how do some factories outperform others over long...

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CCI ConferenceMiami, September 2012

Copyright: 2012 Kasra Ferdows

Kasra FerdowsHeisley Family Chair Professor of Global Manufacturing

McDonough School of Business, Georgetown University, Washington DC 20057, USAEmail: [email protected]

How do some factories outperform others over long periods?

1. What are the key elements of the strategies (at the headquarters) that put the factories on this course?

2. What are the managerial actions that help the factory implement that strategy?

I’ll use two case studies to propose answers

Let’s break this into two questions

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Source: Aluminum Association Global Insight (March 2009)

Aluminum Extrusion

This industry goes through harsh cycles

First case is a company in a tough industry

One of the leading companies in this industry is Hydro Aluminum Extrusion Group (HAEG)

A division of Hydro Group Largest non-governmental company in Norway

HAEG has 42 production sites on five continentsOperating in very different environments

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Source: Aluminum Association Global Insight (March 2009)

Between 1986 and 2001 in this industry

Labor productivity increased by an average of 0.4% annually

Machine productivity by an average of 1% per year

During the same period (1986-2001)HEAG improved labor productivity in its factories 11 times faster

by an average of 4.6% per yearand

Machine productivity four times fasterby an average of 4% per year

How did it sustain this rate of continuous improvement over such long period?

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0.5

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1.5

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3.5

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1 2

Industry

HAEG

HAEG

Industry

Annual increase inLabor Productivity

Annual increase inMachine Productivity

%

0.4%

1%

4%

4.6%

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Senior management wanted to use the opportunity to prepare for the inevitable next harsh cycle

In 1986, things were going well for HEAG and the industryEach factory was implementing different sets of lean practices

with different levels of success and enthusiasm

TQM

JITSMED

6 σTPM

Safety

5S

JIT

JIT

6 σ

TQM

TQM

TPM

Teams

Teams

Safety

JIT

They wanted to make the factories stronger and more agile

The challenge

How do you improve production capabilities in factories in a sprawling global network?

When each is facing a different• Set of competitive mandates• Local conditions and history• Scale (size) effect• level of investments in plant and equipment• Product portfolio• Strategic roles

And always few burning issues that seem to need full attention of local managers

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The company decided to embark on a rather unique program

The program was based on the “Sandcone Model”

It was led by HEAG’s Manufacturing Director and Chief Technical Officer, Fritz Thurnheer(I was an intermittent consultant)

We followed this program closely for 15 years (1986-2001)

(We published the paper based on this experience in late 2011)K. Ferdows and F.Thurnheer, “Building Factory Fitness,” IJOPM, Vol 31, No 9 (2011)

Source: K. Ferdows and A. De Meyer, Lasting Improvements in Manufacturing Performance, Journal of Operations Management

The “Sandcone Model” is a theory for building lasting improvements in manufacturing

Dependability

Cost Efficiency

Quality

Safety & housekeeping

Flexibility

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Period 1 Period 2 Period 3

More precisely, the process is like this

Dependability

Cost Efficiency

Quality

Safety & housekeeping

Flexibility

Improve safety & housekeeping

Reduce process variability

Codify & share tacit production know‐how

Improve responsiveness

Improve labor and machine efficiency

Attention is paid to building all core capabilitiesbut in different proportions

The “Sandcone Model” was based on the data collected in the “Global Manufacturing Futures Project”

This was a decade long multi-university research project which tracked manufacturing management approaches by annual surveys

of about 600 multinationals in North America, Europe and Japan

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Results suggest that the model was largely implemented

Between 1986 and 2001

Safety Incidents were reduced by 90%Average 14% per year

0

20

40

60

80

100

Saftey Incidents

(indexed)

Year

This was a much steeper rate than historical rate at HAEG

HAEG was one of the first companies that decided to apply the Sandcone Model

The factories that improved safety also improved quality

0

0.2

0.4

0.6

0.8

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00.20.40.60.81

Quality

Conformance to Specs (Normalized)

SafetyAdjusted Number of Reported Incidents per Factory (Normalized)

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0.5

0.6

0.7

0.8

0.9

1

0.20.30.40.50.60.70.80.91Extrusion Press Productivity

(Indexed)

QualityConfromance to Specs (Normalized)

The factories that improved quality also improved cost efficiency

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10

20

30

40

50

60

70

80

90

100

100

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120

130

140

150

160

170

Safety Incidents

(Indexeed)

Press Productivity

(Indexed)

Year

Press Productivity

Safety Incidents

Better safety record went together with better cost efficiency

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We learned a lot in the 15 years

There is a difference between being lean and being fit

But the most important insight was a fundamental one

We now realize what we were trying to do was not just telling the factories how to become “leaner”

It was also telling them how to become “fitter”

What is the difference between being lean and fit?

Lean Fit

Take off the fat Build muscles

Reduce waste andnon-value adding activities

Strengthen core production capabilities

In production

A factory can become too lean but never too fit!

Source: Kasra Ferdows and Fritz Thurnheer, “Building Factory Fitness,” IJOPM, Vol 31, No 9 (2011)

One can be over-zealous in pursuit of leanness—but not fitness

We need to do both

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The “games” may be different

But fitness routines for athletes have a lot in common

Can different factories be put on the same fitness regimen?

