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


Manufacturing Myopia

Companies also are often greedy or formulaic when it comes to assigning improvement objectives to plants. It’s not atypical for a factory manager to be told to save 10 percent of fixed costs, while improving output and quality by 20 percent. Often a basic analysis will reveal that enhancing a plant’s productivity dwarfs the value of firing a group of maintenance technicians and engineers, and more importantly that increasing productivity and cutting personnel are not mutually compatible objectives. For one thing, plant communities often resist cooperating with management to alter their work methods and increase output while their colleagues are being let go.

Labor Modernization
Let’s face it: In most plants, industrial relations and treatment of the work force are reminiscent of the 19th century. This statistic illustrates the point: From 1999 to 2004, there were more strikes in most Western European countries than occurred between 1950 and 1975. In one German aerospace plant, where three generations have worked on the shop floor, absenteeism and illness rates have risen a steady 3 percent per generation. Overall, Western companies made few strides in aligning factory workers more closely to the companies that employ them. Only 20 percent of production workers in Western Europe and the U.S. receive compensation linked to performance, and more than 75 percent work under a compensation system that is so rigid it unintentionally drives people to take overtime.

We use the term realized because the modernization of a labor force takes place only in the real-world dimension of the community around each manufacturing location. The principles of effective work force management are universal: The improvement of labor practices and customization of human resource policies are essential to developing creative, innovative, and motivated employees. But the most appropriate methods for accomplishing those things are decidedly local. Labor issues vary significantly from one place to another. Work forces in different locales have their own particular cultures, holidays, workdays, family structures, community resources, demographics, education levels, and assumptions about the type of work they will do. Productivity can also deviate dramatically among regions.

Over the years, effective manufacturers have experimented with a wide variety of means for engaging shop floor employees. Some companies establish worker-focused principles. At one Dutch chemical company, the budget line for work space and plant maintenance and modernization was sacrosanct and could not be cut. This was important because workers perceived the company as a reliable protector of their safety. A cosmetics manufacturer demonstrated the same kind of commitment by installing an on-site health spa, free to employees. We have seen plants in which windows and skylights are carefully placed to make the most of natural light, the architecture fits local styles, and social spaces reflect the way employees naturally interact.

These types of factories, which fit their social and physical environment so well, are usually owned by companies that realize the value of an inspired work force to the finished product. Such companies often make concerted efforts to link employees with more in-depth knowledge of the company and the product. Danone, Procter & Gamble, Harley-Davidson, and Mercedes-Benz are all known for plant communities that take part in word-of-mouth and face-to-face sales campaigns and provide testimonials for marketing and public relations programs. Mercedes, for example, encourages customer-to-factory interaction by suggesting that car buyers pick up their new vehicles at, say, the Sindelfingen plant, where they can talk to plant workers about quality and other issues pertaining to the making of their automobiles. Very successful companies create products that command an emotional premium, and they make certain that their manufacturing employees are among the first to emotionally promote them. Ultimately, how can your product be loved by your customers if thousands of your own employees who make the product don’t love producing it?

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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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