they say that improvements are so incremental that they continue to lose ground to their competitors even while improving their own performances. For example, while 68% of plant-level respondents say they have managed to reduce their customer leadtime during the last five years, the percentage who report reductions of more than 20% drops dramatically, to slightly less than one-third of the total plant survey. When it comes to customer service, some 22% of the plant-level managers report that their facilities' on-time delivery rate is less than 90%, and at least 70 plants say they don't manage to deliver product to customers by the date specified even 70% of the time. If those are improved numbers, the need for more improvement seems undeniable. On the upside, 4.2% of plant-survey respondents say they manage to deliver on time, every time. So the question becomes, is all the effort expended on quality-management and continuous-improvement programs worth the time well-planned and -deployed programs require? And why are some manufacturers less than pleased with the results of their improvement efforts? Quality + continuous improvement = marketplace survival For three years, the IW Census of Manufacturers has documented the differences between the ways corporate-level manufacturing executives and their plant-level counterparts perceive the U.S. manufacturing landscape. However, in two important areas the shop floor and the corporate suite share similar views -- that quality-management and continuous-improvement efforts are the driving forces behind any endeavor to achieve manufacturing excellence. Says Sid Davis, vice president and general manager of Bettis Corp., Waller, Tex.: "I am a believer that you cannot afford not to [focus on quality]. You're just going to pay the price when something bad happens." Davis' plant manufactures pneumatic and hydraulic valve actuators, and he says a failure in the quality of his product could shut down a customer's plant. And he notes that continuous improvement "is something we have to do to survive in the marketplace." IW Census data suggest, however, that implementing such programs presents challenges. For example, about two-thirds of the corporate-level executives surveyed were adamant as to the importance of quality-management programs and formal-continuous improvement programs, describing them as critically important. Yet on the plant level, while approximately 90% of survey respondents report having implemented these initiatives, only about one-third say they have extensively implemented such programs. (Rather unnerving is the handful of corporate executives who rate quality-management and formal continuous-improvement programs as of no consequence, and the 175 to 200 plants that have made no efforts to incorporate such programs into their operations.) By all accounts such programs work. Quality metrics -- such as first-pass quality yield, scrap and rework costs (as a percentage of sales), and warranty costs -- are better for plants that have implemented quality programs. Additionally, plant-survey respondents who say their plants have extensively implemented such programs have a median productivity of $160,000 per person versus $137,000 for plants that haven't implemented such programs and $154,000 for plants that have implemented the programs to a lesser degree. The same improved metrics are reported for plants that have adopted formal continuous-improvement programs, only on a more widespread scale. Not only do plants that extensively implement formal continuous-improvement programs produce better quality metrics, their performance across the board makes one wonder why more manufacturing facilities haven't embraced this initiative wholeheartedly. For these manufacturers quality metrics improved as well as measurements related to speed (such as cycle times, inventory turns, and leadtimes), productivity, and improvements over time. The better-performing plants have made this connection. For example, plant-level respondents who report that they have achieved world-class status are twice as likely as the total plant survey to have extensively implemented a formal continuous-improvement program and nearly twice as likely to have extensively implemented quality-management programs. When it comes to a specific quality management program -- total quality management (TQM) -- the discrepancy is even larger. Nearly 59% of the self-assessed world-class plants say they have extensively implemented TQM versus 27% of the total plant survey and just 8% of plant-survey respondents who say they have made no progress to world-class status. In fact, the best-performing plants have implemented more extensively all best practices tied to continuous improvement than the plant survey as a whole. For example:

  • Flexible, cross-functional workforce -- More than half of the corporate-level-survey pool report that flexible, cross-functional workforces are critical to their organization reaching world-class status. Yet less than a quarter (23.2%) of the plant-survey sample say they have extensively implemented such measures. Among world-class plants, more than half (54.7%) report extensively incorporating a flexible, cross-functional workforce in their plant. Additionally, these respondents rank it among the most effective means by which they achieve their goals. Oddly, two tools that seemingly drive the creation of a cross-functional workforce -- training and employee empowerment -- receive remarkably little attention from many manufacturers despite repeated examples of better performance tied their use.
  • Customer-satisfaction surveys -- Continuous improvement certainly entails nonstop attention to the processes under way within a plant. Improving partner relationships, in this instance the customer, is equally important. An obvious method for improving such relationships is conducting regular surveys to quantify customers' pleasure and displeasure with the cost and quality of a product and its attendant service -- and, of course, to act on the information. While certainly much of this activity is conducted at the corporate level, the better-performing plants interact directly with their customers to understand their needs. To better illustrate: Nearly 60% of IW Census plant-level survey respondents who report having made no progress toward achieving world-class status say they never conduct customer-satisfaction surveys. Just 16% of the self-assessed world-class plants admit the same. And while a direct comparison cannot be drawn between the use of customer-satisfaction surveys by IW Census respondents and the winners and other finalists in IW's 1999 America's Best Plants program, it bears mentioning that among those Best Plants in North America, 96% are regularly conducting customer-satisfaction surveys.
  • New-product development with customers and suppliers -- Among customer and supplier best practices covered in the IW Census, new-product-development efforts that include value-chain partners are most favored by IW Census plant-survey respondents. Clearly many plants recognize the gains to be made and the headaches avoided when issues that invariably affect customers and suppliers are addressed before a product is readied for manufacture.
Still, like many of the practices addressed in the IW Census, their acceptance is not wholehearted, perhaps understandably. Fully involving suppliers or customers in development efforts depends on a high level of trust, given that it frequently relies on the sharing of highly confidential information. That said, approximately three-quarters of plant-survey respondents report that customers and suppliers participate in new-product-development efforts, although less than 20% call the participation "extensive." World-class plants extensively implement such practices about twice as frequently as the entire plant survey and three to five times as frequently as plants whose executives say they have made no progress toward world-class status.
