Paths For Progress

Dec. 21, 2004
World-class plants combine best practices, teamwork, and technology to achieve optimal performance.

What makes a world-class manufacturer? The question alone suggests that there is some agreed-upon definition of world-class manufacturing, a singular goal for which all manufacturers strive. But in reality there is no finish line to cross, no perfect achievement, no third-party-administered test by which manufacturers can definitively gauge the distance they have traveled on the road to world-class-manufacturing status. Despite this, 3,006 manufacturers assessed their plants' position on the world-class landscape for the Fourth Annual IndustryWeek Census of Manufacturers. They categorized their facilities as having made "no progress," "some progress," "significant progress," or "fully achieved" world-class status. They made it clear by their responses that performances that can be measured -- such as productivity, warranty costs, and inventory turns -- are strong components of world-class manufacturing. Managers who said their facilities had either achieved world-class status or had made significant progress toward that goal were more likely to achieve higher finished-product first-pass yields, better on-time delivery rates, lower scrap rates, and bigger improvements over time to productivity, manufacturing cycle times, and a host of other measures when compared to plants that ranked themselves on a lower world-class rung. For example, plants that have fully achieved world-class status have a median productivity (measured as value of annual plant shipments per employee) of $203,000 compared with $160,000 for the entire survey population and $136,000 for plants that have made no progress toward that goal. Nearly 32% of plants in the two higher-echelon world-class categories (fully achieved and significant progress) increased their productivity by more than 20% in the last five years compared with just 18.7% of the respondents who said their facilities have made no progress or some progress. The list goes on. Those world-class organizations also made it clear by their responses what it takes for them to achieve the better performances. They embrace practices that streamline their internal processes and eliminate waste. They train their employees and make them active participants in the organization's future. They reach out to their customers and suppliers as partners. And they use technology to drive improvements. It sounds so simple. It obviously is not. IW Census results allow closer examination of where the practices of world-class plants diverge from poorer-performing facilities. Broadly speaking, "fully achieved" world-class plants are twice as likely as the general plant-survey populace to be extensively implementing many plantwide initiatives. Some 70% say they have extensively implemented quality-management programs and a formal continuous-improvement program, compared with 39% or less of the total survey population. Half have extensively upgraded their new process equipment or technologies, compared with 25.5% of all plants. More their 40% also say they have extensive implementation of planning and scheduling strategies (44.8%) and new information technologies (41.5%). Such results indicate that it may not be so much the initiatives world-class manufacturers undertake as the vigor with which they pursue them that sets these facilities apart. While most plant survey respondents, regardless of where they view their facility's level of achievement, are pursuing many of the same initiatives as the world-class facilities, they also report that they are pursuing them much less extensively. Contributing to the poorer performance of those plants may be what Tom Nicholas, a Chicago-based practice manager with PricewaterhouseCoopers, describes as "management no-nos" that some managers continue to pursue. They include running a "policy-of-the-month club" in which new objectives are issued monthly or quarterly, while other implemented programs are allowed to deteriorate or are discontinued. "Yes, business must be able to adapt quickly," Nicholas observes, "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." He also suggests that the downfall of certain programs may be a result of focusing too few resources on too many programs, "thereby clouding the true objective and ensuring failure or diluted effectiveness on every initiative undertaken." The Fourth Annual IW Census is able to go a step beyond illustrating the initiatives world-class plants are employing to identify which among them correlate most with effectiveness. At the top of the list is the introduction of new process equipment and technologies. Approximately one out of two managers of world-class plants that have implemented new process equipment and technologies say they have been extremely effective in helping their facilities achieve desired goals. Any attempt to link world-class plants' better performances solely to this finding, however, should be extinguished by this additional data: Of the total respondents who have implemented new process equipment and technologies, just 37.6% believe such equipment is extremely effective; 29.5% of plants that have made no progress toward world-class status say the same. Why do world-class manufacturers appear to be having better luck than their counterparts in bringing about the results they envisioned when purchasing new equipment and technology? One possible explanation is that world-class players identify these plant-floor manufacturing aids as tools in an overall improvement program rather than the single fix to the myriad problems that bedevil the plant floor. Beyond new processing equipment, the three strategies most often mentioned by "fully achieved" world-class plants as extremely effective are quality-management programs (49.3%), cycle-time reduction efforts (47.5%), and a formal continuous-improvement program (41.5%). Internal Processes It appears that one way world-class plants get the most from their new processing equipment is to marry its use to lean-manufacturing strategies. Lean strategies involve the implementation of practices that reduce inventory levels and remove waste from the production process. Nearly half of world-class plants have widely adopted predictive and preventive maintenance techniques, practices designed to keep equipment in good operating condition and to prevent unscheduled machine downtime. The next three lean strategies most frequently cited as widely adopted by world-class plants are just-in-time/continuous-flow production, which are techniques applied to reduce lot sizes, shorten setup times, drastically cut work-in-process inventory, and reduce manufacturing cycle time; quick-changeover techniques to shorten setup times and allow more frequent changes; and focused-factory production systems, a plant configuration and organization structure in which equipment and workers are grouped to create "mini-businesses," each with a specific product line or customer focus. All are widely adopted much more frequently by world-class plants than by the total survey population. Interestingly, it is cellular manufacturing, a practice in which equipment and workstations are arranged to facilitate small-lot, continuous-flow production, that world-class plants most often say is the most effective