What does it mean to be a world-class competitor? It means being successful in your chosen market against any competition—regardless of size, country of origin or resources. It means matching or exceeding any competitor on quality, lead time, flexibility, cost/price, customer service and innovation. It means picking your battles—competing where and when you choose and on terms that you dictate. It means you are in control and your competitors struggle to emulate your success.
What does it take to be world class? Richard Schonberger, a leading manufacturing consultant,
created the term “world-class manufacturing.” According to Schonberger, “manufacturing is gained
by marshalling the resources for continual rapid improvement.” To achieve world-class status,
companies must change procedures and concepts, which in turn leads to transforming relations among
suppliers, purchasers, producers and customers. Enterprise automation is indispensable to
manufacturing innovators who aim to gain market share, operate at peak efficiency and exceed
customer expectations so they can be world class in their industry.
How can your company become and remain world class? There are seven keys to becoming a world-class manufacturer that distill the broad concepts above into specific actions that can be addressed and accomplished in your company. Each is presented with a brief discussion and examples of its impact on a manufacturing organization and its competitiveness. A more detailed discussion of each of the seven keys is available from Infor.
The keys to success, in no particular order, are:
1 Reduce lead times
2 Speed time-to-market
3 Cut operations costs
4 Exceed customer expectations
5 Manage the global enterprise
6 Streamline outsourcing processes
7 Improve business performance visibility
Each of these objectives is important in and of itself; however, taken together, they describe the focus of the activities and attitudes that define world class.
Reduce Lead Times
Shorter lead times are always a good thing. In many markets, the ability to deliver sooner will win business away from competitors with similar product features, quality and price. In other markets, quick delivery can justify a premium price and will certainly enhance customer satisfaction. In all cases, shorter lead times increase flexibility and agility, reduce the need for inventory buffers and lowers obsolescence risk. Lead times are cumulative and bi-directional—that is, order handling, planning, procurement, inspection, manufacturing, handling, picking, packing, and delivery all contribute to the lead time; and the time it takes to get signals down the supply chain to initiate each activity adds to the overall time it takes to get the job done.
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Inflexible business rules and policies can drive undesired effects. Purchasing rules too focused on
unit cost lead to large quantity buys that result in high inventory and long lead times. Ironically, this type of buying can also lead to shortages, since longer lead times mean you will be making and buying to a less accurate forecast. The best combination of price and lead time often comes from a stable buyer-supplier collaborative relationship based on long-term contracts with deliveries according to a forecast that is shared with the supplier and updated frequently. The same is true on the customer side. Instead of focusing on securing large, one-time, single orders that clog up the supply
chain, companies must focus on creating long-term contracts with customers and sharing forecast
information with customers to reduce lead times.
The same issues concerning large lot sizes also apply to internally produced parts and products. Large lots, driven by a focus on lowest unit cost, raise inventory and lengthen lead times while reducing flexibility and responsiveness, increasing eventual cost through premium expediting instead of using large fixed lots, companies must dynamically adjust the lot size based on market demand, product mix and capacity. Ongoing continuous improvement efforts focused on reducing setup times can help companies reduce lot sizes, which provides flexibility in responding to market demand.
Appropriate measurements contribute to high performance on the plant floor. On-time shipment and
inventory turns are good examples of high-level measures that tie to company objectives. Focusing on
isolated measurements like equipment utilization on non-constraining resources encourages “busy work” that creates excess inventory and longer lead-times. Shop floor measurements must encourage overall performance—shipping orders on time at minimal total cost and minimal total cycle times.
Performing manual transactions often slows down the supply chain and adds to lead time. Reporting
transactions at each operation or creating a paper purchase order before suppliers work on a component are just two examples. In addition, manual transaction reporting often introduces errors and impacts work productivity. Companies must eliminate non-value added transactions and automate transactions to speed up the supply chain. For example, backflushing can be used on the shop floor, and supplier purchase orders can be electronically sent or completely eliminated using Supplier Relationship Management (SRM) solutions.
Cut Operations Costs
Although recent developments in planning and Customer Relationship Management (CRM) have focused more on top-line benefits—growing revenue—the bottom line is still greatly dependent on controlling costs. Companies with a lower operational cost structure enjoy an obvious advantage in profitability, and the ability to adjust pricing to meet competitive pressures if necessary, to maintain or gain market share.
