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European high technology manufacturing: Choices on the path to manufacturing excellence
European Management ]ournal Volume 6 No 2 0 European Management journal 1988 ISSN 0263-2373 $3.00
European High Technology
Manufacturing:
Choices on the Path to Manufacturing Excellence Douglas K. Macbeth Lecturer in Management
Studies, Glasgow Business School
The author is concerned to point out that advanced manufacturing technologies have their main impact on ‘manufacturing deliverables’, particularly quality, delivery and cost. It is these deliverables that interest companies in their attempts to compete globally by using high technology strategies. The technologies themselves - computer aided design, computer numerical control, or optimised production technology, for instance, can be categorised into ‘high-tech’ or ‘lo-tech’. But the division is somewhat artificial, and the way forward may be pragmatic.
Manufacturing industry in Europe is having to react to global competition in many of its markets, especially the high technology market. Increasing customer expectations of variety, innovation, quality and reliability are allied to competitive strategies of the major producers which emphasise technological innovation more and more. The pressures placed on the manufacturing function through these changing demands are very real, but how are companies reacting to them?
provide these deliverables, it is then possible to put some order into the various advanced manufacturing technologies (often known by three-letter acronyms operating under the collective acronym of AMT) to increase performance in quality, delivery and cost. The ways in which they contribute can be differentiated into what have been called elsewhere in the literature’ ‘high-tech’ and ‘lo-tech’ approaches. The first of these is very much at the hard-systems end of the technology spectrum, while the second is a more human-scale ‘soft’-systems approach.
It should be recognised first, that although some things change, manufacturing will still be expected to provide what may be called manufacturing deliverables. These are the main outputs from the system, and while it is necessary to recognise the role other part.s of the total system have in supporting the specification and achievement of these outputs, the manufacturing area has failed if it does not achieve the targets set them.
Management has choices to make in the direction it chooses to satisfy customer requirements, but an interesting question is whether the ‘lo-tech’ approach is an end in itself, or merely an intermediate stage along the way.
For convenience, the manufacturing deliverables will be referred to as quality, delivery and cost. As the discussion later in this paper makes clear, there is much subsumed under these three headings.
Quality
Once
the
need
is accepted
for manufacturing
to
Manufacturing
Deliverables
Following Japanese examples, European companies have finally recognised the fundamental requirement to control quality at source and get it right first time. This assumes however, that we have specified a
170
DOUGLAS
MACBETH
Forecasting or order processing
_-
Dclivcry
Procurement
Supply lead time
Order receipt
Order plXCd
Demand <
Figure
1
lead time 3
Supply-demand time balance
requirement for function, performance within an operational range, and reliabihty over an operations life which actually meet existing customer needs. In the case of an innovative product, customers are often not able to express a useful view on such matters and the decisions have to be made by the innovator. However it arises, the specification must be made, for it is in fact the only way in which to tie down the elusive concept of quality, by defining it as ‘conformance to specification’. The specification can be for every supplier-customer relationship along the total supply chain, from raw material to final product customer. Conformance to specification also applies to support activities within other functional areas or general overhead categories of staff.
so each actor in the chain has a responsibility to dehver his output on time, to the correct place, in the correct form of packaging, and in the correct quantity. This can be another specification of quantity where failure must continually be reduced, By recognising interdependence along the chain, the concept of delivery can be used as the heartbeat which moves the material along to satisfy all the customers, both internal and external. Delivery are has other aspects. On time, exact quantities fundamental requirements, and must be delivered consistently and with total reliability, otherwise the disruption in supply ripples right down the whole chain, and creates a tendency to insulate links in it through wasteful buffers of materials.
Quality defined in this wide ranging way therefore creates the foundation on which a truly competitive performance can be built. It is worth noting however, that product quality on its own may not be enough to win orders in the marketplace. Perhaps service quality, price, delivery lead time, innovative design or other non-price factors are the real ways to succeed in particular market sectors. Quality may not be in Hill’s term2 one of the “order-winning criteria”, but is certainly a ‘qualifier’. That is, without quality, customers will not even consider purchase, i.e. it is also order-losing sensitive!
Another aspect of delivery is to recognise the need to accept increased variety. The shorter the time between making a decision to produce, and the despatch of the more a manufacturing the finished product, system can cope effectively with increasing variety in the demand pattern. Flexibility of response is now a major indicator of potential success in many markets.
Delive y Just as there is a supplier-customer relationship along the complete supply chain in terms of quality,
This argument can best be illustrated by considering the balance between supply lead time and demand lead time as shown in Figure 1. Supply lead time is made up of ‘a time to process actual orders (including elements of making specification clear) or of forecasting for a make to stock situation. Procurement of raw materials, components, assemblies and so on, can then be necessary, particu-
MANUFACTURING
larly as companies reduce their levels of vertical integration. Manufacture itself is next. It includes the design phase, which is sometimes extended. Procurement of long lead time items may need to start before detailed design is finished for some products. Delivery to customers completes the cycle. Demand lead time is a measure of the time a customer is prepared to accept between placing an order and final receipt. In a make to stock situation, this time is effectively zero. By comparing the size of the supply lead time (SLT) to the demand lead time (DLT) we can see the magnitude of the problem in any business. As long as SLT is much greater than DLT, there is an element of speculation (which costs money to finance) for those activities incurred prior to final delivery and payment. If SLT were much less than DLT, then stocks of finished goods would never be needed - at least until customer expectations changed and DLT was reduced again! Therefore, we can see two major ways in which continual improvement is needed. First, quality must always be improved, eliminating waste wherever it occurs. Second, and as a sub-set of this, the wastes involved in an extended SLT must also be reduced. This involves the hardware of manufacture, attitudes to batch sizing, information processing and organisa tional approaches. Cosf
The final deliverable has deliberately been left till last in our list. It must be realised that cost is a result of actions taken or avoided. Thus, rather than aiming for cost reductions as an end in itself, we should aim to improve performance on quality and delivery, and by so doing, bring costs into control and then prob?essively reduce them. Of course, it is possible to improve the level of quality and delivery performance perceived by the customer in ways which increase costs, e.g. by inspection and inventory holding, but the challenge is to increase total system effectiveness in a more sustainable way. Adwnced
Manufacturing
Technology
Many of the AMT’s considered by companies address the requirements of these deliverables to a greater or lesser extent and are examined elsewhere in the literature in more detail.3 A number of the hardware approaches aid product quality at source, for example computer aided design (CAD) and computer numerical (CNC), while some provide increased flexibility and reduced batch sizes for example, flexible manufacturing and assembly systems. Also electronic data inter-
DELIVERABLES
171
change can improve supplier performance through increased accuracy and reduced communication times. Some of the ‘softer’ technologies look at ways of organising manufacture and procurement e.g. manufacturing resources planning, optimised production technology (OPT) and just-in-time (JIT). There does seem to be something of a dichotomy however, between what is called here the hi-tech and the lo-tech approach. Hi-Tech Approach This is essentially an engineering frame of reference that sees the challenge as one of designing the total manufacturing system as an integrated whole, organised and controlled by an intercommunicating set of computerised information and control systems. This can be characterised by the triplet: Complexity
- Computerisation
- De-skilling
The assumption here is that the complexity of the system is given and that computerisation is the solution. Such computerisation changes the skill requirements away from dependence on operators’ manual skills, to those needed to monitor systems. At the same time, there is a trend to replace mental skills by automating such activities as process planning and by applications of artificial intelligence or knowledge based systems. The end point of such approaches is seen as computer integrated manufacturing and the ‘lights-out’ factory.
Lo-Tech Approach This was originally a Japanese orientation in opposition to the industrial engineering or Taylorist emphasis of the high-tech approach. The essence is contained the triplet: Simplify - Visible Controls
- People Involvement
This approach argues that complex ‘solutions to complex problems simply breed more complexity and often less success. The solution is then to reduce the required complexity (often by focusing a smaller unit on a particular sub-set of manufacturing tasks) and then put the planning and control on a human, the immediate scale. It is achieved by utilising brain power of all the members of the company - not just the engineers or the managers. This peoplesill-enhancing possibilities involvement provides for many more people, who in turn provide increased flexibility. The concept of visible controls demonstrates this where Schonberger instances a company where the only production data available are on the charts hanging on the factory walls, prepared and updated by the factory personnel themselves.4
172
DOUGLAS
MACBETH
The latter approach is incorporated into the JIT way of working embraced by many large European companies and passed (and occasionally pushed) onto their suppliers. Apart from the benefits obtained inside the factory walls, the JIT approach extends the system boundaries outwards to manage external factories (suppliers or in Japanese terms - partners) and tries also to manage the information provided by customers. In fact, JIT theory suggests that a completely different relationship should evolve between buyers and suppliers; this is the subject of a major research project currently being undertaken at the Glasgow Business School.5,6 The research is indicating the primacy of the manufacturing deliverables. Without total quality from suppliers, JIT must fail. Similarly, without totally reIiable delivery, JIT supply to point of use cannot be considered, while evidence of cost reductions through JIT is widely reported.7 Some interesting questions emerge from these considerations.
possible to internalise other situations.
its lessons
and apply them in
Thus, JIT may be the most appropriate form of defensive strategy for European small batch producers against the onslaught of competition from the Pacific rim countries, but we must remember that one of Japan’s strengths in its strategic approach is changing the rules of the game. This was already evident in 1985 in the results of the collaborative investigations into manufacturing strategy (in Europe organized through INSEAD).’ Here, the top competitive priorities in Europe and the US were quality-related, while in Japan the problems were of increased variety - the Japanese already had better c&ntrol over quality and were now heading towards increased variety and innovation.
References To get suppliers ‘up to speed’ to satisfy their changing requirements, large buyer companies are having to put much effort and expense into training and such aspects as statistical process control, and into supplier evaluation and selection. This inevitably raises the total cost of procurement, or acquisition cost, and imposes an increased overhead burden on the buyer company. The continuing relationship might also suppose increased communication efforts over an extended period, but the question is whether this level of supplier support will continue to be regarded as acceptable. It is possible to speculate that, once all potential suppliers are capable of meeting the new specifications, selection may revert to a simple unit price basis, with reduced contact between the buyer and supplier. This might however, deny other benefits of a close relationship, for example in new collaborative designs or improvement programmes. Nevertheless, there is at least the possibility that the current interest in JIT is but another passing fashion or ‘flavour of the month’. So much of JIT is merely good managerial and engineering practice allied to a healthy respect for human potential, that it is
1. “Manufacturing Information Systems at the Crossroads”, in Boddy et al. (eds). The New Management Challenge: lnformation Systems for lmproves Performance, London, Croom Helm, 1988. 2. Hill, T., Manufacturing Sfrafegy. Basingstoke, Macmillan, 1985. 3. Macbeth, D.K., Strategy and Management of Advanced Manufacturing. Letchworth, Technical Communications, (forthcoming). The 4. Schonberger, R. J., World Class Manufacturing: Lessons ofSimplicity Applied, New York, Free Press, 1986. 5. Managing Suppliers in an AMT Environment. Research Grant number: GIUEY12337, ACME Directorate of SERC. Swindon. 6. Macbeth, D.K., Supplier Management of Support of JIT Activity: A Research Agenda, IJOMP, 7, 4, 53-63 1987. Proceedings 2nd International 7. See for example, Conference on Just in Time Manufacturing. Voss, C. A. (ed.), Bedford, IFS (Publications) Ltd, 1987. Strategies in Europe 8. De Meyer, A., Manufacturing Compared with North America and Japan, Fontainebleau, INSEAD, 198.5.
