Comparing the Major Manufacturing Improvement Methods — Part 1
EDITOR'S NOTE: The past decade has seen the development of a number of manufacturing management concepts. Chief among them are: lean manufacturing, six sigma, supply chain management, total productive maintenance (TPM), and reliability centered maintenance (RCM). While these names are well known, they are not well understood.
In recent years, lean manufacturing has come to the forefront as a model for manufacturing excellence. Unfortunately, the model was not, at least until recently, documented as to the details of the methodology.
The book, The Machine that Changed the World , by James Womac et al, was an interesting discussion of the history of what came to be known as lean manufacturing, but it was scant on the details of the methods for achieving it. More recently, in Running Today's Factory , Charles Standard and Dale Davis have provided a clear methodology that integrates lean manufacturing concepts and factory physics in a very practical way. Their points of emphasis are: reducing process variability; reducing system cycle times; and above all, eliminating waste in the manufacturing process and supply chain, from receipt of order to delivery of product and payment.
Unfortunately, the behavior of many managers, and the performance of many manufacturing plants, suggest that Standard and Davis' book has not been widely read or practiced. The same could also be said for many other good books on manufacturing, management, and leadership. These books include works by Deming, Nakajima, Pande, Belasco, Senge, Wheatley, Hamel, Stewart, Moore, and others. And they cover a range of topics and methods, including six sigma, supply chain management, reliability centered maintenance, total productive maintenance, leadership, systems thinking, intellectual capital, complex adaptive systems, reliability, and so on.
Head count confusion
One of the major issues that needs to be addressed is the understanding (or lack thereof) that lean manufacturing is not about head count reduction. Lower head count per unit of output is a consequence of applying lean principles. Yet it seems that many managers — even at very high levels — still believe that reducing head count will result in a lean company. But there is a huge body of evidence that indicates the contrary is true.
A full understanding of lean principles is essential. An analogy that may help is to recognize that "lean" and "fit" are two very different concepts. Olympic athletes are "fit," which typically gives them a "lean" appearance. Anorexic people are "lean," but hardly "fit." And we certainly don't want an anorexic company. So, lean manufacturing is about the concept of being lean through being fit, not the other way around.
Finally, recall W. Edward Deming's famous observation: "Your system is perfectly designed to give you the results that you get." A corollary to Deming's statement would be: If you reduce the resources available to your system without changing its basic design, then system performance will decline.
The data from studies of companies that have engaged in head count reduction support this corollary. For example, in a front-page article of The Wall Street Journal (7/5/95), it was reported that for several hundred companies that engaged in cost cutting through layoffs or downsizing over a period of about five years:
Only about 50% showed productivity improvement
Only about 33% showed profit improvement
Some 88% experienced a serious decline in morale.
30% actually experienced increased costs
22% terminated the wrong people
80% reported a collapse in morale
67% showed no immediate productivity rise
50% showed no short-term increase in profits.
A company is on the verge of collapse and has no choice for survival
There is a bloated bureaucracy and cutbacks are necessary to assure longer term success
Employees or unions are intransigent, and there is no other way to get people's attention about the seriousness of improving productivity
There are obvious situations of waste, redundant functions (perhaps the result of a merger), etc.
In general, however, cost cutting is a low-probability strategy (if one can call it a strategy) for success.
So why do senior managers persist? Perhaps they're overconfident in believing they can beat the odds. Perhaps because it's easy, it sometimes works, and it doesn't require a lot of leadership skill. Anyone can cut costs by 5% and simply expect the job to be done for 5% less.
Perhaps they think they can pressure people into being creative about their jobs and eliminating waste — and sometimes they can. Unfortunately, however, the data suggest strongly that, as in Las Vegas, the odds are inherently against these senior managers. And the reasons are built into the systems already established in the company. This condition suggests, in turn, that changing the business system design is a better strategy.
So, which methodology should be used for improving the business system design? Next month's "Management Side of Engineering" column will begin a review of several currently popular methods, all of which are quite good.
However, a key to the application of all these methods is leadership. Management must provide clear direction as to the strategy, the tools, and the goals and must assure organizational alignment around a common strategy. Otherwise, these tools will produce less than optimal results. In fact, they could be counterproductive. For this reason, the final column in this series will review some leadership principles, too.
<table ID = 'id3001750-0-table' CELLSPACING = '0' CELLPADDING = '2' WIDTH = '100%' BORDER = '0'><tbody ID = 'id3008406-0-tbody'><tr ID = 'id3001629-0-tr'><td ID = 'id3002833-0-td' CLASS = 'table' STYLE = 'background-color: #EEEEEE'>Author Information</td></tr><tr ID = 'id3001863-2-tr'><td ID = 'id3001865-2-td' CLASS = 'table'>Ron Moore is Managing Partner of The RM Group, Inc. in Knoxville, TN, and is author of the book Making Common Sense Common Practice: Models for Manufacturing Excellence. He can be reached at 865-675-7647 or by e-mail at RonsRMGp@aol.com . In the UK he is affiliated with Reliable Manufacturing Associates, who can be reached at Tel: 01925-601-074 or by e-mail at ACFraser1@aol.com . In Australia he is affiliated with SIRF Roundtables, Ltd., who can be reached at Tel: 03-9248-1380 or by e-mail at David.Burns@sirfrt.com .</td></tr></tbody></table>
The Conference Board also pointed to another concern: the loss (or delay) of technology that results from the inevitable cutbacks in research and development staff during tough times. They found that six months after a layoff, there was an increase in share price relative to market indices, but that after three years, share prices had declined relative to market indices.
Saving for profit
More recently, Gary Hamel reported on the concept of "corporate liposuction" ( Business Week , 7/17/00). He describes this as a condition in which earnings growth is more than five times sales growth, generally achieved through cost-cutting.
In a review of 50 companies engaged in this "corporate liposuction" approach, 43 suffered a significant downturn in earnings after three years. These companies were notable members of the Fortune 500, such as Kodak, Hersheys, Unisys, and others. Hamel points out that growing profits through cost cutting is not likely to be sustainable and must be balanced with sales growth through innovation, new-product development, process improvement, etc. Other researchers, including Deloitte & Touche and the American Management Association, have reported similar findings.
This is not to say that cost cutting never applies. Not all the companies studied suffered as a result of their cost cutting. It may apply, for example, if:
Similar research conducted by The Conference Board, and reported in 1996, showed that for companies using a downsizing strategy: