White Paper

Redefining Operational Excellence

for High-Mix Manufacturers
 Table of Contents
Executive Summary 2

Introduction: The 2011 Global Manufacturing Landscape 2

The Evolution of Optimizing Efficiencies within Manufacturing 4

Redefining Lean with People, Process, and Technology 5

Characteristics of Optimal, Profitable Plants 6

Conclusion 8

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 Redefining Operational Excellence
for High-Mix Manufacturers
Executive Summary
Manufacturers today are under tremendous pressure to increase profitability and demonstrate
stakeholder return on investment (ROI). In order to meet these objectives and stay competitive
in the global economy, executives are once again focusing on optimizing their manufacturing
and supply chain networks. By redefining optimal manufacturing operations, manufacturers are
meeting—and exceeding—business objectives.

Increasingly, manufacturing companies have embraced Lean techniques to improve

performance and optimize their factory and supply chain operations. Starting in the automotive
industry with the Toyota Production System (TPS), companies implementing lean have seen
dramatic improvements in costs, customer service, and profitability. But manufacturing
executives outside the automotive industry, particularly in complex, high-mix environments must
first understand why TPS Lean techniques do not always produce long-term or desired results.

Companies have failed to generate savings for three main reasons: trying to implement Lean
exactly as it was invented, failure to scale initial success and lack of technology to sustain
positive results.

By adapting Lean using a holistic approach encompassing people, process and technology,
companies are achieving sustained profitability. This white paper summarizes how high-mix
manufacturers that have won big share three common characteristics: a culture that promotes
continuous improvement and employee involvement, a focus on customer needs, and an
investment in technology to sustain these two characteristics. Bristol Myers Squibb, The Coca-
Cola Company, and CP Kelco are great examples of manufacturers that have succeeded in
achieving operational excellence because of their commitment to Lean using a holistic approach
(people, process and technology).

Introduction: The 2011 Global Manufacturing Landscape

Challenging economic times mean that manufacturing executives must do more with less. The
recent downturn halted investment as companies slashed budgets, shuttered factories, reduced
the number of employees, and delayed technology upgrades. Executives who once turned to
manufacturing to improve execution and profitability instead focused on survival in turbulent
times.

But as the global economy recovers, businesses are overcoming hesitation as they emerge
from the recession. Leading companies are once again re-prioritizing manufacturing and supply
chain operations planning investments in product quality and innovation to drive competitive
advantage. They are putting a strategic focus back on manufacturing and are using operations
to innovate and regain profitability.

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 Research shows that now is the time to reinvest in manufacturing. For 16 straight months,
output has expanded and exports have grown steadily.1 The Institute of Supply Management
reports that manufacturing in the U.S. rose in January at the fastest pace since May 2004.
Justin Lahard and Kris Maher of The Wall Street Journal said “with demand for goods around
the world continuing to rise . . . uncertainty is being trumped by concern about getting left
behind.”2 Companies are transitioning from “the year of stability” to “the year of ROI” as
management increasingly understands the need for investing in strategies that boost growth.3

Along with the increasing appetite for growth comes intense pressure for senior executives.
Management must not only make up for lost time, they must restore an environment and
funding for technical advancements and set the path for profitability and stakeholder ROI. As
exhibited in Figure 1, revenue, profitability and costs are top business concerns.

Business concerns over the next two years

Q. What are the main business concerns for your company in 2010/2011?

Revenue

Profitability

Raw Materials Cost

Manufacturing costs

Cash flow

Increasing rapidly changing

customer requirements

Demand volatility
Global manufacturing
competitiveness
Inventory carrying costs

1 2 3 4 5
(Scale)
Base: Entire Sample
Number of valid respondents: 722
Source: IDC Manufacturing Insights, July 2010 Figure 1

1
Ins&tute
for
Supply
Management™,
January
2011
Manufacturing
ISM
Report
On
Business.
h=p://www.ism.ws/

ISMReport/MfgROB.cfm
2
Lahard,
Jus&n
and
Kris
Maher,
“Seeing
Economic
Rebound,
Firms
Step
Up
Spending,”
The
Wall
Street
Journal,



