Continuous Improvement -- Are You Ready For Tomorrow's Manufacturing?

March 10, 2006
Look for new models in inventory, plant design, labor, quality and distribution.

Every once in a while, it's important to ponder what could be coming down the pike. This is especially important in the asset-heavy endeavors of manufacturers.

For your consideration, here is my list, submitted humbly, of trends that I think we will see in manufacturing in the coming years and what they will require of continuous-improvement efforts.

1) Third-party inventory ownership: As more materials and components are sourced from overseas, manufacturers will be forced to hold more inventory as lead times are longer, and visibility is lower. In order to keep the increased inventory from tying up cash -- a continuous-improvement goal -- manufacturers will turn to third-party inventory ownership, meaning a financial institution, for a price, owns the inventory from the time it leaves a supplier to the time it is pulled for production. Usually, the inventory actually resides in the manufacturer's warehouse but is accounted for on the books of the third party during the idle time between supplier and customer.

2) Smaller, more flexible plants: This is sort of a no-brainer considering all of the excess capacity in the United States, but in truth relatively few plants designed specifically for flexibility have been built or retrofitted. My prediction: We will see more of them once manufacturers start to invest in capital (such as Daimler-Chrysler is doing now), and we could even see dual-purpose facilities that quickly can be converted to an entirely different function during off-peak production. Industrial equipment is becoming more flexible as well. Haas manufacturers the Haas Office Mill, a tooling machine that fits through most office doors and is light enough for a freight elevator. In terms of continuous improvement, flexibility is the key here -- keeping production processes as lean as possible, inventory as low as possible, and clutter to the zero level.

3) Labor pools/flexible shifts: Of course, what do you do with your employees during off-peak production? Some manufacturers deal with product-inherent seasonal peaks using seasonal workers. More manufacturers will be grappling with this but for a different reason. With the two forces of a shrinking manufacturing labor force and first-to-market pressures, it makes sense that a new labor model will be emerging in manufacturing. More than one major manufacturer in recent years has been caught in the purgatory of enjoying spikes in demand for a suddenly popular product but possessing unavailable or inappropriate capacity for producing more. And if they had the capacity, paying overtime would eat into profit margins. Getting the capacity right is half the equation of capitalizing on spikes in demand, and getting labor availability and costs right is the other half.

How will these flexible workers be compensated and trained? I don't know. But it's something manufacturing needs, and training has always been the bedrock of continuous improvement. Someone is going to come up with the basic model, and that someone will be ahead of the game. A suggestion I have made before regarding this is to consider the model the medical community has established for nursing. Women don't make up the majority of nurses because they have more appropriate skills than men -- it's because they can work flexible shifts, making full-time money working three weekend days or working part time but being offered a stint of full-time here and there when hospitals are full. Some prefer the graveyard shift, and some find and early a.m. shift suits their needs. They don't mind the downtime or shift-work because it allows them to fulfill their family caretaker rolls.

4) Quality concerns return: Remember when "quality" was a buzzword back in the 1970s and 1980s? Then, once quality improved, everyone realized that quality shouldn't be the subject of any program; it should be a given! But we've gotten a little sloppy with quality, as reported in IW's March issue ("Quality Takes A Beating"). The difference this time, however, is that low quality isn't a plant-floor issue; it's a strategic issue.

That's because the erosion of quality in manufactured goods is coming from a blind insistence on lowest-cost material and components, complex electronics, non-investment in supplier relationships and rushed testing processes on new designs. All of these, of course, can give short-term competitive advantage but are deadly to customer retention. I've witnessed this quality erosion for both industrial and consumer products. It simply can't go on. Market share is too precious these days, and those producing crap won't be able to hang on to it.

On the bright side, this need for quality improvement comes just as U.S. manufacturers are realizing that continuous improvement should be part of an overall corporate philosophy as opposed to plant-floor programs. So, managers and executives need to take a good long look at the strategic financial decisions being made and determine if the trade-off in quality is worth it. (Lock the accountants out of the room until they sign a document in blood that says they pledge allegiance to the Toyota Production System.)

5) New distribution models: During the dawn of the e-business age in manufacturing, circa 1987ish-1994ish (remember when we had at least five major ERP providers, multi-million-dollar CRM implementations and predictions of death for EDI?), entirely new models of doing business were built. Procter & Gamble began using the Internet for product testing, measuring consumer acceptance of new products via online sample requests, for instance.

During this time, I kept waiting for new distribution models to emerge. They never did. Sure, companies built portals for their distributors, but that's smalltime compared with the cost reductions and efficiency improvements that technology allowed for in other areas of the enterprise, such as sourcing. No one blew up the old model and created a new one that was copied by all.

The roadblock, I think, was the economic downturn because many companies lost faith in technology or suddenly had higher priorities, such as staying in business.

But I have to believe that as the economy improves and companies start re-evaluating their costs and investing in new technology, that new distribution models will emerge. The challenge here: Kaizen the whole thing. Without a doubt, there are opportunities to reduce overhead and inventory.

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