SURVEY - MASTERING MANAGEMENT: Look to the Process for a Better Product

SURVEY - MASTERING MANAGEMENT: Look to the process for a better product

Production techniques have revolutionised product manufacturing. Roy Westbrook looks at recent progress and what's to come from automation and robotics Financial Times; Oct 16, 2000 By ROY WESTBROOK

Production operations management is the systematic creation and delivery of products to customers. Most things you buy, from the clothes you are wearing to the newspaper you are reading, started out as some kind of raw material, which has been processed, finished, packaged and delivered. It is the job of production operations to deliver the products every day, on time, at the right cost and quality.

This requires a systematic process to transform the input resources of materials, information, staff and equipment into outputs of goods - thus the production operation typically accounts for 80 per cent of business costs. If operations are too costly compared with rivals, the business eventually fails. If quality is poor or delivery times too long, customers will go elsewhere. Hence the operation, the value-adding part of a business, is the heartbeat of a corporation.

Types of process

In production operations there are four main types of process, characterised by the range or variety of products made and the volume required for each production or customer order. For a company making a wide range of unique products the appropriate process will be jobbing. A jobbing operation designs and makes items to customer order, in very low volumes and one or a few staff do it all - examples would be bespoke furniture or handmade shoes. The variety of such operations, which never make quite the same thing twice, means that repetitive mass production cannot be used and skill levels are high. Hence costs and prices are high too.

As volumes increase and more items are repeated, batch manufacturing becomes appropriate. Here there is still the flexible equipment used in jobbing, but machines produce longer runs of items and then are reset for the next product. This is the most common type of operation, covering such industries as printing and clothing. As volumes increase further and the range of items made narrows, a company may use a line operation, with sequenced workstations repeating short-cycle tasks and producing quite complex products (for example, consumer electronics) comparatively cheaply. In Japan, production lines are ubiquitous - Yamaha even makes grand pianos on a line operation. When volumes are very large, a line may be automated, as with cars. Finally a commodity product produced in vast quantities requires a continuous flow process, such as a paper mill or oil refinery. These processes need large capital investment but little labour, so their scale, level of automation and ability to run continuously lead to very low unit costs - essential for commodities. In practice companies develop processes that mix the virtues of different types.

Toshiba's Ome plant makes laptops and other computing equipment on a manual assembly line. But the line can make as few as 20 of the same item before changing to another product. This is possible because the line is linked by computer to the planning and engineering functions. At each workstation on the line a screen displays a drawing of and instructions for the model being worked on. As the model changes, so does the screen, allowing a line to be used for small batches and thus greater variety. Materials flow

Although only one type of operation is called continuous flow, in practice most types, even those employing several discrete stages, aspire to continuous flow. Moving materials swiftly through processing reduces cost - fewer handling and storage charges, lower inventory, lower work-in- progress levels reducing control problems and shorter lead times. This is the principal lesson from the Japanese "just-in-time" (JIT) method of production, perhaps the greatest innovation in manufacturing methods since the moving assembly line.

The JIT approach was pioneered in the 1970s at the Toyota motor company, which is still its best exponent. (In Japan, JIT is often called "TPS", for Toyota production system.) The principle of just-in-time is implied by its name; the satisfying of demand as it arises, so there is neither the waste of having finished goods waiting in store for an order which may never come, nor the unresponsiveness of making a customer wait. Elimination of waste and responsiveness are pillars of JIT. When this idea is applied through the production chain and beyond to suppliers, we approach continuous flow, each process demanding materials from its supplier and receiving them at once. Materials are pulled through the supply chain ultimately by customer request - hence the term "pull" systems. The idea is not to hold more than the minimum inventory and to make just what is needed when it is asked for and not before.

For Toyota, this has meant small trucks delivering similar parts in small batches eight times per shift - bringing just enough for the next hour's production and delivering it straight to the assembly line, not via goods inwards inspection. Another Japanese carmaker, Nissan, illustrates the process of synchronised manufacturing. As each car enters production at its UK Washington plant, a coding tag triggers a message to Sommer Albert, a carpetmaker 3km away, ordering one of 120 variations of carpet and interior trim for that vehicle. At Sommer the correct material is selected, trimmed and put on a truck in the same sequence as the cars on the line. The delivery is made straight to the line.