lean practice. Fully 54.4% of plants that believe they are fully world-class report that cellular manufacturing practices are extremely effective, followed by predictive or preventive maintenance, pull system/kanbans, and quick-changeover techniques. Of the eight lean strategies cited in the Fourth Annual IW Census, six were identified as extremely effective by at least 40% of world-class manufacturers, with JIT/continuous-flow production cited by 38.1%. In every instance, world-class plants were more likely to be adopting lean strategies and to find their implementation extremely effective. Employees It is a familiar refrain among IndustryWeek's Best Plants winners: "Our people are our most important resource." It appears that world-class plants share a similar sentiment. The attention world-class plants shower on their employees may be the strongest distinguishing factor between world-class plants and the rest of the crowd. A well-trained, empowered workforce remains a much less familiar sight in low-performing plants than in higher-echelon facilities. Training in particular is sadly lacking in plants furthest from world-class performance. For example, 19.7% of world-class plants provide their plant employees with more than 40 hours of training per year, and 47.3% offer more than 20 hours. By comparison, just 9.1% of the total plant survey deliver more than 40 hours of formal training to their employees per year, and 29.4% provide more than 20 hours. For plants self-assessed as having made no progress to world-class status, just 10.6% provide more than 20 hours of formal training annually, and 54.5% say they give their plant workers less than eight hours of formal training annually. The lack of focus on formal training for plant employees remains a recurrent theme in the annual IW Census, despite repeated demonstrations of the superior performances exhibited by plants that provide more extensive training. Data from the current survey show that plants that provide at least a week of formal training are reporting higher finished-product first-pass yields, lower scrap costs, better on-time delivery, higher inventory turns, and increased productivity. In fact, while the median productivity for the total plant survey is $160,000, it rises to $200,000 among manufacturers that offer more than 40 hours of formal training annually per employee. Training is a long-term endeavor that requires a sustained effort by manufacturers, and it is difficult, says Carol Shaw, associate dean, engineering, and director of the Center for Competitive Change, University of Dayton. It frequently is one of the first activities abandoned when a company's focus becomes short-term -- such as meeting quarterly goals, she notes. However, in addition to missing out on the improved metrics that accrue from more formalized training, manufacturers that don't pay appropriate attention to training miss out "on the increased morale that occurs as a byproduct of tackling and solving problems in a knowledge-based way," Shaw says. "They are missing out on problem avoidance and the time it frees up for doing other things." Much like formal training, improved performances are exhibited by plants with more empowered workforces, and again it is world-class plants that show a greater effort in this area. Slightly more than one in three (35.1%) world-class plants say that more than half of their workforce participates in empowered or self-directed teams. That percentage drops to 19.7% of the total plant survey and 4.9% of plants that have made no progress toward world-class status. Additionally, nearly nine in 10 world-class facilities employ problem-solving teams in their plants. Among the plants furthest from world-class, that percentage drops to slightly less than four in 10. In short, world-class plants are handing off to their production responsibility for production activities including quality assurance and process improvements. Customers & Suppliers Data from the IW Census suggest that a collaborative effort up and down the supply chain is essential to achieving world-class results. World-class facilities were more likely than any other survey population to have implemented all nine customer and supplier practices included in the IW Census. The supplier practice world-class plants cite as having implemented most extensively is just-in-time delivery by key suppliers. About one-third are employing this practice, which generally requires suppliers to deliver smaller lots timed to the needs of the production process. The benefit to the manufacturer is less inventory on hand and, ideally, less need for storage space for parts and materials. The IW Census shows that 79.2% of world-class plants are employing supplier JIT to some degree, compared with 69.5% of the total survey population. However, among plants furthest from world-class status, 53.8% are making no efforts to reduce their inventory costs by this method. Among customer practices, gauging customer satisfaction through surveys is the process most likely to be extensively implemented. The data show that 37.3% of world-class facilities are using customer surveys extensively, which is about twice the rate of the total survey population. The practice of inviting customers to participate in new-product-development efforts has been implemented extensively by 34.8% of world-class plants. This compares with 20.4% of the total survey population. Likewise, world-class manufacturers recognize the benefits of bringing their suppliers into the product-development process early in the game, thereby addressing procurement or manufacturability issues before too much time is invested in an unworkable design. Some 25.7% of world-class facilities employ this practice extensively, which -- again -- is nearly twice the rate at which the entire survey populace has extensively implemented the practice. Technology Manufacturers that say they have fully achieved world-class status demonstrate a greater propensity to communicate electronically with their supply-chain partners. To this point electronic data interchange (EDI) remains the most widely used communication method for all facilities, while Web- and Internet-enabled technologies are expected to grow in importance. Customer-service or help-desk activities currently are the business processes most frequently conducted via the Web by both world-class plants and the total survey population. Data show that 32.1% of the former and 20.5% of the latter conduct customer service via this method. In adopting technology, excluding EDI and Web- or Internet-enabled communications, world-class plants again show leadership. World-class plants were significantly more likely than the total plant survey to have implemented all 12 technologies about which they were queried. The three technologies that show the greatest disparity in terms of implementation are advanced planning and scheduling systems, implemented by 64.4% of fully achieved world-class plants vs 38.5% of the total population; computer-integrated manufacturing, implemented by 57.4% of world-class facilities and 34.6% of the total survey populace; and bar coding, implemented by 65.5% of world-class plants and 46.8% of the total population. World-Class Performance Metrics Percentage of plants in each world-class category reporting selected performance measures.