European High Technology
Manufacturing:
Choices on the Path to Manufacturing Excellence Douglas K. Macbeth Lecturer in Management
Studies, Glasgow Business School
The author is concerned to point out that advanced manufacturing technologies have their main impact on ‘manufacturing deliverables’, particularly quality, delivery and cost. It is these deliverables that interest companies in their attempts to compete globally by using high technology strategies. The technologies themselves - computer aided design, computer numerical control, or optimised production technology, for instance, can be categorised into ‘high-tech’ or ‘lo-tech’. But the division is somewhat artificial, and the way forward may be pragmatic.
Manufacturing industry in Europe is having to react to global competition in many of its markets, especially the high technology market. Increasing customer expectations of variety, innovation, quality and reliability are allied to competitive strategies of the major producers which emphasise technological innovation more and more. The pressures placed on the manufacturing function through these changing demands are very real, but how are companies reacting to them?
provide these deliverables, it is then possible to put some order into the various advanced manufacturing technologies (often known by three-letter acronyms operating under the collective acronym of AMT) to increase performance in quality, delivery and cost. The ways in which they contribute can be differentiated into what have been called elsewhere in the literature’ ‘high-tech’ and ‘lo-tech’ approaches. The first of these is very much at the hard-systems end of the technology spectrum, while the second is a more human-scale ‘soft’-systems approach.
It should be recognised first, that although some things change, manufacturing will still be expected to provide what may be called manufacturing deliverables. These are the main outputs from the system, and while it is necessary to recognise the role other part.s of the total system have in supporting the specification and achievement of these outputs, the manufacturing area has failed if it does not achieve the targets set them.
Management has choices to make in the direction it chooses to satisfy customer requirements, but an interesting question is whether the ‘lo-tech’ approach is an end in itself, or merely an intermediate stage along the way.
For convenience, the manufacturing deliverables will be referred to as quality, delivery and cost. As the discussion later in this paper makes clear, there is much subsumed under these three headings.
Quality
Once
the
need
is accepted
for manufacturing
to
Manufacturing
Deliverables
Following Japanese examples, European companies have finally recognised the fundamental requirement to control quality at source and get it right first time. This assumes however, that we have specified a
170
DOUGLAS
MACBETH
Forecasting or order processing
_-
Dclivcry
Procurement
Supply lead time
Order receipt
Order plXCd
Demand <
Figure
1
lead time 3
Supply-demand time balance
requirement for function, performance within an operational range, and reliabihty over an operations life which actually meet existing customer needs. In the case of an innovative product, customers are often not able to express a useful view on such matters and the decisions have to be made by the innovator. However it arises, the specification must be made, for it is in fact the only way in which to tie down the elusive concept of quality, by defining it as ‘conformance to specification’. The specification can be for every supplier-customer relationship along the total supply chain, from raw material to final product customer. Conformance to specification also applies to support activities within other functional areas or general overhead categories of staff.
so each actor in the chain has a responsibility to dehver his output on time, to the correct place, in the correct form of packaging, and in the correct quantity. This can be another specification of quantity where failure must continually be reduced, By recognising interdependence along the chain, the concept of delivery can be used as the heartbeat which moves the material along to satisfy all the customers, both internal and external. Delivery are has other aspects. On time, exact quantities fundamental requirements, and must be delivered consistently and with total reliability, otherwise the disruption in supply ripples right down the whole chain, and creates a tendency to insulate links in it through wasteful buffers of materials.
Quality defined in this wide ranging way therefore creates the foundation on which a truly competitive performance can be built. It is worth noting however, that product quality on its own may not be enough to win orders in the marketplace. Perhaps service quality, price, delivery lead time, innovative design or other non-price factors are the real ways to succeed in particular market sectors. Quality may not be in Hill’s term2 one of the “order-winning criteria”, but is certainly a ‘qualifier’. That is, without quality, customers will not even consider purchase, i.e. it is also order-losing sensitive!
