Back to Basics: A Recipe for Post-Recession Market Leadership in Manufacturing

Aug. 5, 2009
Ideas to better utilize existing resources to produce the same volume with fewer personnel, less material or in less time.

American consumers, facing uncertain job security, lower home prices and depressed retirement accounts, have made a fundamental shift in shopping behavior. Almost overnight, a profound, collective sense of regret over years of overconsumption and waste has set in -- and with it a new attitude toward frugality.

Manufacturers are scrambling to make sense of these new consumer attitudes and behaviors. Will spending patterns eventually return to their pre-recession levels? Or will consumers still be thrifty when the recession subsides?

No one knows for sure. But consumers will always need certain things, so the issue may not be whether some things will be purchased, but whether they'll be purchased at the price and in the quantity necessary to generate profit and growth for producers.

In this uncertain environment, companies that react quickly and become the lowest-cost producers will be in a strong position to redraw the market-share map. They'll be poised to take volume and customers from those companies that can't react. This has been the reality of every recession, and producers that are not prepared for the ensuing battle will inevitably drop down the leader board before the dust settles.

To develop this level of agility, progressive manufacturers have been taking a "back to basics" approach in their plant operations, very much in line with the consumers they're seeking. Rather than going back to old assumptions, these companies are looking for ways to get more value from current investments.

Primarily, this involves better utilizing existing resources to produce the same volume with fewer personnel, less material or in less time. For instance, producing the same case count in less time by speeding up changeovers or, producing the same case count with less material by eliminating overfilling.

Common back-to-basics trends these companies are following include:

#1: Leveraging Human Capital. Research shows that the core efficiency problems in today's plants are not related to plants and equipment, but rather to people. Fortunately, the hourly workforce is an inexpensive improvement area because the hidden resource already exists. As a result, workflow and management problems must be tackled with a completely different approach from the engineering-led focus that most companies use today.

For example, shop-floor workers and supervisors at leading food producers are increasingly a source of competitive advantage. That's because most line workers know what causes equipment-rate reductions, changeover delays and scrapped product. They are able to pinpoint the problem and do something about it. Yet most producers don't ask workers to do this or equip them to improve processes systematically. Instead, producers assume that the problem is a lack of data or outdated equipment.

To combat this, many companies are leveraging human talent. They're working to improve production transparency and increase accountability while enabling more structured mechanisms at the shop-floor level. Many are also achieving more consistency on the factory floor by ensuring operators and supervisors have the same levels of training and standards adherence across all lines and among all plants.

"By having real-time operator intelligence, we have the level of granularity needed to take appropriate action," says Gary Gold, vice president of quality and continuous improvement at Berner Foods. "If data reveals that we're getting a lot of breakage in a certain line, we can walk down to the shop floor, talk with the operator, find the cause and fix it. That has been a key factor in our ability to improve OEE [overall equipment effectiveness] by 68% in 12 months."

This systematic people-based approach to increasing agility is more relevant now than ever before, since unlocking human contribution is less capital-intensive than equipment or plant-focused initiatives.

#2: Benchmarking the Gap Between Actual and Reported Efficiency. Research shows that most senior executives are making critical business decisions with distorted views of production efficiency. In fact, two recent industry studies found that the gap between reported and actual efficiencies in CPG plants averages nine percent - a gap that if narrowed could translate into cost savings equaling one total plant for every 10 plants in a network. For a single plant this could mean getting the same output with one less day of running costs per week.

Considering the impact of this cost reduction, companies can benefit from having an independent third party benchmark their performance, providing them with the larger view needed to set clear cost-reduction goals.

According to Greg Hoffman, vice president of manufacturing at American Popcorn Co., the benchmark audit his company engaged in was a much-needed catalyst for change. "It highlighted pretty significant inaccuracies in our measures," he says. "The part where the fastest gaps could be addressed was great, as it gave our people an immediate way of making a difference in weeks, not months."

#3: Taking Action. For years, manufacturers have operated under the perceived wisdom that more measurements and data result in more improvement opportunities. But executives now realize that measurement is not the Holy Grail, and data alone doesn't give them the information necessary to take action or resolve problems. Just as consumers have broken buying patterns, so must producers with their approach to improvements. Action, not measurement, should be the goal.

As a result, companies are focusing on reducing their reliance on an ever-increasing volume of data capture. Instead they're turning to a more basic form of capturing data specifically related to mobilizing the action cycle within the workforce.

The current climate of fear and uncertainty -- and thus low organizational resistance -offers the perfect timing opportunity to forge long-term behavior change. In fact, if the risks, issues and opportunities uncovered during an audit are communicated accurately, all levels of staff will quickly unite to support the company's leadership. A calm explanation of how the organization can respond and prosper in this economic climate, coupled with a set of measures that everyone can follow, can instill determination.

Going back to basics is not just a consumer desire. It's a winning strategy for manufacturers that want the agility needed to come out ahead. For those that act quickly and capitalize on the prevailing sense of urgency to implement change, this is an opportunity to prosper.

Mark Sutcliffe is the president of CDC Software's CDC Factory. CDC Software is a provider of enterprise software applications.

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