A unique opportunity exists to grow market share and profitability when competitors take a passive and “survival mode” approach to doing business. In addition, many manufacturers may be focusing solely inward on increasing profits through production efficiency.
“You need to make sure you keep looking out the window, so you can see what’s happening with the marketplace, competitors and customers,” says Brent Meyers, partner and the practice leader for Manufacturing & Consumer Products Consulting at Moss Adams. “If you just focus on production efficiency, you’ll find ultimately that you are the best and lowest cost producer of something that no one wants to buy.”
Smart Business spoke with Meyers about how to successfully use lean manufacturing processes to position your company for future growth.
What keeps manufacturers from seizing opportunity during tepid growth and uncertainty?
During a recession, slow growth or economic uncertainty, there’s a strong desire to contain costs and hoard cash in a ‘bunker mentality,’ waiting for market recovery or more rapid macroeconomic growth. It can be a viable survival strategy but doesn’t position a company for increased growth or profitability once the market recovers or uncertainty diminishes. It’s passive and essentially puts a company in stasis.
Additionally, the present recovery hasn’t been hockey stick-style where there’s strong post-recession growth. Gross Domestic Product growth is at a modest 2 percent and looks to stay there for the next few years. The bunker approach may not be sustainable for that length of time, and does not provide a platform for increased growth when the market’s trajectory improves.
What are the risks associated with focusing solely on internal cost reductions?
There are significant risks to long-term enterprise value and competitiveness. No company is going to shrink itself to success and increased enterprise value. An internally focused cost containment approach also carries the assumption that competitors are doing the same thing, or less. Despite internal improvements, this passive strategy can result in a relatively lower performing organization consigned to following in the marketplace.
This is a critical area for traditional manufacturing, as well as some in food and beverage and consumer package goods. These companies often tend to focus or are pulled into producing at the lowest possible price, forgetting about potential premiums for value added products and services, new and unique products, and innovation. For example, a food and beverage company lands a grocery store customer with a private label, which triples volume and brings in needed revenue, but pulls them toward a production focus rather than continued growth, branding or innovation. Technology companies and aerospace and medical device manufacturers tend to invest more heavily in new product development and innovation but could move too far away from production efficiency.
How can companies improve current performance and position themselves for future growth?
The most successful adopt a growth-focused mindset and strike a balance between capitalizing on existing resources to pursue internal cost reduction and efficiency improvements, while making intelligent investments to enable top-line growth. Most find the low-hanging fruit fairly quickly, before turning to lean manufacturing tools and techniques to eliminate or re-engineer activities that don’t add value. That’s the right direction to start, but there are some potential landmines to be avoided:
- Companies may leverage lean tools and techniques but don’t implement the most critical component — continuous improvement. They approach process improvement as a discrete event, or series of events, rather than as a cultural shift that seeks sustained performance.
- Probably most overlooked is remembering that lean is designed to eliminate waste — non-value added activities — beginning with the ‘pull of the customer.’ That value, or lack thereof, is by definition something only the customer can define and determine. Knowing what has value or does not, therefore, requires outward visibility rather than internal focus. There’s also an underlying presumption that there actually is demand, which isn’t necessarily true.
In an economic environment absent the ‘rising tide that lifts all boats,’ a company needs to increase outward visibility, understand the market environment and position itself to take advantage of it. Lean manufacturing can create scalable, flexible and cost-effective operations that enable improved market and financial performance, but it cannot create core demand by itself.
How can a company create demand and leverage lean manufacturing?
Creating demand requires an overarching business strategy driven by market, customer and competitor realities. Once you have that information and synthesize it, develop a strategy by starting with where you want and need to be, rather than with where you are. This forces a market-driven strategy rather than an incremental approach to performance improvement that’s anchored in the present and, therefore, inward-facing.
Next, determine points of differentiation in the marketplace. Remember that differentiation and competitive advantage can be attained in ways other than being the low-cost provider — product superiority and service superiority chief among them.