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Costs are really just part of the scoreboard. When a company implements world-class operational
processes, it improves multiple measurements simultaneously, including cost, lead times, inventory
and customer service. This approach is superior to a pure cost reduction focus without associated business process change, which can negatively impact other operational measurements. Localized cost reduction efforts can often increase costs in other areas. Moving production overseas to an area with lower labor rates, for example, will increase costs for procurement, transportation, inventory and reduced flexibility, among others.
The relative cost of source/make/deliver, and therefore, the opportunities for cost reduction, will vary
with the specific industry and the kind of products the manufacturer makes. Most manufactured products today have relatively little direct labor content, generally less than 20% and often less than 10%, whereas the material content of most products is more than one-half the cost-of-goods sold (COGS). The rest is “overhead.” Since most direct labor costs tend to be fixed, effective deployment of these resources can reduce unplanned manufacturing overtime, premium expediting and outsourcing, as well as dramatically reduce cycle times. Since material cost is the dominant cost, significant opportunities for reduction lie in analyzing current spending and devising effective sourcing strategies for material. Overhead reduction is always a fertile area for cost reduction, using automation to streamline the procurement, manufacturing and customer management processes.
Additionally, fulfillment costs have not received as much attention as it deserves; inventory cost,
transportation, admin costs, electronic communications, and storage account for a significant
part of the cost of doing business. Fortunately, improving customer service can also generate cost
benefits at the same time. Improve business performance visibility Today’s fast-moving, ever-changing manufacturing environment demands faster responsiveness to changes in the market, product innovation and supply chain events. In this environment, ignorance is one of the greatest threats to a manufacturing company’s health and success. Executives and senior managers must understand how the enterprise is meeting strategic objectives. Middle-level managers need visibility into how they are performing against tactical objectives. Responsible individuals must be notified immediately when supply chain issues threaten the completion of objectives, so actions can be taken to ensure customer delivery and quality requirements continue to be met.
A well-implemented and effective business solution delivers overall visibility into the health of the company and its operations and provides detailed information for performance measurement, process
management, and problem identification and remediation. Such a system can help improve revenue
through competitive advantage, help you understand your business and therefore, manage it better, reduce operational costs, improve performance and improve results for all stakeholders—owners, executives, managers and employees.
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An enterprise business solution will capture literally thousands of pieces of information each day, as
activities are reported throughout the enterprise. All of this detailed data is of little use without placing it in context and seeing each activity in relationship with all the other activities and the overall plan. To turn data into meaningful information is an up-and-down process. Bits of data, taken together and summarized, form higher level contextual information that shows status, accomplishments and importance. From high-level summaries, the observer must be able to drill down to details to understand exactly what is happening and how to drive those activities toward the goals and objectives.
Management information and analysis is only as good as the data it is based on. Therefore, data must be collected as quickly as possible and with the least amount of human intervention, which tends to
introduce delays and errors. It is equally important to collect data from supply chain partners through
automation as much as possible. Electronic Data Interchange (EDI) is the most commonly used method today but EDI is rapidly being replaced by XML-based e-commerce communications and Web-based portal technologies.
All systems should be integrated so information can pass freely between them without manual re-entry.
Many manufacturers are left with “islands of automation” after implementation of specialized
information systems in isolated portions of the business over the years. While each contains valuable
information, absence of integration prevents the effective use of that information for overall
management and coordination of effort toward company objectives.
Speed Time-to-Market
Developing and introducing new products and services is vital to most manufacturing companies.
Good ideas are not enough; well-managed processes for bringing new products to market can lead to
significant competitive advantages. Those activities, however, represent a significant risk that can lead
either to missed opportunities or to huge financial losses.
In addition to new product development, the same processes and resources are applied to product
improvements, corrections and variations throughout the product lifecycle. Based on market research,
products are often subject to frequent engineering changes due to customer requests, technological
advances, regulatory concerns or competitive pressures.
