The challenge for many manufacturers today is that global market conditions have evolved dramatically and have become increasingly competitive, but management processes have often failed to keep pace. How can manufacturers stay competitive and gain market share, especially in tough market conditions? The key is to focus on two dual targets: sales/market share and operating costs. Companies that focus on increasing sales through improved customer satisfaction and reducing operating costs through improved asset productivity have a much greater chance to stay competitive and succeed. The 3M’s of manufacturing (measures, mindset, and methods) are key fundamentals companies need in order to help them meet these two targets.
Eli Goldratt said it best in his book The Goal, “Show me how you will measure me, and I will show you how I will perform.” Measures and accountability are extremely powerful and can have a dramatic affect on the mindset of employees. The problem is that many companies operate under old measures, mindset, and methods that lead to less than desired results, such as:
- Efficiency measurements
- Piece-rate incentives
- One person, one job environments (no cross-functional training)
- “Good enough” quality standards
- Long machine runs (batch processing)
- Infinite capacity planning
The big question is what measures, mindset, and methods should companies implement? Let’s look at a job shop manufacturer as an example. A typical job in this environment is a make-to-order/engineer-to-order operation that can have long lead times that can be difficult to accurately determine. These manufacturers try to buy the fastest equipment and machinery they can and work hard to eliminate setup time. The common comments I hear from job shop companies are:
- “We try to batch our jobs as much as possible because of long setup times.”
- “If I only had long runs.”
- “I’m different, no one is like me.”
- “We’ve been doing it this way for years and there is no better way” (culture/pride).
- “Every order is different and it’s hard to standardize.”
In order to change this old mindset, companies should focus on the following global operational measures:
- Throughput (T): Money generated through sales, not through production. It doesn’t do the company any good if it makes a product it can’t sell. Don’t implement measures that promote overproduction.
- Inventory (I): Money invested in materials intended to be sold.
- Operating Expenses (OE): Money spent to covert inventory into throughput.
In our example above, job shop manufacturers should establish the following new measures:
- T = On time delivery to customers request date.
- I = Velocity rate from raw material to shipping.
- OE = Dollars shipped divided by total plant man hours.
- OE = Scrap, rework, return goods, overtime by line item
- Lost throughput dollars on the constraint
These new measures with the proper accountability should lead to the following new mindset (keep in mind the most difficult thing for people to change is their mindset):
- Work together as a team
- Remove individual piece incentives rates
- Cross train and implement a pay for knowledge program
- Complete set-ups with a pit-crew like mentality
- Daily communication
- Attack the constraint and resolve issues immediately
These new measures and mindset should lead to the following new method changes:
- Manage the flow of material not people (synchronous flow manufacturing)
- Due date on the top of each job routing
- Order released only at the rate they are finished
- Rapid problem resolution with daily communication
- Strategic planning of resources
In addition to the above operational measures, companies should NEVER lose focus of customer satisfaction and competitive position measures. In order to increase sales/market share, companies need to ensure the 3M’s are in alignment with customer needs and have a customer focus in order to stay competitive. The reality is that customers want the following:
- Quality (the highest)
- Product/features (the latest and greatest)
- Delivery (yesterday)
- Price (the lowest)
- Service (the best)
How does your company rank in these areas? How does your competition rank? Most importantly, how do your customers rank you? All of these items must be addressed continually and collectively.
It is important that companies have in place the right measures to achieve desired outcomes. The measures should cover the entire organization (operations, financial, and the customer), be visually present everywhere for everyone to see, communicated daily, and have full commitment from the top down. In today’s global marketplace, companies must be able to adapt quickly, have a culture of change/continuous improvement, be flexible, and ever-evolving. The 3M’s will help companies reach these objectives.
J.C. Wilkinson, CPA, CPIM
Operations Consultant, Assurance Manager
