They were the best of plants, and the worst of plants, these two. And, they were part of the same company.
- They were both the same vintage, so the differences couldn't be due to age.
- They both had similar technology, so it couldn't be the technology.
- They both had similar business models, so it didn't seem to be strategy.
- They both had similar organizational structures, so it's probably not that.
- They both were unionized, and indeed both unions were somewhat "militant", and relationships with management could certainly be better, so it's not that either.
- They both had similar energy and raw material costs, so that's not it either.
How could such two such extremes exist in the same company? Why the difference?
At Plant A, the plant manager was a strong leader and made the decision to initiate an improvement program, using a multi-phased approach to improve performance. The process basically involved the following:
Phase 1: Alignment of the leadership and area teams to focus on doing all the basics really well to minimize defects and failures.
Phase 2: Benchmarking to identify the gaps and develop a plan to close the gaps over a 24 month period. The plan included the systems to sustain the improvements.
Phase 3: Implementing the action plan using a coach-team model with the ownership remaining with the team at the plant.
Phase 4: Sustaining the results - developing and implementing procedures, checklists, standards, and a continuous improvement process.
Plant Manager A made it clear that getting better was not an option, it was a requirement. He focused intensely on defect elimination, using cross-functional teams and getting the processes right. Costs were viewed as consequences of the processes. He reasoned that if you get them right, you'll get better results. While there were other initiatives being imposed on the plant, the plant manager acted as a filter relative to their priority. His reasoning was that if they got the basics right in the first place, then the other initiatives would be easier to implement.
Plant B was in a similar situation. Unfortunately, Plant Manager B sent two conflicting messages: 1) Cut costs; 2) Improve practices. But, he placed much more emphasis on the first. These messages were exacerbated by the same multiple initiatives. The plant manager was being driven intensely to cut costs, and he was apparently unable to appropriately filter and prioritize all the initiatives. This in turn diluted the focus of the organization, and its potential for success
For example, one directive was to reduce labor costs by 2% and overall costs by 5% in the coming year. Yet the improvement effort had just begun, and the plant was relatively immature in its practices. Any improvement effort, particularly in an immature plant, will require some investment, not withstanding that it often achieves a "pay as you go" result after 3-6 months. If the short term resources are not available to implement the improvements needed because of cost cutting, the plant can put its future success at risk. (Click here for more information on Meridium's new service offering, the Asset Strategy Value Accelerator, to help you cut costs while still mitigating risk in all areas related to production assets.)
Initially the cost cutting approach seemed to be working, and indeed "kudos" were given to Plant Manager B in the first two years. However, the various practices that should have been established to sustain the performance were not done. As a result in the third year and later, production performance suffered, making the cost per unit dramatically higher. That's the illusion in using a cost cutting strategy in most cases - initially it seems to be working, but is typically not sustainable. Unfortunately, the management team that made the decision to do the cost cutting in the first two to three years is typically no longer there when the results begin to deteriorate, primarily because of a lack of sustainability, and suffer no ill effect from their decisions.
Summary
Two nearly identical plants achieved nearly opposite results. Why? In one scenario, the plant manager focused on defect elimination, getting the processes right, and engaging the workforce. He made it clear that improvement and cost reduction was mandatory. He also made it clear that the focus was getting the processes right, and sustaining them; and he acted as a filter for prioritizing corporate initiatives. In the second scenario, the plant manager focused on cost cutting, and in the first two years saw some improvement, only to see those improvements disappear and the situation become even worse in subsequent years. He did not do a very good job of filtering and prioritizing the initiatives, attempting to be all things to all people. Which approach would you take?
Click here to read about Ron Moore's Meridium Conference 2009 keynote address: Managing Asset Performance: Risk or Reward - Where to Focus During Difficult Times
Click here to download the whitepaper, The Perils of Cost Cutting.
Click here to order "Making Common Sense Common Practice: Models for Manufacturing Excellence" (now in its 3rd edition); and click here to order "Selecting the Right Manufacturing Improvement Tools - What Tool? When?"
Click here to read about Smart Cuts, Meridium's approach to efficient, effective cost-cutting.
Click here to download our webinar Smart Cuts - How to Manage Risk in a Cost Cutting Environment.