Characteristics of a factory fitness program

1. The focus is on strengthening multiple production capabilities simultaneously

2. The tasks to be performed are similar to the usual ones in typical production improvement programs, but they are done in a specific sequence

3. In this sequence, strengthening the earlier production capabilities should always receives more resources and management attention than the later ones(hence always improve the more fundamental capabilities)

4. The most common sequence is improvement of safety and housekeeping, quality, dependability, responsiveness, and cost efficiency

5. The above do not depend on local challenges and specific “competitive priorities” which may be facing the factory

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A fitness regimen is NOT a substitute for a lean manufacturing programor other production improvement programs

It complements themmakes it easier to implement them

Best time to start a factory on a fitness regimen is when things are going well

Their role changes as factories go through three stages

Stage I: Focus on visible problems in processesPut the spotlight on what sometimes seemed like minor problems-- like “near misses”

Stage II: Focus on process analysis and controlAllocate the required resources to the factory and

direct the attention of its organization on process redesign and training

Stage III: Focus on process excellenceSet new targets and benchmarks for the factory and facilitate sharing of know-how with other factories

Senior managers have (of course)a critical role during the implementation process

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2. They often focused on rate of improvement of the KPIs—not just their absolute values

It leveled the playing field across the sitesIt communicated that even the best factories needed to continue to improve

1. They demanded simultaneous improvement in multiple capabilities

“Yes, your unit shows good financial results this month, but let’s look at your process measures” (e.g., reject rates, missed delivery dates, etc.)

Using KPIs as guide for action is critical

Senior managers at HAEG used it consistently to ensure that sufficient attention was being paid to building fitness

In practiceThere is no sharp line where one ends and the other begins

Lean Fit

Lean is about maximizing value for customers

with minimum input

Fitis about strengthening the capabilities

for doing that

But at their cores

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So, the advice for those crafting strategy at the headquarters

2. What managerial actions inside the factories are effective for implementing the strategy?

Let’s now look at a second case to answer the second question

Pay explicit attention to building fitness in the factories

Also thisNot just this Or this

Volvo Group has 100,000 employees and 60 factories on 5 continents,

We* are currently investigating how the Volvo Group is implementing its Volvo Production System in its global factory network

(*T. Nedland and K. Ferdows)

Some Photos removed

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The principles of Volvo Production System are the familiar ones

And the tools are also the usual ones

Some details removed

Toyota Production

System

1945 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 20101900s 1970s

Source: Torbjorn Netland, "Exploring the phenomenon of company-specific Production Systems: One-best-way or own-best-way?" International Journal of Production Research, forthcoming

Volvo is not alone

In recent years, inspired by Toyota Production SystemMany multinational manufacturers have developed their own

company-specific production systems

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These company-specific production systems have a lot in common

Similar principles, tools, assessment processesAnd usually a dedicated central staff to refine, promote and manage the assessments

They are similar to TRACC—but often not as thorough or as sophisticated!

Volvo’s Questions

Why do some factories succeed with VPS, while other struggle?

What can be done to help factories at different stages of VPS implementation?

How can VPS be improved?Content, Process, Structure

How can we implement VPS better in our global factory network?

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SurveyAssessmentsVisits & interviews

Our research methodology“Triangulating” results of analyses of three sets of data

We are still in the middle of it(and three other companies have already asked us to do the same research with them and combine the results)

Few slides removed from this part

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Volvo has a formal process for assessing implementationof the VPS in each factory

It involves measurements of over several dozens variables in the factory


AgainWe are in the middle of analyzing the dataHere are a few tentative observations

We have also designed a survey to get data about what managers in the factory actually did

So far we have over 200 responses

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First, a confirmation

Factory’s Success in VPS ImplementationMeasured by Assessment Scores

Better Performance by the factoryMeasured by KPIs (actuals and collected by our survey)

Indeed leads to

Second

determines

Stage of VPS implementation in the factory“Beginner” “In-Transition” or “Advanced”

(Grouped according to their overall Assessment Scores)

Which mix of managerial actions (and tools) are more effective

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Bundles Managerial Actions Cronbachα

Direct involvement Be hands-onDo Gemba walksRequest performance reportsSpeak about VPS

0,898

Training and learningTrain managersTrain shop-floor personnelInvite visitors from other plantsVisit other plants

0,827

Empowering implementation teams

Give direct mandatesEstablish management implementation team Establish shop-floor implementation teamsAllocate specific fundsEstablish hierarchical decision structureArrange regular and frequent meetings

0,899

Making VPS visibleon shop-floor

Post VPS performance charts Hand out VPS manuals to shop-floorWrite about VPS (in internal bulletins)Display general VPS info

0,835

Establishing Audits and AwardsGive awards for VPS implementationPerform internal VPS auditsBenchmark VPS audit results with others

0,877

We “bundled” typical managerial actions by analysing our survey results



0,898


0,827



0,899



0,835


0,877


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0,898


0,827



0,899



0,835


0,877


Mix of bundlesStage 1

BeginnersStage 2

In-TransitionStage 3

Advanced

Bundle 1: Direct Involvement +Bundle 2: Training and learning +++ ++ +

Doing B1 + B2 +Bundle 3: Empowering implement. teamsBundle 4: Making VPS visible on shop-floor

++ +++ ++

Doing B1 + B2 + B3+ B4 +Bundle 5: Establishing audits and award + ++ +++

Our preliminary analysis suggests when different mix of these “bundles”are likely to be most effective

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0,898


0,827



0,899



0,835


0,877


If these preliminary results are confirmedthey suggest

A broader set of managerial actions would sustaining continuous improvements more effectively

Stage of implantation of best practices

Beginners In-Transition Advanced

Bundles of managerial actions

The challenge is making the factory initiate and carry out more and more as it continues to improve

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SoIs sustaining continuous improvement over long term a daunting task?

Not if we the factory has been on a fitness regimen

A fit factory is capable to take on more and more

Do more and more

Kasra Ferdows

Thank You

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