Companies also need to mitigate market and customer concentration risk by avoiding the temptation to focus exclusively on just one or two large customers.
How can you create a diversified portfolio, especially when market demand isn’t growing rapidly?
Companies sometimes forget that growth can be generated internally or through acquisition. Actively consider organic and acquisitive growth strategies, including identifying value-added products and services and points of differentiation beyond cost; entering adjacent markets; developing complementary products; acquiring intellectual property, technologies, products and distribution channels; and leveraging efficiencies in rollups and combinations.
In this economy, you cannot make money by accident and mistakes can put you out of business. When approached, implemented and managed well, the parallel revenue and lean initiatives are highly complementary and can generate short-term return on investment to free up cash and capital to invest in further growth and innovation. This in turn creates a sustainable competitive advantage, market leadership, profitability, and enterprise and shareholder value.
Brent Meyers is a partner and the practice leader for Manufacturing & Consumer Products Consulting at Moss Adams. Reach him at (415) 677-8366 or email@example.com.
Insights Accounting & Consulting is brought to you by Moss Adams.
A few years ago, Procter & Gamble’s Pringles plant in Jackson, Tenn., had an enviable reputation. The plant produced and distributed all of Pringles’ products in North and South America and the Asia-Pacific Region. The plant had received P&G’s highest certification, awarded for superior discipline and best work processes and practices. Its performance in all aspects of the business – production, delivery, service, quality and safety – was spectacular. In short, the plant was a shining star in the P&G family, performing at a world-class level.
It would have been easy to rest on their laurels. But for Nancy Gipson, plant manager, great wasn’t good enough. She was convinced they could do even better. She took action to further lean the plant’s best practice standard operating procedures.
As part of her efforts to further lean the operations, Gipson conducted a safety assessment. She came to the realization that not all safety incidents were being reported, because employees didn’t want to jeopardize the plant’s prized certification.
This realization was sobering to Gipson and the plant leadership team. Although the safety numbers were very impressive, Gipson wanted to improve them even more based on the assessment implications. And she wanted to ensure that no incident would ever go unreported again.
Upon closer review, the safety work processes were found to be solid and as lean as they could be without investing a ton of money for minimal returns. So Gipson turned her attention to the plant’s culture and individual behavioral practices. She found inconsistencies and tremendous variation within the workforce when it came to how they performed the safety processes on a day-to-day basis.
With Bright Side’s help, led by partner Chad Cook, Gipson and her colleagues came to understand that even the best processes rely on individual discretion and decision-making. In other words, work processes have a fundamental human component that increases variability and risk of failure. To significantly reduce lean process variability, Gipson and her team didn’t need to focus on the tasks being performed; they needed to focus on the human factor.
In order to ensure that the human or behavioral aspect was better integrated with work processes, Bright Side and P&G focused on three strategic behaviors:
1. Transparency. The focus here was on creating a climate of trust where people could feel free to tell the truth, since reliable data about safety depends on people reporting what is really happening. At the same time, employees were helped to understand that safety holds a higher priority than productivity in the eyes of leadership. Maximizing production is not more important than safety when it comes to making decisions on the floor.
2. Shared leadership and accountability. Safety is the responsibility of all employees. Employees were engaged to take responsibility and be accountable for their own individual safety and the safety of others over and above just following the safety processes.
3. Business, self-rationalization. Employees were encouraged to actively engage their brains when making decisions rather than robotically following processes. The outcome is that they keep themselves and others safe while achieving the business plans and outcomes.
By intentionally modeling these behaviors, leaders proved that they believed in, were committed to and were taking the behaviors of safety seriously. Employees could see and hear in their behaviors that leadership was sincere about these changes, and that led to greater trust on all sides. With consistent and constant leadership, these behaviors took hold on the floor and throughout the plant.