June
25,
2010
3
“The
Return
of
Manufacturing:
Firms
look
to
shore
up
opera&ons
and
business
systems
as
markets
reemerge,”


The
MPI
Group,
2010

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 Meeting profitability objectives is even more challenging given a global manufacturing
landscape of fierce offshore competition, shorter product life cycles, demanding customers, and
heightened regulatory compliance. According to research and advisory firm IDC Manufacturing
Insights, the manufacturing industry as a whole is struggling with increasing complexity, rapidly
changing business environments and volatile raw materials prices.4

To remain competitive in the global economy, manufacturers must become more productive,
more efficient, and more responsive. According to “Business 2010: Manufacturing,” a white
paper from The Economist, manufacturers can stay competitive by accelerating the pace of
innovation and adapting swiftly to change.5 And, despite the recent pressure to reduce costs, a
KRC Research survey of more than 300 senior manufacturing executives indicated that they
have been investing in their companies, especially in the areas of quality improvement systems
and research and development (R&D).6

Manufacturing executives must continue to invest in innovation. Optimizing manufacturing and

supply chain network operations is not about improving operations—itʼs about coming up with
realistic solutions that contribute to the bottom line. Shortening cycle times, meeting customer
deadlines, reducing inventory and shipping more products translates to meeting profitability
objectives.

The Evolution of Optimizing Efficiencies within Manufacturing

History shows that an optimized factory and supply chain contribute to company-wide
profitability. For this reason, leading manufacturing companies are once again focusing on their
factories. They want to retain their core competency, guard intellectual property, and be near
customers. However, C-level executives are hesitant to reinvest in Lean and Six Sigma
techniques that have previously failed to generate results (namely, shareholder value and
profits). Unfortunately, failure to produce less-than-stellar results is not uncommon. A survey
from consulting firm Bain showed that only 19% of companies that had tried Lean were happy
with the results.7

So where has Lean gone wrong for these manufacturers? Namely, itʼs that traditional Lean is
not effective to high-mix manufacturers in complex environments. According to Michael
Mahoney, author of High-Mix, Low-Volume Manufacturing:

4

Dahlgren,
Megan
and
Pierfrancesco
Mane&,
“Bea&ng
Complexity,
Achieving
Opera&onal
Excellence,”
IDC


Manufacturing
Insights,
July
2010
5
The
Economist
Intelligence
Unit,
Business
2010:
Manufacturing,
Embracing
the
Challenge
of
Change,
April
2005

6
Baker
Tilly,
Thoughts
on
the
Economy
and
Global
Business:
Survey
of
U.S.
Manufacturing
ExecuIves,
July
2009

7
Jones,
Del,
“Toyota’s
Success
Pleases
Proponents
of
‘Lean’,”
USA
Today,
May
4,
2007

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 The fundamental operational dynamics for high-mix manufacturing requires a different approach
that TPS-Lean is ill equipped to address. In the original translation of the book, Toyota Production
System from Industrial Engineering Viewpoint, it states that the TPS Kanban system could be
adapted only in the case of repetitive production and impossible to utilize for individual production. 8

Manufacturers that have applied traditional Lean principles for complex environments have
ultimately failed to see results for three main reasons:
1. Companies are trying to implement Lean exactly as it was invented. The TPS
principles that worked in the automotive industry wonʼt be successful without
adapting techniques to work in a high-mix, complex environment. For example, high
volume Kanban techniques doesnʼt work well if you have multiple products on shared
equipment, or have a significant demand variability or changes in product mix, or if
you manufacture engineered-to-order or make-to-order finished goods.
2. Companies struggle to scale initial successes from pilot projects. Although
manufacturers might have an initial pilot project with tremendous results, they
struggle to get the same success across all lines in a factory or all factories across
the globe. This is often because the initial pilot focused on high-volume products,
while scaling across the business requires expanding to lower volume, higher
variability products.
3. Companies cannot sustain initial success. Although companies may experience
initial successes in the first few months, operations often gradually revert to the way
they were. Thatʼs why itʼs imperative to automate use of these approaches and to
measure performance. If manufacturers automate and use high-mix Lean techniques
as scorecards, they are more likely to sustain results.

