At a time when margins are being squeezed hard, Steve Knight, associate director at operational improvement firm Newton, asks why improvement costs are still so hard to justify in manufacturing and unpicks the pros and cons of different improvement pathways.
What issues are suppressing margin and growth in our manufacturing facilities? This has been a critical question for some time but with the May PMI showing the worst results for manufacturing in three years the puzzle is even more frustrating.
Becoming more efficient and effective in manufacturing operations is part of the equation. But even if the shopfloor team have the mandate to make change happen, often internal programmes deliver little improvement. At the same time the justification for an improvement budget is commonly thought to be on uncertain ground.
No doubt there are many reading this article who are tempted to turn away at this point, believing the bias of the author make its content futile.
But if removing conversion, or total manufacturing costs, from you factory is a concern, then change is needed. And if we consider the options open to manufacturers to deliver change they are: do nothing; buy in a ‘quick fix’; establish internal improvement teams; or look to the outside for support.
Often this feels like the only choice. There is not enough resource within the senior management team to think about launching a formal improvement project. No clarity across the team about what needs implementing and when. Not enough confidence that results will stick and not enough cash to bring in help.
We can be 100% certain of the outcome in this scenario. No improvement and team morale will plateau or, more likely, decline.
In many ways this is obvious, yet fighting apathy and the urge to do nothing is hard. Maybe this is because the other options seem even more unpalatable.
Be this as it may, we must accept that hope is not a tactic. Hoping a team, who has perhaps previously struggled, will deliver on the targets ignores the reasons why targets have consistently been missed.
While other options do hold an amount of risk, the true risk of doing nothing is much greater.
The interim solution
Finding an interim improvement specialist often seems like having your cake and eating it. You get the expertise provided by an improvement consultancy and the ability to remove the cost once the work is complete – and the cost will be lower than that attached to a fulltime consultant.
But for some reason this rarely gets lasting results. Sooner or later your interim specialist is no longer distinguishable from any other member of the operations team.
This may at first appear to be a good thing. The specialist has become part of the team, accepted into the culture of the group. However, the specialist is now part of what they are there to change, caught up in the day to day jobs. It is all too easy for an interim improvement specialist to become indoctrinated into local customs and submit to cries of “it’s always been done that way”.
On occasion, we have seen a strong interim turn the culture of the operations team, often with the team kicking and screaming all the way. But there is a high risk of failure if the new culture isn’t installed along with genuine improvement – tangible to the shopfloor and management team.
The reality is that an interim specialist often becomes permanent, filling a role of analyst and advisor to the senior management team. The specialist may identify many problems but has little bite to enforce changes and is in no position to lead the team to its goals without undermining the production manager.
In response the operations director will resort to higher level changes, driving through capital expenditure projects, organisational restructuring and IT programmes to try and get control of production. The consequence is that issues remain, the belief on the shopfloor that anyone cares about these continues to diminish and margins continue to be squeezed.
Internal improvement teams
The group of people (often actually just a single person) who fall under the banner of improvement professionals seem the obvious choice to deliver the year on year incremental improvement that is required. If they can’t chip away at the potential that exists then why do we even have them?
The first thing that must be understood is that improvement cannot be chipped away at until firm foundations are in place. In reality, the act of putting in these foundations will virtually always work as a catalyst to a step change in performance, and should always be the first step when moving operational performance forward.
So what should be expected from the improvement team?
The makeup of the team is crucial. One extreme is they have known nothing other than the issues that exist, with huge swathes of empathy for why people don’t think change is achievable. Another is they have come across from a different business knowing how it was done there, but have zero buy-in from the new team.
It is a difficult balance to achieve and in many ways the improvement team or professional falls into the same dilemma as that of an interim consultant. They have no power to force through high level change and little bite on the shopfloor to drive actions from the bottom up.
Should manufacturers even have an improvement team? The answer is resoundingly ‘yes’ – but its role should be clear.
When working correctly an improvement team enables the fabled concept of continuous improvement. However, it is not this team that should be expected to kick the improvement wheel into action, it should be there to keep the wheel turning and cogs oiled.
At its most effective, the improvement team takes best practice that has been implemented, codifies settings, creates training courses and ensures that all employees have adequate skill sets to deliver the new way of working.
The team manages the data recording systems which fundamentally underpin any good production facility, ensuring it is a true reflection of performance and providing analysis and data when decisions must be made.
So who should kick start improvement and lay the foundations for continuous improvement to take hold?
“(To gain trust) new models have come into play with leading consultancies prepared to risk their fees against the delivered savings.” Steve Knight, Associate Director at Newton
Getting external help
Successful businessmen surround themselves with the best people. Therefore we often hear the line “If we’re any good at our jobs we should be able to do this with the resources we’ve got”.
Yet, with the continued pressures of increasing cost bases, cash shortages, tighter lead times and greater product complexity, looking for outside support from time to time with productivity improvements can uncover significant value.
While many forms of specialist help, such as tax and legal advice, are fully accepted, business improvement consultants are still regarded with scepticism. According to a recent study, the single most important reason (70%) why organisations would use consultants was to access specific skills not available internally.
So why is this scepticism still so prevalent in manufacturing? Is it a fear of the unknown, the potential premium price tag, or the anxiety of ‘once bitten, twice shy’? Is it a disbelief in the consultant’s competence, a lack of confidence in lean text book approaches, the fear of failure and change or just the concept of consulting as a whole?
If these fears are not overcome, is this an opportunity lost?
You must have confidence in a consultant’s ability to deliver and ensure the service is value for money. And that’s why increasingly, new models have come into play with leading consultancies prepared to risk their fees against the delivered savings. This means the service is paid for based on the realisation on genuine cash savings, and the consultancy will actually deliver the savings rather than giving you a report that identifies them. This provides minimum business risk and has the lowest drain on resources – a ‘win, win’ situation.
External specialists are able to remain detached from the everyday workings of a business, providing an independent viewpoint. A fresh pair of eyes can often see hidden opportunities and challenge preconceptions about why things cannot be changed for the better. They can also speed up the process of change, as they don’t have other obligations or another ‘day job’.
Good consultancies hold ‘economies of knowledge’ developed through working with different businesses, often across different industries, on similar kinds of improvement programmes. This allows practical solutions to be rapidly identified and implemented to generate those sought after financial returns.