The High-Performance Manufacturing Organization

Transcription

1 The High-Performance Manufacturing

2 The Boston Consulting Group (BCG) is a global management consulting firm and the world s leading advisor on business strategy. We partner with clients in all sectors and regions to identify their highest-value opportunities, address their most critical challenges, and transform their businesses. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 74 offices in 42 countries. For more information, please visit

3 The High-Performance Manufacturing Frank Lesmeister, Daniel Spindelndreier, and Michael Zinser June

4 AT A GLANCE Performance improvement efforts tend to focus on the operational aspects of manufacturing. But organizational issues matrix structures with multiple interfaces, proliferating roles and responsibilities, a structure that is no longer aligned with strategy can also be a major obstacle to quality, flexibility, speed, cost effectiveness, and competitive advantage. S S A company s manufacturing strategy must be aligned with and support the overall corporate strategy. These strategic considerations will drive decisions about how best to set up manufacturing operations. C R S Companies must make decisions at both the corporate and the plant levels. Key considerations include whether to centralize control, whether to integrate related functions, and what the roles and responsibilities of plants should be. M T Each organization choice involves tradeoffs that can affect cost, product quality, cycle times, and service levels. Many of these drawbacks can be offset. T H-P M O

5 MOST MANUFACTURERS HAVE COME to accept that change is a constant. Increasingly global operations, evolving production networks, mergers and acquisitions all contribute to a growing complexity that can extract a high cost if it is not actively managed. But improvement efforts tend to focus on the operational aspects of manufacturing, such as production processes, the shop floor, and logistics. Oen overlooked is the high cost of organizational complexity: the matrix structures with multiple interfaces, the proliferating roles and responsibilities, the many management layers that have built up over the years, and an organization structure that is no longer aligned with a company s manufacturing strategy. These issues are oen at the root of performance problems. Ignoring them can be a major obstacle to quality, flexibility, speed, cost effectiveness, and competitive advantage. No single solution will fit all manufacturing organizations. A company s industry, markets, customers, products, internal capabilities, competitive position, and overall strategy will inform any decisions and there will always be tradeoffs. But an effective manufacturing organization requires three things: an optimal organization structure; a skilled, engaged workforce; and supporting systems and governance. (See the sidebar The Importance of People and Governance. ) This report focuses on organizational best practices and outlines three essential steps for building a high-performance manufacturing organization: start with strategy, choose the right structure, and manage the tradeoffs. It also offers guidelines for determining the best choices for a company s manufacturing organization. The Optimal Design Most companies wrestle with how best to organize their manufacturing operations at both the corporate and the plant levels. Typical questions at the corporate level include: Should we centralize manufacturing responsibility and decision making or give regional and local plants greater autonomy? Should decisions that affect product divisions be made globally or locally? How can we make sure that process and technology standards are implemented across business units and globally? To what extent should engineering, maintenance, quality, asset management, and other functions be integrated into the manufacturing organization? How do we minimize overhead among similar plants with similar products? At the plant level, critical questions include: What responsibilities should be given to plant managers? Which plant activities should be centrally coordinated? How should plants be organized below the plant manager level? T B C G

6 THE IMPORTANCE OF PEOPLE AND GOVERNANCE Achieving a high level of manufacturing performance requires a skilled, engaged workforce and governance systems that drive and sustain excellence. Management leadership and visibility help to create a culture of trust, cooperation, learning, and continuous improvement. Having the right people in the right roles at the right time is also critical. Given the global shortages of skilled labor, this requires strategic workforce planning a type of planning that involves defining needed jobs and skills, estimating likely hiring and attrition rates, and addressing any gaps that must be filled. Companies should also make an ongoing commitment to recruitment and training, and define roles to clarify individual and shared responsibilities. (See the exhibit Companies Should Define Individual and Shared Responsibilities. ) Oen, manufacturing organizations have too many of the wrong types of skills or people. But when it comes to trimming the organization, most companies focus more on reducing their workforce than on streamlining their management ranks. Delayering these organizations can help flatten the reporting pyramid and increase spans of control, which lowers costs and improves efficiency and effectiveness. Delayering is more than just a restructuring or costcutting exercise. It also leads to improved management performance and accountability, more efficient decision making, and greater job satisfaction. Knowledge, cultural changes, and corporate values also spread throughout the organization To answer these questions, The Boston Consulting Group analyzed organization structures in a wide range of industries. Our goal was to determine which factors drive manufacturing performance and to identify overall best practices in organization. Our analysis revealed the optimal setup for specific industries based on strategic business drivers, and we created organizational guidelines to point companies in the right direction. Start with Strategy A company s manufacturing strategy must be aligned with and support the overall corporate strategy. These strategic considerations will drive decisions about how best to set up manufacturing operations. (See Exhibit 1.) To this end, we believe the manufacturing strategy must consider the following three factors: economics, markets and customers, and technologies and skills. Economics. How critical are scale, scope, efficiency, utilization rates, complexity, labor, and other cost drivers that affect overall manufacturing economics? The importance of these factors will vary by industry and company. For instance, scale is typically integral to companies in the automotive, chemical, metal, and fast-moving consumer-goods industries. The chemical and metal industries also T H-P M O

