Why companies really fail and how to turn them around, Part II

World-class manufacturing is a common catch phrase, but it's usually used even though the company has done nothing to justify the highfalutin title. Many companies have been using manufacturing resource planning (MRP), lean manufacturing, kaizen, kanban, Six Sigma systems, statistical process control (SPC), total quality management (TQM), and other just-in-time (JIT) principles for years. Even so, true productivity improvements and profits remain absent.

Cycle time reductions, waste elimination, and similar buzz words are used mostly to impress clients, customers, and bosses. However, in most companies, top management spends so much time writing superfluous reports that they lack the time to walk through the plant regularly to communicate and act as a coach to the work force. How can they know what is going on if they remain ensconced in their offices? The outcome is low productivity, poor scheduling, late deliveries, poor quality, and thin net income margins.

While billions of dollars are invested in new capital equipment, unproven information technology, and employee training and retraining, the results frequently are negligible. In fact, the federal government reports that national productivity growth over the past 10 years averaged about 2.5 percent. This hasn't changed appreciably from previous decades before technology growth and teamwork were stressed.

When the annual inflationary pressure of about 5 percent is added to the productivity growth, the profits disappear altogether, unless product prices can be raised. But raising prices isn't always possible.

In many cases, the difference between companies with cash flow trouble and those that are truly world-class organizations is management. The long-term solution must include improvements in general efficiencies and the quality of the company's services and products, led by hands-on management.

What follows is a discussion of some of the manufacturing systems that can assist management in turning a company around.

Lean Manufacturing and Toyota

Contrary to popular belief among younger workers, lean manufacturing principles were neither invented in Japan or in present-era business management schools. In fact, hundreds of small, privately owned U.S. manufacturing companies used "best practices" before World War II and continue to use it today, albeit without a structured or written system. It is part of the company culture, passed from generation to generation. The employees care, they work hard, and they respect the other employees.

These small organizations are less burdened with paper bureaucracy and office politics, and they practically shine when compared with publicly held firms. Their strong sense of urgency and zest for doing things efficiently and practically are visible in everything they do. Their work results are frequently much more impressive than in far larger firms that have the luxury of raising prices almost at will.

Japanese lean manufacturing methods have their roots in the 1950s. After thousands of Japanese workers were killed during antigovernment riots, the Japanese government realized that to maintain domestic tranquility, they would need to guarantee their workers steady employment. The only way to manifest this was to produce very high-quality products at very attractive prices for export. Productivity improvement and quality were given supremely high priority for mass production.

A governmental agency was put in charge of making this happen across the entire industrial spectrum. Taiichi Ohno of the Toyota Corp. traveled to the U.S. in the mid-1950s to visit the supermarkets, which inspired him to come up with a pull system using kanban parts ordering cards. This was the beginning of the Toyota Production System (TPS).

Most lean manufacturing methods, including TPS and quality improvement, have merit and work extraordinarily well. For some companies, though, pull systems and zero-inventory philosophies based on lean manufacturing and TPS can result in catastrophe. Managers must thoroughly evaluate the entire process before committing to these systems indiscriminately.

Currently Nissan Corp. is globally recognized as one of the most productive and high-quality automakers, with each worker assembling 95 automobiles per year. However, Nissan uses no lean manufacturing or TPS (nor do Honda, Hyundai, and Mitsubishi). Instead, they promote:

• A high sense of urgency.
• Hard work.
• Personal responsibility.
• Putting quality into every detail.
• A high level of imagination and innovation.
• Respect.

Each of these firms proves time and again that the right attitude is more important than anything else.

A final and very important point here is that lean manufacturing, TPS, and Six Sigma would not exist without SPC. This monitoring method improves processes and quality through simple statistical analysis. No modern producer can exist without SPC today.

A Look at Six Sigma

Six Sigma is a tool for interpretating statistical data, leading to improved product quality. If quality needs to be impeccable, regardless of practicality, Six Sigma should be used.

However, to think that it could or should be used indiscriminately across the entire business spectrum is foolish. Companies frequently apply Six Sigma for the wrong reasons, without first determining its applicability. Without thoroughly analyzing the need for Six Sigma, firms will incur high costs of implementing and maintaining the system rather than expected gains.

To judge quality and the need for Six Sigma, a company should compare its quality performance to sales. If a company's total cost of quality is about 2.0 to 2.5 percent of total sales without Six Sigma, then its quality already is world-class, and Six Sigma is unnecessary.

A Not-so-New Technique

The non-value-added technique (NVAT) is a tool that works very well for 85 percent of firms that have used it. The technique can be used for rapid identification of non-value-added work in small to large mass-production companies, regardless of the industry.

While many firms have adopted the principles of lean manufacturing, TPS, and Six Sigma, some continue to cry for profits and teeter on the verge of bankruptcy. This may be because these companies have not considered the cost of setting up and maintaining these systems. Many firms are surprised unpleasantly by increased spending on information technology, office supplies, and the like.