This highly responsive, low-stock system reversed the Western notion of protecting production from disruption in supplies by holding "buffer" stock. The Japanese notion is to eliminate buffers and solve the problems being buffered against - unreliable suppliers, machine breakdowns, labour inefficiencies, defective material and so on. The result is a dramatic fall in costs, since the removal of such problems and of the inventory that masked them refocuses the operation entirely on adding value. This has been dubbed "lean production".

Yet for the true world-class manufacturer the journey never ends - there are always costs to be squeezed out or improvements to be made. In Japan this is attributed to the notion of "kaizen" or continuous improvement. Only last month, Hiroshi Okuda, chairman of Toyota, announced a 30 per cent cost reduction in the Yaris model and plans for similar improvement in other products. Part of these savings will come from the on-line purchasing systems which most automotive companies are setting up, but much will still depend on continuous improvement of the JIT system.

A key technique associated with JIT is set-up time reduction. Here again a tenet of Western manufacturing was overturned - the idea that because several hours were lost resetting equipment to make a different part, the cost of that lost time needed to be spread over many subsequent units of production. This meant long production runs of the same item, many more than were needed immediately. These remained in stock, sometimes becoming obsolescent. For Toyota the key lay in reducing machine changeover time to a few minutes, so the economics of long runs no longer applied. What was a parameter within which manufacturers worked became a problem to be solved. Turning parameters (something one has to live with) into problems (to be solved) is the main reason why JIT has been revolutionary.

Since the 1980s no company in large-scale repetitive manufacturing has been untouched by these ideas and operational competitiveness has depended on the degree to which they have adopted JIT and lean production. At cosmetics company L'Oreal for example, one improvement project reduced machine changeover time on the hair-colourant line from two hours to eight minutes. This in turn permitted a reduction in batch size from 30,000 to 2,000. The economic production of such small batches gives a company the flexibility to respond to market need just-in-time.

Mass customisation

The next phase of manufacturing development seems likely to be the spread of mass customisation - the production of customised items but at close to mass market availability and pricing. Here the classic case is National Bicycle in Japan, which has developed a system to make custom-built bicycles for about 15 per cent more than the price of a top-of-the-range mass- produced machine. The customer is measured in the shop on a special frame and chooses style, colour, brakes, tyres, pedals and so on, right down to the script for his or her name to be painted on the finished bike (11m potential variations all told).

These details are faxed through to the plant and entered into the host computer which generates bar code instructions for the tube cutting machine, painting robots and other processes. Each unique bicycle is delivered two weeks after order. (In fact, this is a marketing ploy: the company can build it in a week but claims "it's such a special product we feel it's right to wait a fortnight"). Levi Strauss and other companies in the US are doing the same with jeans, shoes, T-shirts and golf clubs. The attraction for the manufacturer is the Toyota principle; you sell the car, then you build it, so avoiding the risk of inventory exposure to obsolescence or falling sales. In a world of increasingly diverse markets and ever smaller and discriminating market segments within them, the appeal is clear. With customers searching for products that exactly meet their tastes, pressure will grow for operations to become more agile to satisfy those needs at an acceptable cost.

Quality revolution

Such operations depend on consistent component quality. Once manufacturers have removed buffer stocks, defective supplies will stop production. Similarly, in a world of very small batches or even one-piece flow, the next item has to be perfect if production is to continue. Thus JIT and lean production have been accompanied by a revolution in quality management. Once again the location was Japan, but the ideas were American.

After the second world war, US experts in quality control, including Joseph Juran and W. Edwards Deming, taught the Japanese statistical quality control and other techniques for eliminating variations which cause problems. So effectively were these applied that Japanese products rapidly reversed their reputation for poor quality and gained market share from western manufacturers in market after market. Soon many companies were going to Japan to relearn what had seemingly been forgotten.