The long-term impact has been exactly what Gipson originally sought: the plant has become an even greater model of success in its safety processes and beyond. The plant is measurably safer, has reduced costs, increased efficiency, reduced turnover, expanded production and improved quality. Employees, their families and leadership feel secure that people who work in the plant will leave work as healthy as when they arrived. On a recent tour, an exec from outside P&G remarked, “I have been to many facilities in the food industry, and you set the standard for any I have ever visited." The plant is now expanding their behavioral strategies to intentionally encompass every work process in the facility.
Our work with Pringles demonstrates what Bright Side endorses and delivers: to significantly improve performance and get a magnified return on investment, organizations need to find the balance between both the task and behavioral aspects of getting work accomplished. Many companies mistakenly believe that focusing exclusively on tasks is the solution for everything. They think they can infinitely improve processes and competencies by working harder. But the reality is that once you have removed most of the waste from a system or process, you get minimal benefit from continuing to focus on tiny gains in task improvement. A lean task focus has its limits.
The REAL, leverage-able opportunity for improvement then comes from a conscious and intentional focus on the human/behavioral side of getting work done, as the Pringles case study illustrates. It’s only when companies really commit to exploring and improving leadership engagement focused on strategic behaviors (actions, words, beliefs and assumptions) that productivity, consistency and effectiveness rise off the charts.
If you are already on the journey to lean your organization, don’t neglect the human/behavioral component. Expand your thinking to add the behavioral side of the performance equation to your current lean tools and processes.
Donna Rae Smith has forged a career, enterprise and an applied discipline on the practice of teaching leaders to be masters of change. She is the founder and CEO of Bright Side Inc., a transformational change catalyst company with an emphasis on the behavior-side of change. For more than two decades, Donna Rae Smith and the Bright Side team have been recognized as innovators in executing behavioral strategies coalesced with business strategies to accelerate and sustain business results. Bright Side®, The Behavioral Strategy Company, has partnered with over 250 of the world’s most influential companies. For more information, please visit www.bright-side.com or contact Donna Rae Smith at firstname.lastname@example.org.
At Tremco Commercial Sealants & Waterproofing, manufacturing is all about getting products to the customer with minimal waste of time or money.
It’s why the RPM Building Solutions Group-owned company has been implementing a change to a culture focused on lean manufacturing. In addition to streamlining the manufacturing process, Tremco’s lean culture is designed to maximize employee involvement and ownership as it relates to continuous improvement.
During the past year, the organizational structure at Tremco, which is led by RPM Building Solutions President and CEO Randy Korach, has been modified to include the use of lean manufacturing tools such as business products excellence teams, kaizen events, small “k” initiatives, 5S methodology events, visual factory management, accountability boards, multiple skill set training for operators and sustainability initiatives.
Through the efforts of employee-based business product excellence teams, Tremco realized cash savings of $479,000 through the first six months of its current fiscal year, and through its sustainability efforts, it has realized a savings of $416,000 through the first six months of the fiscal year. Included in those savings are energy usage reduction, waste to landfill reductions and water usage reductions.
Aside from the economic benefits, Tremco’s transition to lean manufacturing culture has energized their employees, increased engagement and improved responsiveness to customer needs — factors that are critical to Tremco’s long-term success. Tremco’s leadership believes that the company’s employees are the key to increasing competitiveness on a continuous basis, both domestically and globally.
Tremco’s transition to lean manufacturing has allowed the company to respond more efficiently and effectively to customer needs. Service levels have improved dramatically from 65 percent of projects on time and complete to 90 percent on time and complete in the span of two years. Customer complaints have decreased by 30 percent over the same time period. Ultimately, Tremco has been able to grow market share during the current recession and increased operating revenue from last fiscal year to this year.
The company’s increased engagement of employees has spread into community involvement. Tremco management and employees take part in numerous community initiatives, including the United Way, Harvest for Hunger, MedWish, Habitat for Humanity and various other activities aimed at supporting the company’s sustainability efforts. Tremco’s goal is to have every employee participate in a “green” community activity.
