2010: Are you geared-up for growth?

Posted on 11 Jan 2010 by The Manufacturer

TBM Consulting's Anand Sharma drops his first lean column for The Manufacturer...

Anand Sharma is the new monthly lean columnist for The Manufacturer. He is co-founder and CEO of TBM Consulting Group, Inc. He was named a “Hero of U.S. Manufacturing” in 2001 by Fortune magazine and was awarded the 2002 Donald Burnham Manufacturing Management Award by the Society of Manufacturing Engineers. He will be leading a workshop on “Leveraging Lean for Growth” in Manchester, May 5-6 2010.

One thing no one needs is yet another reminder from the media that we are in the midst of an unprecedented and enormously challenging business environment. Preliminary projections have annual GDP for 2009 falling by 4.75% in the UK, by 4.1% in the European Union and by 2.4% in the United States. That doesn’t sound so bad, you might think. But the ripple effect in most Western markets, as many of you are all too aware, has contributed to sales declines of 15 to 30% on average, and as high as 50% for some industries.

Stuck with excess capacity and inventory when consumer demand evaporated, many manufacturers struggled over the past year to right-size their operations fast enough to survive. Isolated from real demand signals and saddled with long lead times, they worked to months-old sales forecasts.

Supply chains that extended to the Far East made it impossible to immediately turn off the flow of parts and materials, further increasing cash flow pressure. Absent cash or available credit, a fair number have gone out of business.

Many of these failures could have been prevented if managers had taken steps years ago to make their operations more reliable and responsive to market fluctuations by applying lean management methods and tools. With last year behind us, what matters in 2010 is how your company capitalises on the growth opportunities that are sure to arise — without increasing your cost base.

Just as legacy, command-and-control management systems harking back to the early 1900s contributed to the inability of so many companies to respond to the early signs of an impending recession, these same management systems will inhibit the ability of many manufacturers to ramp up rapidly when things turn around. Companies that adopted lean principles and more participative management systems stand to benefit because they have not lost critical skills and capabilities. But even among lean companies, in their pursuit of operational excellence too many leaders remain fixated on cost and fail to see speed as a strategic weapon. If the standard industry order to-shipment time is six weeks, shipping quality product in one day — or six hours! — is an order of magnitude difference that the market will recognise and reward. This kind of responsiveness is impossible with traditional management systems.

It requires flexible processes, a flexible and multiskilled workforce and effective teamwork that tap into the experience and creativity of people who are personally engaged with satisfying the changing needs of the customers.

Compared to 20 years ago when I founded TBM, I spend much less time today in both Europe and the United States convincing managers that batch processing methods create a lot of waste that can be permanently eliminated with a different mindset and lean production processes. There
are hundreds of case studies demonstrating that reduced lead time; increased reliability and flexibility; 5S; rapid changeover; standard work; pull; one-piece flow; root-cause analysis; and other continuous improvement tools can have an immediate and long-lasting impact on productivity, quality and customer satisfaction. What’s missing is how to get from being a baseline user of the wellknown process improvement tools in a few isolated areas to an advanced management system that leverages them to drive breakthrough growth and enhanced profitability.

Even as the world economy sank into the recession, a select few manufacturers were able to respond quickly to declining order volumes, reduce output and inventory to appropriate levels, and minimise working capital requirements. Many of the companies we work with used this unique opportunity to re-connect with customers and uncover unarticulated needs and thus gain market while their competition remain internally focused on slashing costs. Not only have they remained cash-flow positive, they’ve leveraged the crisis to improve their profitability at lower sales levels — and even bought out their less agile competitors. These manufacturers are positioned for strong growth when markets turn around, whether that happens in 2010 or the year after. When the next recession comes, I sincerely hope you are among them.

By Anand Sharma, co-founder and CEO of TBM Consulting