7 THE IMPORTANCE OF PEOPLE AND GOVERNANCE CONTINUED more quickly and easily because there are fewer layers of management. Finally, the right incentives are important to encourage the right behavior. In addition to cost or quality performance, for instance, plant managers could be rewarded for such factors as service levels, the health and safety of their people, sharing of best practices, and compliance with production standards. Companies Should Define Individual and Shared Responsibilities Example: site manager and line manager al parameters Leadership behavior Accountabilities Metrics and targets Decision rights Site manager Direct or dotted-line reporting; plant ownership and structure Go Gemba! Kaizen initiatives; collaboration among manufacturingrelated functions and headquarters; best-practice sharing across plants and business units Individual: improve overall financials by lowering costs and reducing working capital; improve quality, service levels, staff engagement and capabilities, health and safety Shared: secure, reliable product delivery for customers and component supply First-pass yield; on-time delivery; cycle/throughput time; accident levels; COG; 1 working capital/inventory; direct/indirect costs; CAPEX Owns: execution of manufacturing strategy at plant; personnel decisions; improvement initiatives; high-level planning (e.g., Kanban, segmentation); inventory levels Can veto: investments Influences: manufacturing strategy; supplier selection Line manager Manufacturing team structures; task allocation Go Gemba! Kaizen initiatives; cross-line collaboration; guidance and development of foremen and teams on shop floor Individual: line performance; sustainable implementation of standards; crosstraining and competence development of staff; engagement and satisfaction of line staff Shared: timely product delivery Overall equipment effectiveness; changeover times; quality; direct/indirect costs Owns: optimization of operating processes; enforcement of standards; leanmanufacturing tools; line stoppages; personnel decisions on shop floor Can veto: line personnel decisions Influences: investments; inventory levels Sources: BCG approach; BCG project experience. 1 COG refers to manufacturing costs only (costs of marketing and sales are not included). T B C G

8 E Strategic Drivers Affect al Choices al choices Strategic drivers Degree of functional Plant roles and responsibilities High economies of scale Global setup Standardized production system with integrated industrial engineering Lead plants or centers of excellence; if one product per plant, independent plants High economies of scope Standardized production system with integrated industrial engineering Lead plants or centers of excellence Economics High significance of asset utilization Global setup Integrated planning and scheduling to balance demand volatility and control global volumes Standardized production system with integrated industrial engineering and management of assets and maintenance Lead plants or centers of excellence High impact of personnel costs High level of standardization with integrated industrial engineering Lead plants High degree of complexity Global setup Standardized production system with integrated industrial engineering and standardized assets with asset management Lead plants Markets and customers High importance of proximity to customer High number of region-specific products High number of customer-specific products Regional or local setup Regional or local setup Customer-oriented setup on global or regional/ local level Independent plants close to customer Independent plants Lead plants or centers of excellence Technologies and skills Highly skilled engineering and production workforce required High importance of production know-how Global setup Standardized production system with integrated industrial engineering Centers of excellence Lead plants or centers of excellence Source: BCG analysis. tend to seek economies of scope, so that multiple products can share common premanufacturing steps. Standardized processes are critical to companies seeking scale and scope. For companies in asset-intensive industries such as the automotive, pharmaceutical, and building materials industries, asset utilization is a key consideration. When high asset utilization and economies of scale are required, manufacturing is best set up as a centralized corporate function. Markets and Customers. How important is it to be close to end-user markets and to have products that are customized for specific regions or customers? For instance, automotive suppliers, as well as companies making engineered products or specialized chemicals and metals, all offer a large number of customized products. For companies in the building materials industry, proximity to custom- T H-P M O