So what is the answer? Sustained success requires holistic Lean methodologies, encompassing
people, processes, and technology.

Redefining Lean with People, Process, and Technology

Manufacturers that have tried traditional Lean and Six Sigma have learned itʼs not as
straightforward as they expected it to be. Companies that use a holistic method—encompassing
people, processes and technology—are winning big.

Sath Rao, vice president at consulting and research firm Frost & Sullivan, says itʼs these three
things – people, process, and technology – that mitigate risk for complex manufacturing
ecosystems.9 By optimizing the high-mix factory floor using this methodology, time to results is
reduced, and companies are realizing significant savings in the second month of deployment.
The matrix in Figure 2 compares these three characteristics at a company low on the maturity
level scale of achieving holistic Lean results vs. a company that has accomplished competitive
advantages through holistic Lean.

8
Mahoney,
Michael,
“Lean
when
Based
on
Toyota
Produc&on
System
Fails
for
High‐Mix
Manufacturers,”
July
20,


2007
9
Rao,
Sath,
“Can
Manufacturers
Drive
the
CEO’s
Growth
Agenda?”
Managing
AutomaIon,
October
11,
2010

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 Figure 2
Maturity Levels
Needs Improvement Competitive Advantage Through Holistic Lean
Lack of employee engagement Significant investment in training
People
Poor communications Ideas from workforce
Characteristic

Forecast-driven push Demand-driven pull

Process Financial metrics based on KPIs based on velocity & customer satisfaction
internal efficiencies

Lack of investment in equipment Focused investment in tools to support people and

Technology Manual, ad hoc decision sustain processes
support tools Automated, scalable business intelligence analytics

As consumer demand fluctuates, holistic methodology gives manufacturers the competitive

advantage of having the ability to respond to changes in the marketplace. The holistic
methodology is based on three ideas:
1. Training and empowering employees
2. Refining plant processes with best practices
3. Implementing technology to improve responsiveness to the customersʼ needs

When companies leave out one of the three important characteristics, failure is inevitable. First,
many manufacturers underestimate the importance of people and instead make technology
investments that donʼt yield any benefits. For example, some companies pour millions of dollars
into ERP systems that arenʼt well suited for the organizations or their people, leaving the
company with a lot of expensive shelf ware.

Second, some managers run into internal obstacles, such as traditional financial metrics that
encourage them to produce tons of inventory. Or, short-term thinking leads executives to pursue
investments that help them achieve quarterly goals, but doesnʼt consider long-term investments
in people or technology.

The last missing critical component, which also is the easiest to fix, is using the right technology.
Homegrown tools arenʼt conducive to scaling and are difficult to maintain over time. The
company may realize short-term results, but they cannot sustain those results and often
abandon the process.

Characteristics of Optimal, Profitable Plants

Despite the fact that some organizations have failed to achieve scalable, sustainable results,
many high-mix manufacturers are succeeding using Lean methodologies to support increased
efficiency and sustained profitability. Successful manufacturers share three characteristics:

1. Employee involvement and a culture that promotes continuous improvement

2. A focus on customer needs and value
3. Technology to support the Lean initiative

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 Characteristic #1: Employee involvement and a culture that promotes continuous
improvement.
Itʼs never just about the technology. Itʼs about the people. Modern equipment or software is
never sufficient. Itʼs the people who make good decisions and who identify improvements to
operations and the supply chain. As Andrew Carnegie famously proclaimed, “Take away my
people and leave the factories, and soon there will be grass growing on the factory floors, but
take away my factories and leave my people, and soon we will have bigger and better
factories.” 10

Bristol Myers Squibb provides an example of best practices for fostering a culture of continuous
improvement new plant manager, who was determined to save his factory from being shutdown,
led a transformation that resulted in saving not only the plant but also achieving industry-wide
recognition for company performance. The plant manager empowered his people to design
Lean processes, leveraging outside consulting expertise and software tools to implement
demand-driven pull replenishment. The organization utilized these resources to improve the
velocity of value and inventory and constantly looked for techniques and technology that would
help them thrive and grow.11

Characteristic #2: A focus on customer needs. This characteristic shifts the focus from
internal metrics to customer needs and the value that the plant provides in order to eliminate
waste, or non-value-added activity. The objective is to get value flowing to the customer as
quickly and reliably as possible.