How to reach: Tremco Commercial Sealants & Waterproofing, (216) 292-5000 or www.tremcosealants.com
H.C. Starck Inc. is not a household name. However, H.C. Starck is the quintessential global company that participates in and benefits the entire world economy. It is that global network of manufacturers that the company, a manufacturer of refractory metals, technical ceramics and chemicals for the electronics industry, utilizes when looking for ways to improve its operations.
In 2006, the company was growing and expanding and consolidated its smaller manufacturing operations into its Euclid, Ohio, location, which serves as the company’s U.S. headquarters, doubling its manufacturing capacity. However, growth by itself was not enough for the company and Dmitry Shashkov, CEO of H.C. Starck’s Fabricated Products Business Unit, to survive in a global economy.
So company leaders went to the drawing board and looked at the possibilities for further improvement. H.C. Starck started by taking a page out of the automotive manufacturing approach. It implemented the Japanese management philosophy of 5S. The 5S system is designed to reduce waste and optimize productivity through maintaining an orderly workplace and using visual cues to achieve more consistent operational results.
The company then took the next step in its evolution by adopting the principles of lean manufacturing to create change in the way the company did business. H.C. Starck hired lean manufacturing engineers and also trained employees on the practice. The combination of tools, methods and principles, coupled with the mindset and behaviors of the employees, allowed for a rapid rise in quality, productivity and a streamlining of material logistics.
Not satisfied quite yet, H.C. Starck implemented a continuous improvement program and began weekly kaizen events to create more change for the better. These improvement events have helped H.C. Starck reduce manufacturing lead times by 50 percent and have increased on-time deliveries from 70 to 98 percent.
All of these changes and more are vital to the company’s existence today. These changes have allowed the company to remain competitive in a global market in a time when companies were either going out of business or laying off good workers. Without the ability to evolve and adapt in a way to better its business over the past three years, H.C. Starck might not have survived. Due to the company’s dedication and continuous improvement methods, it’s in a prime position to prosper.
HOW TO REACH: H.C. Starck Inc., (216) 692-3990 or www.hcstarck.com
In the past three years, Cardinal Fastener & Specialty Co. Inc.’s sales to wind turbine manufacturers has grown more than 900 percent and also caught the attention of then President-elect Barack Obama.
The growth explosion all started in 1998 when the manufacturing company, under the leadership of John W. Grabner, the company’s founder and president, began its “Lean Thinking” journey, where it started with, what they called, “blowing up the company.” The Cardinal team started a process to eliminate waste from the entire operation — from manufacturing to administration to sales. Instead of bringing in consultants, management got all of the company’s employees involved — after all, that was the best way to transform the culture if it was really going to work. Manufacturing lead times went from six weeks to five days, and half of all sales now come from orders that are manufactured and shipped the same day the order is taken. At the same time, productivity improvements increased more than 50 percent.
With such great strides made, it would be easy to rest on their laurels, but the Cardinal team members kept at it, and the second surge of growth began in 2007. The company’s reputation for fast turnaround of specialty manufactured fasteners brought in an order for a wind turbine project in Iowa. The company quickly realized that there was an opportunity to expand into the global marketplace of renewable energy, and in early 2009, the company’s accomplishments caught the attention of President-elect Obama. The company was asked to be the first stop on his inaugural journey, and when he visited the plant on Jan. 16, 2009, he recognized Cardinal’s accomplishments.
“Cardinal’s owners exemplify the American spirit. And its products, used from coast to coast in the Statue of Liberty and Golden Gate Bridge, are the highest quality and best price,” Obama said at his visit. … “You can’t think of a more iconic company. … (Cardinal) began building wind turbine parts just two years ago and is now poised to make half its earnings that way. … If anyone doubts that we can dig ourselves out of this hole, I invite them here to … look at Cardinal Fastener.”
The benefits to the Cardinal team are great, and as a result of the rapid growth, it has expanded its work force, growing 47 percent last year.
How to reach: Cardinal Fastener & Specialty Co. Inc., (216) 831-3800 or www.cardinalfastener.com