9 ers is critical. A regional or local manufacturing organization tends to be more effective than a global one for these types of companies. Technologies and Skills. How important are specialized engineering skills, technologies, or production capabilities? Companies that make customized products, such as those companies noted above, require specialized processes and technologies that are oen specific to individual plants. As a result, centralized control and sharing of best practices is less important to their manufacturing operations. Choose the Right Structure To help determine the best setup for your company, look at how different industries typically organize their manufacturing operations. As shown in Exhibit 2, certain factors are more important in some industries than in others and lead to different organization setups. The key strategic drivers that we discussed above economics, markets and customers, and technologies and skills affect structural choices in three critical areas: organization, degree of functional, and plant roles and responsibilities. Let s look at each of these areas more closely. Design. Companies must decide whether manufacturing decisions such as product allocations or capital outlays should be made on a global, regional, or local level, and whether manufacturing should be set up as a centralized corporate function or as a part of each business unit. (For illustrations of decisions that should be made at the corporate level and at the plant level, see Exhibits 3 E Industry Characteristics Drive Manufacturing Decisions Consumer goods Automotive Building materials Functional Centralized Low Decentralized High Functional Centralized Low Decentralized High Functional Centralized Low Decentralized High Plant roles Standalone Durables FMCG Network Plant roles Standalone OEM Supplier Network Plant roles Standalone Network Chemicals/pharmaceuticals Engineered products Metals and mining Functional Centralized Low Decentralized High Functional Centralized Low Decentralized High Functional Centralized Low Decentralized High Plant roles Standalone Pharmaceuticals Chemicals Network Plant roles Standalone Network Plant roles Standalone Metals Mining Network Source: BCG analysis. Note: FMCG = fast-moving consumer goods; OEM = original equipment manufacturer. T B C G

10 and 4.) As a general rule of thumb, a global organization makes sense if scale or standardization are major cost drivers, specialized production capabilities are needed, or the manufacturing strategy has a major impact on the overall business strategy. Our research shows a trend across industries toward creating a global manufacturing organization with centralized decision making for products, technologies, and processes. Beyond the potential scale effects, this approach makes it easier to share best practices and speeds up performance improvements critical benefits in today s fast-changing, fiercely competitive global economy. But this solution isn t always the right choice. For instance, companies that must create different products for different markets will usually find that a regional or local organization allows them to better focus on and respond more quickly to the needs and requirements of local customers. Degree of Functional Integration. Decisions about whether to integrate related functions such as production control, planning and scheduling, IT, quality, maintenance, engineering, and asset management within the manufacturing organization can have a major impact on operations. Integration can lead to fewer interfaces, better communication, faster decision making, and greater synergy. Companies in asset-intensive industries, for instance, can achieve higher levels of utilization by E Three Types of al Decisions Should Be Made at the Corporate Level Functional Board BU A BU B BU C Hybrid Board BU A BU B BU C BU A Divisional Board BU B BU C Planning and scheduling Procurement Logistics (in- and outbound) Quality Degree of functional Production controlling Maintenance management Industrial engineering Asset management IT Independent plants Plant network Plant roles and responsibilities Products Processes Lead plants Source: BCG analysis. Note: = manufacturing; BU = business unit. T H-P M O

