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Published: February 28, 2006

 
 

Manufacturing Myopia

Instead of drifting into decline and irrelevance, producers of goods have a chance to seize the future.

Illustration by Peter Krämer
During the past few decades, many industrial companies have attempted to achieve manufacturing excellence. They have had at their disposal any number of methodologies and theories, quality initiatives, and cost-reducing concepts. But few companies have made much headway. Manufacturing strategies — decisions related to siting, designing, and running factories — are often the same as they were 10 or 20 years ago. Plants often look and feel as they did then. Programs intended to improve performance, such as “total quality management,” “lean production,” and “Six Sigma,” seem to ebb away, without producing the desired results. Sometimes it seems as though the harder manufacturers try to improve, the worse they perform.

Consider, for example, the bad news from the Middle East that hit Household GmbH, a Europe-based consumer goods manufacturer, in 2003. (The company name is changed, but the details are accurate.) Household’s market share in hygiene products, one of its flagship divisions, had recently tumbled in such cities as Cairo and Abu Dhabi. When Household’s regional managers investigated, they discovered that a private-label producer based in Egypt had begun to aggressively undercut the shelf price of Household’s products.

At first glance, it seemed as if Household could easily win a price war with any local private label. After all, Household’s Middle Eastern manufacturing sites were running at higher capacity than the competition’s sites, with advanced proprietary technology and a highly productive, well-trained staff. But the private-label manufacturer refused to go away, and its prices remained low while its market share kept rising.

Household’s managers had assumed that their competitor was selling under cost. But gradually it became clear that, despite Household’s scale and technological edge, the competitor spent less to make most hygiene products, without any sacrifice in quality — at least as perceived by customers. In short, Household’s ostensible manufacturing advantage — its distinctive technology — had become its biggest disadvantage. To make matters worse, Household had nearly completed a new factory in Ukraine, which had been intended, in part, to add capacity to serve the Mideast, but which now would simply add to Household’s manufacturing costs.

There are many such stories in manufacturing today. Executives do all the right things to improve operations, but somehow get outperformed on cost, quality, or delivery. They may turn to benchmarking exercises, but those are rarely meaningful. Low-cost competitors appear with prices that can’t be completely explained by lower wages. Rising warranty costs or dramatic product recall levels indicate the ongoing erosion of quality.

As a last resort, companies outsource production, and thus erode their own company’s competence in it. Gradually, manufacturing is treated more and more as an outcast, and plant communities become disenfranchised.

We call this condition “manufacturing myopia.” It is akin to the “marketing myopia” that Harvard Business School lecturer Theodore Levitt identified in the 1960s. Professor Levitt argued that companies made themselves vulnerable when they defined their brands too narrowly. Railroads are not in the passenger-train business, he argued; they’re in transportation. Every business should define itself through the interests of its market, not its own production priorities.

Today, myopia is even more prevalent and dangerous in manufacturing than it was in marketing four decades ago. Like marketing myopia, manufacturing myopia is caused by isolation; it is the inevitable outcome of keeping manufacturing strategies contained to the functional or even plant level, with little or no connection to enterprise-wide strategies. As the factories and supply chain oversight functions are cut off from the rest of the executive decision makers, the manufacturing focus grows narrower, and overall competence can atrophy. This compels companies to cut costs even more blindly and irresponsibly, often by setting company-wide targets determined by financial fiat rather than by competitive or customer insights. (See Exhibit 1.)

 
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Resources

  1. John A. Byrne, Chainsaw: The Notorious Career of Al Dunlap in the Era of Profit-at-Any-Price (HarperBusiness, 1999): Myopia and its consequences at the formerly competent manufacturer Sunbeam.
  2. Neil Hopkinson, Richard Hague, and Philip Dickens, editors, Rapid Manufacturing: An Industrial Revolution for the Digital Age (John Wiley & Sons, 2006): Flexible and customized manufacturing, grounded in computer-based prototyping techniques.
  3. Bill Jackson and Conrad Winkler, “Building the Advantaged Supply Network,” s+b, Fall 2004: Focused, flexible, and lower-cost manufacturing through supply chain network innovations. Click here.
  4. Art Kleiner, The Age of Heretics: Heroes, Outlaws, and the Forerunners of Corporate Change (Doubleday, 1996): History of socio-technical systems and Procter & Gamble’s manufacturing innovations.
  5. Art Kleiner, “Leaning Toward Utopia,” s+b, Summer 2005: Profile of “lean” experts James P. Womack and Daniel T. Jones. Click here.
  6. Jeffrey Liker, The Toyota Way: 14 Management Principles from the World’s Greatest Manufacturer (McGraw-Hill, 2003): Comprehensive, accessible look at a company with renowned production awareness.
  7. Josh Whitford, The New Old Economy: Networks, Institutions, and the Organizational Transformation of American Manufacturing (Oxford University Press, 2005): Myopia in the U.S. rust belt.
  8. James P. Womack and Daniel T. Jones, Lean Solutions: How Companies and Customers Can Create Value and Wealth Together (Free Press, 2005): Evokes a world of customer-oriented manufacturing foresight.