July 12, 2013
Improvement that drives real competitive advantage, which means superior margins and valuation, must come from everything that surrounds the mechanical magic of modern manufacturing technology.
Improving almost anything of real substance in an organization of more than a few people can be a frustrating task. While I often hear about and see the difficulties in sustaining improvements that have at least nominally been put in place, my experience working with job shops points to the fact that companies have the most difficulty with developing and implementing the improvement initiatives themselves, at least those types that make a real difference in performance.
We can all change the light bulbs. That improvement is trivially simple. Cutting your cycle times by 66 percent probably isn’t. The former will save maybe a couple thousand bucks—nothing wrong with that—but the latter could save a couple hundred thousand. I believe securing and sustaining these major improvements will be the difference between who is going to win and who is going to suffer in the future.
This column is the first in a series that addresses the conditions necessary to create real improvement, the kind that generates actual competitive advantage, or at least removes serious competitive impediments. I start with a top-down look, the 25,000-foot view, and future columns will drill down on the specifics.
First, consider the environment that has been evolving in the job shop arena in general, but especially in the contract sheet metal fabrication and custom machining industries. Smarter and more capable machines are driving a sort of commoditization of these sectors—not to the extent of pure commodities, of course, but they are certainly narrowing and blurring the traditional production skills-based competitive advantage of companies competing in these industries. The trajectory is pretty clear.
Historically, the main means of cost improvement for companies that compete in contract sheet metal fabrication has been buying newer, better, and smarter machines, including automation of all forms. However, as an industry becomes more commoditized in the production means, acquiring more capable machines becomes less an improvement for competitive advantage (although fleeting advantage may accrue for the first competitor to do so) and more a means of removing a disadvantage. In other words, competitively, the company really didn’t get better. It stopped getting worse, and it still needs to get better competitively.
The implication then is pretty simple. Improvement that drives real competitive advantage, which means superior margins and valuation, must come from everything that surrounds the “mechanical magic” of modern manufacturing technology. It involves people—what they do, how they do it, how they control and value work, and how they radically simplify an environment that can be confusing and, at times, almost chaotic.
This is where things get really challenging for most organizations, especially smaller companies like the average fabricator or machine shop. These companies face daily challenges on many fronts: revenue level and stability, margins, talent deficiencies, time, constant changes and “hoop jumping,” and a host of other issues. Implementing improvement beyond buying and plugging in a new gizmo is difficult.
But it’s not that difficult, unless the deck has been inadvertently stacked that way. So let’s examine how to stack the deck the other way—in your favor.
I have identified six conditions that generate substantial operational improvements in job shops. Most are common sense, thankfully, and all come from observation and analysis of why improvements didn’t happen in real companies operating in extremely competitive environments.
One has to want to improve in order to even start, but wanting is not enough. Proc- ess improvement is not free, but a continuing investment. Companies are usually pretty decent in calculating returns on investment in machines but are far less skilled in determining ROI for people- and process-related initiatives.
Machines come with a handy set of performance specs; people and processes are far less deterministic. Machine performance (or lack thereof) also is easy to see; performance problems embedded in people and processes are often murky and difficult to isolate. Value-stream mapping helps improve that situation, but many companies still are uncomfortable with developing an ROI scenario involving people and processes.
Having the will to improve means having the will to invest, and that means investing in people and processes. By the way, in my experience those investments usually have far higher returns than investments in things. The investment is mostly in people time (and its equivalent dollars), and this is a resource that’s often the most difficult to secure.
Often the expertise necessary to improve results substantially is beyond the current skill levels in a given company. The expertise required is not just in implementation but, more important, what to implement and why.
Improving something inevitably involves finding out the root causes of why that something needs improving in the first place. This is tricky business at times, and choosing the wrong cause or thing to improve can lead to a lot of frustration, with lots of time and money down the drain and no real change in performance. Therefore, having the right talent with the right skills in knowing what to improve is a fundamental condition.
Having someone with clear authority to conduct the necessary and timely actions required for improvement is an absolute necessity, and this is where most companies have the most trouble. The person with the needed authority may not be totally engaged with the improvement initiative (or sometimes hasn’t even bought into it) and therefore puts it on the permanent back burner because there are more pressing needs—like getting stuff out the door.
Conversely, the person may be totally engaged in the initiative, a true champion for change, but has no authority to get anything done. That also is a surefire recipe for failure.
I hate to use this nebulous term, but there it is. A company seeking real improvements must get at truths, and sometimes that isn’t terribly comfortable. People must listen and actually hear of problems and opportunities from every corner and level of the organization.
Without an active (albeit imperfect) “search radar,” companies are flying blind when it comes to improvement. Further, if these voices are ignored or suppressed, the current state becomes the only possible state. Improvement becomes difficult, if not impossible, until the inevitable crisis.
Unfortunately, having a successful search radar for problems and opportunities means a whole lot of unfiltered ideas, notions, and even naïve guesses. To achieve real improvement at the company, people must examine, prioritize, and, ideally, monetize the inputs.
In my experience, most fabricators are not guilty of doing too little to try to improve. They instead try to do too much. When there are 37 unprioritized improvement projects on the docket and only one person available to manage them when there’s time—well, that’s the same as having no one to manage them. The chances of anything getting finished is almost zero.
Improvement initiatives beyond the trivial ones require a plan that outlines the “who, what, where, when, how, and how much.” And a two-page plan that is actually attended to is worth infinitely more than a 40-page one that is ignored.
It also must detail the management and reporting means, and it must be taken seriously. The only way that this will happen is if it involves the top people in the company, and the involvement is active versus cursory. The reporting and management part is critical because, beyond the need to resolve inevitable changes, there has to be a method of smoothing the equally inevitable conflicts.
Some may become totally engaged in an improvement initiative toward a future state. Others may see absolutely no reason to change the current state and may feel that any improvement initiative is a wasted investment, burning time and money. In other words, some stand by the future state, others are happy with the current state, thank you very much. If the current state always wins, then the message sent to the organization about the improvement initiative is not a positive one, to say the least. The deck is stacked the wrong way.
The plan condition is related to the authority condition, but it is not identical. The authority condition relates to day-to-day activities, but the reporting and managing part of the plan does not necessarily imply or guarantee authority. Ask any project manager.
I’ll examine some of these more closely in future columns. This is what I see from a top view. I’d be happy to hear what your view is.
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