It’s not news to
But seeking a competitive edge, a growing number of American companies have installed so-called world-class manufacturing, or WCM, techniques. These revamp approaches to production, purchasing, delivery, inventory, and R&D.
Companies that embrace WCM typically encounter some common difficulties: They don’t understand the process shouldn’t be done piecemeal. They don’t realize the importance of retraining employees and vendors, and they don’t know how to inspire customer confidence in the new techniques. Further, the will to stick with WCM may be shaken as short-term expenses rise during the transition period and as the traditional corporate culture-often based on functional management approaches-is torn asunder.
Even so, those willing to endure such up-front costs and problems can find a substantial payoff in enhanced productivity, more efficient, lower-cost operations, and improved product quality. When internalized, WCM practices can boost employee morale and creativity-and thus profits, cash flow, and returns on investments.
With cheap labor markets a phone call away-and technology improving at an ever more rapid pace-companies-caught holding old inventory or using outmoded quality techniques can find themselves whirling in a maelstrom of losses and customer defections.
How many times have manufacturers been bushwhacked by an engineering department product that was “unmanufacturable,” according to the factory foreman? Or by a product that had to be recalled for service-related defects? Or by the faulty decisions of middle managers far removed from business concerns on the front lines? WCM techniques come to the rescue with such concepts as just-in-time (JIT) purchasing and delivery, value chains, product teams, concurrent engineering, and rapid-cycle manufacturing (RCM). JIT means producing the product “just-intime” to meet the customer’s requirements. RCM aims to eliminate all time in the cycle that isn’t devoted to enhancing the product.
These techniques share several general requirements:
- Management must “empower” employees. More than a training process, empowerment convinces workers that management believes in their abilities.
- A “value chain” must be established. This is an unbroken line of products, subproducts, components, and assemblies that-ideally-lead directly from suppliers of raw materials to the final end user. For example, a cold-roller makes a metal sheet; a metal shop bends it into a chassis; a semiconductor manufacturer supplies chip sets; a systems integrator puts circuit boards and components into the chassis-all to the specific requirements of the company that will sell the finished product to an identified class of end users. In addition, since the value chain leads to the customer, customer requirements should be considered at every step.
Meanwhile, when companies begin to implement WCM, short-term costs can be expected. Some of these-for example, tooling costs-can be expected. But others, including those related to a sudden jump in obsolescent inventories, may come as unpleasant surprises.
Achieving RCM can also mean a 75 percent reduction in setup time, but the costs can turn short-term profits to losses. Long-term, RCM produces faster response times, decreases surplus inventory, and makes better use of capital. For example, when I first began working at Pacific Scientific, we delivered electric motors and controls in 18 weeks. Now we only need two weeks.
Inventory-whether in the form of components, work-in-progress, or finished goods-represents idle assets and limits RCM flexibility. The JIT process aims to eliminate dependence on warehouse inventory, increase demands for the timely delivery of parts and subassemblies to the factory floor, and engineer products for faster assembly cycles.
Achieving JIT can reduce space requirements, and it will improve uses of capital. But it can also mean added costs for relocation, remodeling, book losses on warehouse space, and retraining. Reducing the workforce means trimming payroll, taxes, retirement accruals, and other overhead. But the gains made by downsizing can be accompanied by severance, training and retraining costs, and a run-in with unions.
First to scream about the extra costs will be managers with quarterly and monthly mentalities: The cash manager will have migraines for months. So a company must sell the benefits of WCM to those affected, especially management, labor, financial partners, shareholders, and customers. As a company begins the WCM process, it must forecast expenses-with full provision for surprises-and consider such cost mitigation tactics as sequestering funds for specific uses or segmenting the business for affordable, more gradual change. Moreover, management and labor should be retrained to seek out problems and solve them before they eat the business alive. Analytical tools should also be developed to measure and verify cost improvements.
WCM will control costs and improve quality, deliveries, and asset management. While most costs come up front, continual trade-offs may be required, because WCM is a continual pilgrimage toward an ideal, not a static goal. In sum: The search for perfection never ends.
A LEAP OF FAITH
Driving most companies toward WCM is the instinct to survive. Some are threatened with imminent disaster, while others see the approach as an inevitable-though farsighted-accommodation to the global market’s requirements. But in each case, an initial “leap of faith” is required to implement the techniques, no matter what size the company may be.
One major taboo: Companies shouldn’t be tempted to handle the process piecemeal-it simply can’t be done. Such an approach provides none of the WCM benefits or results but simply allows nonbelievers to say, “We tried WCM, and it doesn’t work.” Adopting JIT purchasing with no change in manufacturing procedures, for example, is pointless. The tactic annoys vendors and can incur an additional expense in sequenced delivery charges.
To Pacific Scientific’s WCM customers, JIT deliveries work well. But we have other customers-sometimes in the same businesses, buying the same products-who are experimenting with WCM because their competitors have successfully implemented the strategy. In one such case, a “wanna-be” WCM asked for all deliveries to be made on the 30th of the month-before it began the product-building process. But the company made no manufacturing changes. Naturally, it was mightily disappointed in WCM, which the company hadn’t installed but thought it had.
