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


Manufacturing Myopia

In addition, accountants at most companies do not have the experience in operations to spell out the financial consequences of manufacturing decisions. For example, they cannot estimate the overall cost position of a plant that would result if more automated equipment were installed, specific processes were farmed out to a low-cost nation, the demand for a product doubled, the number of SKUs were reduced, or the competition opened two new plants in Eastern Europe using the latest manufacturing technology.

Even in the best of circumstances, it is tricky to distinguish the effects of individual manufacturing drivers. For instance, how much advantage does a competitor gain from operating continuous instead of batch processes, and how does that balance out the disadvantage it has maintaining smaller plants with greater indirect and overhead requirements? Manufacturing, finance, and research and development executives can’t answer such questions in isolation from one another; they need regular opportunities to think and strategize together.

Companies that are willing to invest in a long-term change cycle discover that the learning curve in manufacturing is nonlinear. Even though the investment may be steady, measurable improvement is typically slow at first and accelerates over time. It may take five years to cross the initial threshold of a new production system, but after that first experience, the capacity for changing technology grows rapidly — in part because the technologies themselves become more flexible, and in part because employees develop the skills and knowledge to deploy new production machines more efficiently.

Cadbury Trebor Bassett, the candy and chocolate manufacturer based in Birmingham, England, grasped this particularly well. When the company installed a new production system, it assumed it would take up to five years for the plant to reach maturity. Cadbury measured this evolution by how well employees responded to the new system. As the plant matured and its capabilities grew, productivity was expected to increase. Management assumed that either head count would decrease or production quality would increase during the first five years, depending on the level of sales and scope of the plant’s market. Indeed, as employees became more familiar with the processes, the cost of production dropped and quality stayed high.

This type of approach represents an alternative to the prevailing despondent mood at many manufacturing companies. Indeed, perhaps the most tragic result of manufacturing myopia, for many companies, is the lost opportunity for manufacturing leadership. Computer technology, materials science, and energy innovation have progressed dramatically over the past 20 years. There are many futuristic manufacturing options available. They include “instant” and “inkjet” manufacturing, where computer-based molding machines turn out individually customized plastic components with the speed of mass fabrication; biomimicry, in which industrial processes reproduce the cell-by-cell process by which, for example, a seashell is formed; and environmentally friendly fermentation-based fabrication methods that eschew toxic chemicals and reuse waste more effectively. In many industries, there exists great unfulfilled potential for moving beyond commoditization by rethinking manufacturing prowess as part of the company’s identity. Few companies today are trying to realize that potential; there are few 21st-century equivalents to the original Ford Motor Company, with its breakthroughs in assembly-line manufacturing, or even to the 1990s-era Intel. We believe that manufacturing myopia helps explain why.

Over the past 20 years, manufacturing managers have learned that even the most effective supply chain management will not lead to results unless these capabilities are implemented — not just within the function, but at the level of the executive suite. In a confrontational competitive environment, the choice is engaging in manufacturing competence as the core of your corporate identity — or continuing to pay the price of myopia.

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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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