Even more costly are the ways that employee productivity is mismanaged. Increased reviews and meetings, brainstorming sessions, and added reports to answer never-ending questions from misdirected bosses keep the managers, engineers, and supervisors from reaching true productivity. They might spend as much as 50 percent of their time doing paperwork.

The shop floor employees also see an increase in paperwork to go along with their "empowerment" under these systems. Even if paperwork isn't required of them, they need to input production-related data into computers on the manufacturing floor, so they're spending less time on actual production work.

NVAT helps to eliminate all of that. If the analytical method is applied properly, NVAT reveals whether excess personnel, excess paperwork, or any waste is present in production lines, in offices, in various departmental functions, or in meetings.

Batch Versus One-piece Flow

For the past 15 years batch production has received a lot of negative publicity as being old, inefficient, and extremely wasteful, especially in terms of quality. In certain situations, these criticisms may be true. However, many industries are perfectly suited for batch manufacturing, and making a few improvements to the system in place can be a better choice than replacing the system altogether. Management shouldn't embrace the opposite one-piece-flow production (OPFP) method without performing an unbiased economic study of the pros and cons of both systems.

One-piece flow, which also is referred to as demand-flow or continuous-process flow, is a valuable system for improving quality and enhancing individual productivity. But before implementing and using a one-piece-flow production system, management should determine the nominal production volumes of the operations. High-volume operations should benefit, but not always.

One-piece-flow production in a cellular environment (straight-line, circular, or rectangular) usually contributes to faster throughput and better product quality than more traditional manufacturing setups. The part being processed by OPFP never sits idle for long because it is processed continuously from one station to the next. Each time a part is picked up, or each time it goes through a process, it is visually inspected and tested, or a go/no-go gauge is used. Many mistake-proofing inspection devices can be built right into an OPFP system. The operator has better control over the quality and can reject one defective piece immediately rather than ultimately rejecting the whole batch.

However, management must carefully analyze bottlenecks, cycle times, setup times, ergonomics, material handling, and production efficiency of each machine and each cost center before implementing this system.

Cellular Manufacturing

Cellular manufacturing is similar to OPFP in many ways, but the arrangement of various machines is different. A manufacturing cell could be arranged in a straight line, circle, triangle, square, or any other shape. Usually one operator in a circular setup is able to control several machines.

All machines must function on a similar cycle time, just like in the OPFP system. When several production cells are connected, the results are the same as with OPFP. The benefits are increased throughput and quality and reduced operator boredom. The arrangement of a flexible manufacturing cell is similar to that of a manufacturing cell, but typically these cells are fully automated and do not require the manual transfer of parts from one machine to the next.

The greatest benefit of flexible manufacturing is the lack of direct labor cost. The drawback is the high initial capital investment. Even if the investment is feasible and the payback looks attractive, it is important to remember that even this system, just like the others, may have several hidden drawbacks. Thorough investigation into these methods is imperative before new equipment is purchased.

The Visual Factory

A lean system functions especially well with a properly designed visual factory concept. In a well-designed visual factory, a manager or an operator may stand on the factory floor and see practically everything: machine operators, conveyors delivering parts to production cells, relevant material staging areas, and employees requiring help.

The layout is designed in such an ingenious way that it helps prevent accidents. The floors are kept clean, and every workcell and storage area is visually identified with eye-level signs and instruction boards. The work-in-process (WIP) material also is visually identified with signs positioned high above the floor or sometimes painted right onto the shop floor.

The operators can clearly see the entire kanban system that pertains to them, and since the inventory in a visual factory is efficiently maintained, there is not much of it to be seen.

Focus Carefully

A focus factory is a production plant that has been converted 85 to 100 percent to an assembly plant. The responsibility for quality, part cost reduction, and timely delivery is given to the suppliers. This system is suitable for midsized and large corporations that manufacture end products, especially if their production costs are high or inefficient or if their backlog is very high.

Before this system can be implemented, teamwork among the product engineering, manufacturing engineering, procurement, logistics, and quality departments must be ensured. The next step is to research a low-cost, high-quality, punctual-delivery supplier, followed by a transfer of technology for the manufacture of components and parts. Total reorganization of the existing layout for production, inventory management, and assembly flow at the focus factory must be based on JIT, or a pull system for large-volume operations.

Once all these steps are completed, operating costs should drop dramatically. All of the components supplied by the outside supplier value chain come directly to the assembly lines, so there is little inventory, and the number of employees can be substantially reduced.

Low Costs, Simple Systems, Strong Management

The real problems that affect businesses today usually are not obvious, but they envelop most if not all business functions and systems. Many companies think they are doing their very best to improve their financial position, when in fact, 95 percent of firms are doing little to cut waste and curtail costs.

Truly profound improvements come from a hands-on, seasoned leader. That person's skills and commitment, coupled with strong process engineering, can be key to turning a company around. A democratic system with several people sharing responsibility for improvement is not the answer.

A focus on low-cost, simple, and straightforward lean systems—as well as a positive culture with improved work discipline, personal accountability, and an elimination of wasteful attitudes—is crucial for success. Companies that stay focused on these goals and work with every effort toward them not only can maintain their market preeminence and size, but also can continue growing.