We learned a similar, hard lesson when we relocated an offshore manufacturing plant to an existing facility in the
If a company can’t afford to change everything overnight (who can?) it can bite off digestible chunks and phase in any extra costs by implementing WCM by specific product line.
Middle-market companies may be best suited to make the transition to WCM. Without such a change, most will eventually lose market position to faster delivery and lower-cost manufacturing of the WCM supplier. Their strength is their size: not too small to be unable to afford the changes and not too large to have to overcome the large company’s inherent resistance to change.
In terms of management structure, a WCM company is characterized by:
- A relatively flat organizational chart.
- The use of front-line managers as facilitators.
- The elimination of all functions that don’t directly contribute to value.
- Empowered, skilled employees with broad responsibilities who place a premium on customer satisfaction.
Certainly, training is important for workers on manufacturing lines. But in a WCM company, it’s even more important for management to build a trusting relationship with the rank and file. Employee empowerment is the sine qua non in retooling the workforce to meet world-class standards.
Because the best place to tackle product problems is on the production line, line workers need to know that management trusts their judgment and abilities, and empowers them to solve the problems that may arise in designing, manufacturing, or servicing a product. They need to know, for instance, that management really wants them to stop the manufacturing line if they see a quality control problem.
The stiffest resistance to employee empowerment and WCM usually comes from middle managers, who may perceive that their positions are in jeopardy. Often, their fears are unfounded: Although some jobs may be cut in any reorganization, WCM does not eliminate all mid-level jobs, it merely changes them. These days, for example, managers are no longer distant-either physically or in their working relationships-from staffers who work on the factory floor.
Perhaps the most innovative and valuable WCM technique is “product-team” manufacturing. The approach entails reorganizing divisions by product or “product cells.” In these cells, empowered teams work together to develop and deliver specific product lines for specific customers, or for a group of customers with similar requirements.
Because product teams must be tightly knit, a WCM company must build teams as part of the retraining process. Most employees are used to working in a “top-down” chain of command and must adapt to WCM’s flat, cooperative environment. Product teams-which bear full responsibility for anticipating, meeting, and satisfying customer needs-may include representatives from such departments as product design, engineering, manufacturing, sales, marketing, purchasing, billing, and customer service. Suppliers and customers, too, participate in the teams on a regular basis.
Companies eager to adopt WCM may encounter some resistance from labor unions fearful of downsizing. But that’s not always the case: At our company we found unions cooperative and willing to change. Of course, RCM may entail retraining employees in a product or customer cell to perform multiple jobs. That, in turn, may mean reassigning employees or eliminating positions. But in general, WCM results in better-paying jobs with broader responsibilities and more rapid career advancement. Generally, unions cannot help but support such initiatives.
Concurrent, or “simultaneous,” engineering describes the process by which a company’s product teams work with vendors and customers.
Traditionally, designers want products that exceed customer expectations, while manufacturers want high-quality products at low costs. One way to satisfy both is to mix designers, manufacturing engineers, and direct laborers on the same team. The natural and healthy tension that exists between team members raises quality to a higher level.
In a recent Pacific Scientific project that relied on concurrent engineering, direct labor eliminated 80 percent of the screws and fasteners in a new design.
WCM companies must also retrain their vendors for JIT and RCM: This will enable them to deliver high-quality products on time. But vendors, too, reap benefits from WCM, including reduced inventory and better margins.
Vendors must be given delivery schedules in advance to facilitate a WCM company’s planning process. But the converse is also true: WCM companies must take some responsibility for their vendors. Since WCM companies ideally work only with WCM vendors, the interdependence of vendor and customer creates a symbiosis that nourishes relationships.
WINNING CUSTOMER CONFIDENCE
WCM companies may find themselves selling to more traditional customers with methods that contradict WCM principles. Such customers, especially megacorporations, may have policies that “require” a company to maintain at least a quarter’s worth of inventory at all times-sometimes two quarters. (Purchasing manuals vary, but their inflexibility does not.)
But a WCM company doesn’t work that way. To win a bid to supply a product to such a customer, it must demonstrate that WCM processes yield improved quality, flexible deliveries, and the reliability of an inventory-heavy supplier. A company moving toward WCM may lose some bids during the transition period. But once such techniques come up to speed, it will also be the low bidder.
A case in point: At Pacific Scientific, we have begun to defeat our competitors on delivery schedules.
The benefits of WCM are demonstrable. They provide the “juice” needed to win bids, even from traditional buyers. And as entire industries convert to WCM-as the semiconductor and EDP industries are now doing-fast, on-time deliveries and consistent quality will become more important than simple low bids.
Clearly, WCM can help world-class maufacturers to reap world-class profits.
Edgar S. Brower is chairman, president, and chief executive of Newport Beach, CA-based Pacific Scientific, a $173 million designer and maker of industrial and aerospace products.