Many manufacturers still maintain a forecast-driven push approach using sophisticated

forecasting systems that predict, often with dismal accuracy, what customer will buy.
Unfortunately, these push methods tend to isolate factories and the supply chain from true
customer demand signals, leading plants to produce too much of what customers donʼt want,
and not enough of what customers demand today. That is why leading manufacturing are
transitioning away from forecast-driven push towards demand-driven pull – it focuses
manufacturing and the entire supply chain on replenishing customersʼ immediate needs, putting
the customer in the driverʼs seat instead of an inaccurate forecast.

For example, The Coca-Cola Company recently embraced demand-driven pull replenishment.
They have seen a dramatic increase in demand variability and forecast error, caused primarily
by an explosion in the number of brands, flavors, and sizes they must bottle and distribute.
Working with outside consulting expertise, they designed demand-driven pull processes that
work in the face of high demand variability and rapid new product introductions, and enable
them to meet changing customer tastes much more responsively than their older, forecast-
driven methods

10
Blache,
Klaus
M.,
“Success
Factors
for
Implemen&ng
Change:
A
Manufacturing
Viewpoint,”
June,
1988

11
Bristol‐Myers
Squibb:
Empowerment
and
Metrics
Turn
Plants
Around.
PharmaceuIcal
Manufacturing

Magazine,
2005.
h=p://www.pharmamanufacturing.com/ar&cles/2005/231.html

Copyright 2011 7
 Characteristic #3: Leveraging technology to support the previous two characteristics.
Software is a significant part of achieving sustainable, optimal manufacturing operations.
Employees must be able to take the data collected by the software systems and make better
decisions to support the customer. Management in turn, must be able to translate the data into
business intelligence.

CP Kelco, a specialty chemical manufacturer, illustrates how software can assist in scaling
demand-driven pull from a single pilot project across a global supply chain. Initially, the
company focused their implementation on a single plant in Denmark, utilizing Pull Inventory
Replenishment software to turn data from the ERP system into actionable information enabling
demand-driven pull. After this initial plant saw dramatic improvements, they leveraged the same
software to scale these best practices across their global manufacturing network, including
multiple plants in Europe, Asia, and the Americas. This software has since allowed CP Kelco to
sustain and expand the benefits for three years and counting. 


Conclusion
Despite the competitive pressures of a global economic landscape, manufacturing executives
can employ the right mix of people, processes, and technology to sustain short-term and long-
term profitability.

At Invistics, we have the expertise and technology solutions that high-mix manufacturers need.
We provide consulting services and supporting on-demand software solutions to help
companies achieve the right inventory levels through advanced analytics and actionable
insights.

Where are you in the Lean journey?

“We have upper management support, but havenʼt adopted Lean yet.”
If this statement applies to you, resources are available to help you get to the next step.
At Invistics, we offer lean coaching and consulting services and our highly effective Pull
Design Workshop. The workshop teaches you how to build organizational consensus,
and design a pilot project to demonstrate success with an initial pull implementation. Call
us today at 1-800-601-3456 or e-mail us here to find out more.
“We are already implementing Lean techniques . . . but need help scaling or sustaining
our initial results.”
If this sounds like your organization, our MachSix software will enable you to scale your
initial success to additional products or sites, and leverage ERP data to implement
sustainable customer-focused pull techniques. For a demo of how MachSix can help
your company, call us today at 1-800-601-3456 or e-mail us here.

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