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strategy and business
 / Spring 2006 / Issue 42(originally published by Booz & Company)


Manufacturing Myopia

This approach, known as flexible footprints, is practiced with great success by a few dozen large organizations. Among them: the U.S. Army, which constantly and proactively reassigns military bases to fresh uses. In an extremely novel implementation, a European manufacturer of specialized air conditioning supplies built its factories on large freighter ships that can be moved from port to port as the seasonal marketplace changes. The company chooses not to broadcast this manufacturing innovation publicly, perceiving it as a competitive advantage. A Qatari company, Cement International, has recently begun similar operations, putting a cement factory on board a ship that docks in ports around the Persian Gulf, wherever building materials are needed.

Unfortunately, we observe that there is little cooperation among companies within a supply chain to jointly optimize plant networks, another potentially lucrative example of flexible footprints. In the outdoor equipment industry and in basic chemicals, some companies have shared parts of their production capacity, sometimes spinning off manufacturing. But capacity pooling is a rarity outside those two industries.

In-Plant Transformation
It is now more than 30 years since the notion of manufacturing excellence — variously attributed to the Toyota production system, socio-technical systems, quality management, lean manufacturing, and high-performance systems — became widely known in Europe and the United States. By now, practically every manufacturing manager can tell you about pokeyoke, kanban, or self-steering teams. But plants that have successfully implemented the manufacturing practices that produce efficient and optimal operations are few and far between. And most of these are greenfield sites: previously undeveloped locations where elite processes could be designed into the factory from the beginning. The competitive advantage of process optimization remains high, in part, because of the woefully poor record of the manufacturing industry in general.

We think of in-plant transformation as “systemic,” because it takes place when people see the processes on the shop floor as interrelated parts of a whole system. Why has this kind of in-plant transformation lagged so badly, even though its successes are so visible? Manufacturing myopia is the primary reason. Typically, process improvement is seen by company executives as a “go ahead, just do it” manufacturing issue managed solely by the plants.

This isolation contributes to the lack of patience among decision makers, who feel pressured to show results before the systemic change is ready. By contrast, a well-designed manufacturing change initiative is deliberately set up like a developmental path, with a menu of results expected in the short term, medium term, and long term. Some systemic drivers can have an effect on costs almost instantly (e.g., changing maintenance contractor purchasing procedures); some take a bit longer (e.g., installing “pull” systems, in which the production line sets its own pace, to replace the top-down controls of a manufacturing resource planning approach). Even in full-scale manufacturing transformation initiatives, it should not take more than two years for the first visible effects to appear. The leaders of many manufacturing projects stop paying attention after that. But in a well-designed initiative, those first results become a base for continuous improvement.

In a so-called brownfield site (an established factory with a long-standing work force), one may often find high fixed costs or blatant overstaffing. Installing “intelligent tools,” “lean solutions,” or “high-performance systems” will not solve these problems. If there are already more workers than work to do, improving production speed or throughput will not lead to higher levels of productivity, in part because overcapacity breeds “process creep,” in which workers and managers merely overlay the new work rules and practices on top of their old routines. Despite knowing this, all too often, manufacturers myopically push a “lean” program through plants that are overstaffed and have a high share of non-value-added work. We call this the fat ballerina syndrome: Only slimmed-down organizations stand a chance of performing smart moves.

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  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.
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