11 E Two Types of al Decisions Should Be Made at the Plant Level Value stream process bundling Workshops activity bundling VS 1 VS 2 WS 1 WS 2 WS 3 WS 4 Production controlling Planning and scheduling Degree of functional Maintenance Quality IT Source: BCG analysis. Note: = manufacturing; VS = value stream; WS = workshop. integrating maintenance, asset management, planning, and scheduling. As a result, manufacturing operations have less downtime, greater asset productivity, more balanced utilization across the plant network, and fewer bottlenecks along the supply chain. Similarly, an integrated engineering unit can identify new performance levers, promote production standards, and encourage the sharing of best practices. Integrating quality functions is usually more effective at the plant level, where total quality management (TQM) can engage workers in continuous improvement efforts. Lean initiatives with their total-productive-maintenance (TPM) approach also show the power of integrating maintenance activities at the plant level. Plant Roles and Responsibilities. Decisions about how to set up plants and allocate production are also critical to overall manufacturing performance. When cross-plant material flows are absent such as when the product portfolio is varied or highly customized to specific regions there will be limited cross-plant synergies. In these cases, plants can be run independently, steered by centrally defined performance metrics. But when materials flow across plants and knowledge and standards are shared, a plant network with dedicated roles for each plant is the optimal setup. For instance, if specific production skills are critical, make certain plants lead plants or centers of excellence for particular processes or capabilities in order to concentrate this knowledge, set standards, and share best practices. Manufacturers can also get more from their production networks by matching asset characteristics with the needs of specific products and customers. For instance, some plants are ed to produce a small number of products at high volume for greater economies of scale. Others are ed for flexibility, with short changeover and ramp-up times that are best suited for products with volatile or unpredictable demand. By defining plant roles, consolidating products with similar character- T B C G

12 istics, and exploring ways to reallocate products across the network, companies can achieve greater cost savings, flexibility, and efficiency. Managing the Tradeoffs Each choice involves tradeoffs that can affect cost, product quality, cycle times, and service levels. Companies with a decentralized or divisional manufacturing organization, for instance, typically have a harder time sharing best practices and can lose synergies. A centralized coordinating function can offset these drawbacks by sharing best practices across the company and creating consistent standards and metrics. In this way, a divisional setup with concentrated knowledge of certain products or regions can coexist with unified standards and a high degree of sharing best practices across the company. A divisional manufacturing setup can also greatly complicate interactions with a centralized R&D unit and hamper -to-cost efforts. Companies can offset these drawbacks and sharply reduce production costs over time by defining manufacturing requirements early in the manufacturing process through better communication. Each choice involves tradeoffs that can affect cost, product quality, cycle times, and service levels. Some companies take more of an out-of-the-box approach to managing tradeoffs. A microchip manufacturer with enormous cost pressures, for instance, had stringent requirements for quality and process reliability. Moreover, because its business was asset intensive, asset productivity and scale were critical. To meet these challenges, the company made all its manufacturing plants identical, down to the smallest detail, so that each one makes the same products in the same way a rather extreme approach to central governance. As a result, the company can diagnose and fix problems quickly, and it can rapidly implement improvements. Its plant network is also extremely flexible production can be shied as needs, volume, or economic conditions change, and any bottlenecks are short-lived. Another example of an out-of-the-box approach to managing a tradeoff: An automobile manufacturer with a global production network wanted to avoid the excessive overhead and backlogs that can result from having headquarters steer the plants and implement global standards inflexibly. The company decided to establish regional mother plants that support local projects, train staff, set up employee exchange programs, and manage five-year performance road maps. Headquarters can now focus on the bigger picture developing major change programs that the mother plants can implement. Each company must decide which tradeoffs to make based on its individual situation, markets, competitive environment, and industry benchmarks. Moreover, a company s organizational choices require the right people and skills to be truly powerful. I -, increasingly complex global environment, companies must rethink not just their manufacturing operations but also their manufacturing organizations. The high-performance organization is lean, flexible, and strategically aligned. The right organization, an engaged workforce, and effective governance systems result in sustained manufacturing excellence and a powerful source of competitive advantage. T H-P M O

13 About the Authors Frank Lesmeister is a principal in the Düsseldorf office of The Boston Consulting Group and a topic expert for manufacturing. You may contact him by at lesmeister.frank@bcg.com. Daniel Spindelndreier is a partner and managing director in the firm s Düsseldorf office and coleader of BCG s manufacturing topic. You may contact him by at spindelndreier.daniel@ bcg.com. Michael Zinser is a partner and managing director in the firm s Chicago office and coleader of BCG s manufacturing topic. You may contact him by at zinser.michael@bcg.com. Acknowledgments The authors would like to thank Katherine Andrews, Gary Callahan, Martha Craumer, Angela DiBattista, and Pamela Gilfond for their contributions to the writing, editing,, and production of this report. For Further Contact If you would like to discuss this report, please contact one of the authors. T B C G

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