What they found was not just a set of techniques but a whole system of quality management - even a philosophy - which has been labelled Total Quality Management (TQM). The elements vary, but most accounts will contain the items in the box above. Not every programme was an unqualified success, however, and by the mid-1990s TQM had even been discredited in some quarters. It was too often regarded as a "quick fix" by companies, or seen as a smorgasbord from which to select dishes, rather than as tough medicine to be swallowed whole.

Some companies owed their success or survival to quality initiatives. Ford in the 1980s made a turnaround by following the nostrums of Deming, according to chief executive Don Peterson. Motorola became famous for its "Six Sigma quality" campaign, which implied a defect rate of only 3.4 defective parts per million. This became a slogan for others, such as General Electric's Jack Welch, who set a corporate goal of "becoming, by the year 2000, a Six Sigma quality company, which means a company that produces virtually defect-free products, services and transactions".

If quality initiatives as change programmes have disappeared from the management agenda, this is surely because they are now seen as essential. Also, the role once played by proselytisers such as Deming has been taken over by awards, institutions and standards, such as the Malcolm Baldrige award in the US, ISO 9000 and the European Foundation for Quality Management.

Technology

As the examples of National Bicycle and Toshiba showed, technology can transform manufacturing. The key factor is linking information technology to processing technology, which began with numerical control (NC) machines in the 1950s and led to flexible manufacturing systems (FMS) in the 1980s. NC machines received instructions from cards or punched tape and later became computer controlled (CNC) machines. FMS links machines together, usually with automatic tool change and workpiece transfer. As well as the obvious benefit, to the company at least, of lowering costs by replacing labour, such systems offer stricter conformance to component specifications, potentially enhancing quality. They can also be linked to the design function; computer-aided design outputs can be converted into instructions for computer-aided manufacture, widely known as CAD/CAM. The internet has allowed these links to ignore geography - drawings and instructions can be sent anywhere to be turned into products, creating a virtual factory.

The use of robots to perform human tasks in manufacturing is another example of linking process and information technology. Robots have become almost universal in volume car plants, where they are used especially for such difficult or dirty tasks as welding body parts and spray painting. However, their use in other sectors - and in different countries - varies widely. In 1998 the UK had about 10,000 robots in its factories, 19 for every 10,000 persons employed (a measure known as robot density). The US had 77,000 (density 42) and Japan had 413,000 (density 277). At Fanuc's robot-making plant on the slopes of Mount Etna one can see robots building robots.

Both cost and quality benefits are offered by robotics and the latter is critical in electronics. Certain areas of a semiconductor plant need to be 1,000 times cleaner than a hospital operating theatre, so some tasks are carried out by robots in a vacuum. In disc drive assembly, the work is easier for robots than people. Matsushita Kotobuki Electronics (MKE) make Quantum's disc drives at an automated facility where 400 people and 150 robots produce 50,000 units a day. Quantum's main competitor is Seagate, which makes a similar number in Singapore and Taiwan, with few robots and 25,000 people.

As the last example shows, automation remains a choice rather than an imperative. But this will change as the price of equipment falls (and wages rise). The factory of the future is already with us - all the elements are at a late stage of development, at least in showpiece plants. The last phase is to bring it all together, making high quality, attractively priced, customised goods in highly automated lean production units. That is 21st century manufacturing

The elements of TQM

 Commitment of top management to a change programme, which they lead personally.  Involvement of everyone in the company, not only production personnel or quality professionals.  Formation of teams to work, usually without managerial direction, on quality improvement and cost reduction.  Collection and use of data to establish true defect rates and causes, using standard techniques.  Development of solutions to problems using a rigorous procedure. In Japan and elsewhere this will usually be Deming's "plan-do-check-act" or PDCA cycle.  A focus on the "cost of quality" model, whereby increased resources devoted to prevention reduce appraisal and failure costs, so that quality increases but overall costs fall.  Education and training in quality tools and techniques.  Organisational culture change, placing quality at the centre of operations rather than as an adjunct to them.

Roy Westbrook is a fellow of St Hugh's College and lecturer in management studies at the Said School of Business, Oxford University.