Another aspect of delivery is to recognise the need to accept increased variety. The shorter the time between making a decision to produce, and the despatch of the more a manufacturing the finished product, system can cope effectively with increasing variety in the demand pattern. Flexibility of response is now a major indicator of potential success in many markets.
Delive y Just as there is a supplier-customer relationship along the complete supply chain in terms of quality,
This argument can best be illustrated by considering the balance between supply lead time and demand lead time as shown in Figure 1. Supply lead time is made up of ‘a time to process actual orders (including elements of making specification clear) or of forecasting for a make to stock situation. Procurement of raw materials, components, assemblies and so on, can then be necessary, particu-
MANUFACTURING
larly as companies reduce their levels of vertical integration. Manufacture itself is next. It includes the design phase, which is sometimes extended. Procurement of long lead time items may need to start before detailed design is finished for some products. Delivery to customers completes the cycle. Demand lead time is a measure of the time a customer is prepared to accept between placing an order and final receipt. In a make to stock situation, this time is effectively zero. By comparing the size of the supply lead time (SLT) to the demand lead time (DLT) we can see the magnitude of the problem in any business. As long as SLT is much greater than DLT, there is an element of speculation (which costs money to finance) for those activities incurred prior to final delivery and payment. If SLT were much less than DLT, then stocks of finished goods would never be needed - at least until customer expectations changed and DLT was reduced again! Therefore, we can see two major ways in which continual improvement is needed. First, quality must always be improved, eliminating waste wherever it occurs. Second, and as a sub-set of this, the wastes involved in an extended SLT must also be reduced. This involves the hardware of manufacture, attitudes to batch sizing, information processing and organisa tional approaches. Cosf
The final deliverable has deliberately been left till last in our list. It must be realised that cost is a result of actions taken or avoided. Thus, rather than aiming for cost reductions as an end in itself, we should aim to improve performance on quality and delivery, and by so doing, bring costs into control and then prob?essively reduce them. Of course, it is possible to improve the level of quality and delivery performance perceived by the customer in ways which increase costs, e.g. by inspection and inventory holding, but the challenge is to increase total system effectiveness in a more sustainable way. Adwnced
Manufacturing
Technology
Many of the AMT’s considered by companies address the requirements of these deliverables to a greater or lesser extent and are examined elsewhere in the literature in more detail.3 A number of the hardware approaches aid product quality at source, for example computer aided design (CAD) and computer numerical (CNC), while some provide increased flexibility and reduced batch sizes for example, flexible manufacturing and assembly systems. Also electronic data inter-
DELIVERABLES
171
change can improve supplier performance through increased accuracy and reduced communication times. Some of the ‘softer’ technologies look at ways of organising manufacture and procurement e.g. manufacturing resources planning, optimised production technology (OPT) and just-in-time (JIT). There does seem to be something of a dichotomy however, between what is called here the hi-tech and the lo-tech approach. Hi-Tech Approach This is essentially an engineering frame of reference that sees the challenge as one of designing the total manufacturing system as an integrated whole, organised and controlled by an intercommunicating set of computerised information and control systems. This can be characterised by the triplet: Complexity
- Computerisation
- De-skilling
The assumption here is that the complexity of the system is given and that computerisation is the solution. Such computerisation changes the skill requirements away from dependence on operators’ manual skills, to those needed to monitor systems. At the same time, there is a trend to replace mental skills by automating such activities as process planning and by applications of artificial intelligence or knowledge based systems. The end point of such approaches is seen as computer integrated manufacturing and the ‘lights-out’ factory.