Performance No Progress Some Progress Significant Progress Fully Achieved Total Plant Survey
Finished-product first-pass yield of 99% to 100% 9.2% 11.8% 20.5% 31.1% 15.6%
Five-year first-pass yield improvement of more than 40% 3.3% 6.0% 10.8% 11.1% 7.6%
Scrap/rework costs (as a percentage of sales) of less than 1% 11.9% 15.5% 21.1% 22.7% 17.6%
Warranty costs (as a percentage of sales) of less than 0.5% 17.9% 20.5% 27.4% 29.7% 22.9%
Five-year manufacturing-cycle-time reduction of more than 20% 8.8% 20.8% 29.2% 25.7% 22.8%
On-time delivery rate of 98% or more 26.1% 27.6% 41.4% 48.5% 33.1%
Customer leadtime of less than five days 25.7% 22.6% 26.7% 36.8% 25.0%
World-Class Adoption Of Manufacturing Practices Percentage of plants in each world-class category identifying practice as "widely adopted."
Manufacturing Practice No progress Some progress Significant progress Fully achieved
Predictive or preventive maintenance 11.9% 20.2% 40.5% 46.8%
JIT/continuous-flow production 8.0% 14.4% 31.8% 35.5%
Focused-factory production systems 1.6% 8.0% 19.7% 31.1%
Quick-changeover techniques 2.8% 9.1% 21.9% 30.8%
Bottleneck/constraint removal 2.4% 9.0% 23.9% 27.2%
Cellular manufacturing 3.7% 13.7% 25.6% 25.2%
Pull system/kanbans 3.7% 10.2% 20.1% 22.4%
Lot-size reductions 4.5% 13.1% 24.4% 22.2%
Competitive benchmarking 1.2% 4.9% 13.5% 19.1%
World-Class Status
% of all plants Progress toward world-class status % of all companies*
8.9% No progress 5.2%
51.7% Some progress 40.9%
34.2% Significant progress 43.1%
5.2% Fully achieved 9.5%
*All respondents did not answer
About the Author

Jill Jusko

Bio: Jill Jusko is executive editor for IndustryWeek. She has been writing about manufacturing operations leadership for more than 20 years. Her coverage spotlights companies that are in pursuit of world-class results in quality, productivity, cost and other benchmarks by implementing the latest continuous improvement and lean/Six-Sigma strategies. Jill also coordinates IndustryWeek’s Best Plants Awards Program, which annually salutes the leading manufacturing facilities in North America.

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