Changes and improvements are easiest to make— and least costly and disruptive—earlier in the process. It is good business practice to collaborate with all operational areas of the business while the product and process are still being designed. Cooperation should be focused on the following areas: making sure the new product meets market needs (marketing and sales), that it is priced to sell and generate a profit (marketing and accounting), that it can be manufactured efficiently (production, production engineering, quality, purchasing and key suppliers), and that the product can be maintained and serviced (service).
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Because customer expectations are increasing, and competition is coming from new players around the
world, bringing better and less expensive products quickly to market is more crucial than ever. Research and development is a key success factor in a manufacturer’s survival and growth. Efficiency and responsiveness of R&D processes will impact the top line as well as the bottom line.
Customers are quick to compare and switch vendors. The Internet empowers buyers by providing fingertip access to many more suppliers around the globe; they can even customize products over the Internet without having to ask an engineer to quote their specific requirements. These capabilities change behaviors and expectations, and success in today’s markets can only be achieved through innovation, agility and aggressive marketing.
Exceed Customer Expectations
The ultimate goal in any business is pleasing your customers. The most successful companies don’t just meet customer expectations, they exceed them and beat the competition by setting the bar at a level that makes it difficult, if not impossible, for others to surpass. Successful manufacturers manage the entire customer relationship—from prospect to post-sales service and support—involving the entire organization in a customer focus. Whether or not they have direct contact with customers, contributors must keep the customers’ needs in mind as they plan and carry out day-to-day operations.
Manufacturers must truly understand the customers’ goals and objectives. Your products and services must strive to support the customers’ vision. Communication is very important; neglect is the number one reason that customers terminate a relationship. The key is to give customers access to all appropriate information about your relationship and make it readily available whenever and wherever they might need it—the Web is your ally in achieving this objective.
As most companies have painfully learned in recent years, customers often change their mind. To be fair, market conditions are such that product cycles and demand patterns are constantly changing. Agility is extremely important. A solid, collaborative partnership with customers will provide the most reliable advanced information and therefore the earliest warning of upcoming changes.
In short, the best strategy is to make the customer want to do business with you. Strive to be the
preferred supplier through competitive products, high quality, the right price and superior customer service.
Arguably, the most important aspect of customer service is on-time performance. There are two sides to on-time delivery: promising a realistic date; then delivering on that promise. You must take that promise seriously, meaning that it is not given lightly—all considerations and constraints are factored in before committing to a delivery date. Performance measurements are a must; if you don’t know how you are performing, you cannot improve upon it. It is not unusual for companies to consistently have 98% – 99% success in meeting agreed-to shipment dates.
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Quality must be considered a given. Work with your customers and engineering as early as possible in the product development cycle to determine the required measurements. Measuring and improving all
processes through the order and fulfillment cycles, with an eye toward continuous improvement, will
allow you to achieve or even surpass expectations.
Streamline Outsourcing Processes
Outsourcing of manufacturing operations is a common practice today because it offers flexibility—
the ability to change products or processes rapidly— and can often save money by exploiting economies of scale or other favorable cost factors offered by the contractor. There are two approaches to outsourcing: a single process step or group of steps may be performed by an outside resource (heat treating, for example, or electroplating) or the entire manufacturing process might be contracted to a third party. In either case, the manufacturer relieves demand on its own plants and can concentrate on its core competencies— which might not include volume manufacturing—while its partner(s) provide the resources for producing products.
Depending upon your current resources and circumstances, outsourcing a part of the manufacturing process could save you from having to expand your manufacturing space (perhaps even adding a new plant), searching for and hiring experienced resources, training the new hires and paying various expenses involved in ramping up a new production line or process. Capital assets can become a liability in a fast-changing marketplace. As customer demands and technologies change the nature and makeup of products, it can be an advantage to not be tied to a relatively inflexible physical plant.
For companies large and small, the goal is to become a world-class organization and to be able to compete in today’s global markets. For manufacturers, the fastest and easiest way to achieve this goal is through partnerships with companies that have attained superior capabilities in particular phases of the process—like production. By partnering with world class contract manufacturers, you can reap the benefits almost immediately—well-managed processes, high quality, on-time deliveries—and
increase your performance and expectations. At the same time, you can focus your own resources on the things that you do best—product innovation, design, marketing, distribution, sales or manufacturing.