Lo-Tech Approach This was originally a Japanese orientation in opposition to the industrial engineering or Taylorist emphasis of the high-tech approach. The essence is contained the triplet: Simplify - Visible Controls
- People Involvement
This approach argues that complex ‘solutions to complex problems simply breed more complexity and often less success. The solution is then to reduce the required complexity (often by focusing a smaller unit on a particular sub-set of manufacturing tasks) and then put the planning and control on a human, the immediate scale. It is achieved by utilising brain power of all the members of the company - not just the engineers or the managers. This peoplesill-enhancing possibilities involvement provides for many more people, who in turn provide increased flexibility. The concept of visible controls demonstrates this where Schonberger instances a company where the only production data available are on the charts hanging on the factory walls, prepared and updated by the factory personnel themselves.4
172
DOUGLAS
MACBETH
The latter approach is incorporated into the JIT way of working embraced by many large European companies and passed (and occasionally pushed) onto their suppliers. Apart from the benefits obtained inside the factory walls, the JIT approach extends the system boundaries outwards to manage external factories (suppliers or in Japanese terms - partners) and tries also to manage the information provided by customers. In fact, JIT theory suggests that a completely different relationship should evolve between buyers and suppliers; this is the subject of a major research project currently being undertaken at the Glasgow Business School.5,6 The research is indicating the primacy of the manufacturing deliverables. Without total quality from suppliers, JIT must fail. Similarly, without totally reIiable delivery, JIT supply to point of use cannot be considered, while evidence of cost reductions through JIT is widely reported.7 Some interesting questions emerge from these considerations.
possible to internalise other situations.
its lessons
and apply them in
Thus, JIT may be the most appropriate form of defensive strategy for European small batch producers against the onslaught of competition from the Pacific rim countries, but we must remember that one of Japan’s strengths in its strategic approach is changing the rules of the game. This was already evident in 1985 in the results of the collaborative investigations into manufacturing strategy (in Europe organized through INSEAD).’ Here, the top competitive priorities in Europe and the US were quality-related, while in Japan the problems were of increased variety - the Japanese already had better c&ntrol over quality and were now heading towards increased variety and innovation.
References To get suppliers ‘up to speed’ to satisfy their changing requirements, large buyer companies are having to put much effort and expense into training and such aspects as statistical process control, and into supplier evaluation and selection. This inevitably raises the total cost of procurement, or acquisition cost, and imposes an increased overhead burden on the buyer company. The continuing relationship might also suppose increased communication efforts over an extended period, but the question is whether this level of supplier support will continue to be regarded as acceptable. It is possible to speculate that, once all potential suppliers are capable of meeting the new specifications, selection may revert to a simple unit price basis, with reduced contact between the buyer and supplier. This might however, deny other benefits of a close relationship, for example in new collaborative designs or improvement programmes. Nevertheless, there is at least the possibility that the current interest in JIT is but another passing fashion or ‘flavour of the month’. So much of JIT is merely good managerial and engineering practice allied to a healthy respect for human potential, that it is
1. “Manufacturing Information Systems at the Crossroads”, in Boddy et al. (eds). The New Management Challenge: lnformation Systems for lmproves Performance, London, Croom Helm, 1988. 2. Hill, T., Manufacturing Sfrafegy. Basingstoke, Macmillan, 1985. 3. Macbeth, D.K., Strategy and Management of Advanced Manufacturing. Letchworth, Technical Communications, (forthcoming). The 4. Schonberger, R. J., World Class Manufacturing: Lessons ofSimplicity Applied, New York, Free Press, 1986. 5. Managing Suppliers in an AMT Environment. Research Grant number: GIUEY12337, ACME Directorate of SERC. Swindon. 6. Macbeth, D.K., Supplier Management of Support of JIT Activity: A Research Agenda, IJOMP, 7, 4, 53-63 1987. Proceedings 2nd International 7. See for example, Conference on Just in Time Manufacturing. Voss, C. A. (ed.), Bedford, IFS (Publications) Ltd, 1987. Strategies in Europe 8. De Meyer, A., Manufacturing Compared with North America and Japan, Fontainebleau, INSEAD, 198.5.