Overall Implementation Level Of Broad Plantwide Initiatives
Percentage of total survey sample reporting level of implementation.
Initiative No implementation Some implementation Extensive implementation
Quality-management programs 10.0% 53.0% 37.0%
Formal continuous-improvement programs 13.3% 55.0% 31.6%
Cycle-time reductions 18.4% 57.0% 24.7%
New information technologies 21.5% 53.8% 24.7%
Flexible, cross-functional workforce 18.2% 58.7% 23.2%
Planning and scheduling strategies 18.4% 58.5% 23.1%
New process equipment or technologies 18.1% 60.3% 21.7%
Self-directed or empowered work teams 34.9% 47.4% 17.7%
Reengineered production processes 19.7% 62.9% 17.4%
Supply-chain optimization 39.2% 49.4% 11.3%
Maintenance optimization 37.5% 51.3% 11.1%
Agile-manufacturing strategies 42.7% 47.5% 9.8%
Continuous-Improvement Program Performance Metrics
Performance medians and metrics for plants reporting "no" and "extensive" implementation of a formal continuous-improvement programs.
Performance median Total plant survey No implementation Extensive implementation
Finished-product first-pass yield 95.0% 95.0% 96.0%
Scrap and rework costs as a percentage of sales 2.0% 3.0% 2.0%
Warranty costs as a percentage of sales 1.0% 1.0% 1.0%
Manufacturing cycle time 29.0 hrs 36.0 hrs 24.0 hrs
Standard customer leadtime 14.0 days 15.0 days 12.0 days
On-time delivery rate 95.0% 94.0% 95.0%
Annual raw-materials inventory turns 10.1 turns 9.0 turns 12.0 turns
Annual work-in-progress inventory turns 13.0 turns 12.9 turns 16.5 turns
Annual finished-goods inventory turns 12.0 turns 10.0 turns 12.6 turns
Annual total inventory turns 8.0 turns 7.0 turns 9.0 turns
Productivity as dollar value of annual shipments per employee $150,000 $130,000 $175,000
Percentage of plants reporting performance
Five-year cycle-time reduction of more than 20% 21.9% 15.5% 27.3%
Five-year productivity improvement of more than 20% 28.2% 18.1% 35.6%
Five-year decrease in manufacturing costs of more than 10% 26.3% 19.4% 32.9%
Implementation isn't always easy For the first time the IW Census asked its plant-level-survey respondents to rate the effectiveness of the plantwide initiatives they had implemented. Responses to this question lend credence to the conclusion that implementing continuous-improvement efforts presents a continuing challenge and that "mature" principles such as quality still have not been mastered. Data also suggest that the more effort put forth to implement a program, the more likely a facility is to be happy with its results. For example, nearly half of the plant-survey respondents who had extensively implemented quality-management programs declared them to be extremely effective techniques in helping to achieve plant goals, while just 7% of plants that had adopted quality-management programs to a lesser degree ("some" adoption) regarded them as extremely effective. Another 82% described them as somewhat effective. Nearly 60% of world-class-plant respondents said their quality management programs are extremely effective.
Top Five Most-Effective Broad Plantwide Initiatives
Determined by percentage of fully achieved world-class plants reporting initiative "extremely effective."
Initiative Total plant survey Fully achieved world-class
1. Quality-management programs 25.3% 59.6%
2. Flexible, cross-functional workforce 26.6% 51.1%
3. New process equipment or technologies 32.6% 51.1%
4. Formal continuous-improvement program 21.5% 42.6%
5. Cycle-time reductions 28.8% 34.1%
Experts submit several theories to explain why manufacturers are implementing continuous-improvement efforts with varying degrees of success. An obvious reason for less successful efforts is a lack of commitment to the process, suggests PricewaterhouseCoopers principal consultant Tom Nicholas. That lack of commitment might exist because either no one is held accountable for the improvement, the members assigned to achieve or lead the improvement efforts may not be the best choices, or a facility just stops pursuing the program when it becomes inconvenient. And it's easy for a program to become inconvenient, given the sheer number of activities under way in a manufacturing facility at any given time. "There are a lot of things to focus on in any plant," says Nicholas, "and it's really easy to dilute your focus until you are really not focusing on anything." Among plants that have implemented a formal continuous-improvement program, 21.5% consider it extremely effective and another 74% declare it somewhat effective. However, among the world-class plants that have implemented the process, a full 42.3% consider it a rousing success. PricewaterhouseCoopers consultant Jorge Ismael Torres suggests that those who have been less than pleased with the results of their formal continuous-improvement program "probably focus only on the desired improvement itself rather than the process to achieve it." The first step an organization must take, he notes, is to clearly establish an understanding of a company's actual status and just as clearly the final objective. "Without having these two points clearly understood and agreed upon, it is almost impossible to define a strategy that would allow a company to bridge the gap between them," Torres says. The PricewaterhouseCoopers consultant also points out that a formal continuous-improvement program is a structured methodology that requires ongoing measurement and tracking of key performance indicators, with deviations from the target noted and corrected. The frequency of analysis plays an important role as well, he notes, because the more quickly a problem is identified, the more likely it is to be corrected "before it is too late and costly to bring the organization back on the right track." Torres also notes that the right internal atmosphere may promote better continuous-improvement efforts, with IW Census data suggesting empowered workers may be a key to creating that atmosphere. Not only have fully empowered workforces taken the lead in pursuing formal continuous-improvement programs (60% say they have extensively implemented this initiative), but fully 47% go on to rate those programs as highly effective.

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