Manufacturers Face ‘Make Or Break’ Moment

By Amanda Earing, News Editor, Manufacturing.net Staff Conrad Winkler, co-author of ‘Make or Break: How Manufacturers Can Leap from Decline to Revitalization’ talks with Manufacturing.net about today’s epidemic of companies on the verge of ‘breaking’ due to global competition and lack of interest in their manufacturing operations.

“Make or Break: How Manufacturers Can Leap from Decline to Revitalization” shares real-world studies of manufacturers that are ‘making it’ in today’s global marketplace. Co-authors Kaj Grichnik and Conrad Winkler, vice presidents at global consulting firm Booz Allen Hamilton and manufacturing transformation specialists, explain in their book the challenges facing manufacturers and the steps they need to take to regain control of their operations in order to create growth and profit.

Conrad Winkler talked with Manufacturing.net about today’s epidemic of manufacturers on the verge of ‘breaking’ due to global competition and lack of interest in their manufacturing operations.

Mnet: What motivated you to write this book?

Winkler: We’ve written a lot of articles on the decline of manufacturing and over the last couple of decades we’ve seen businesses lack awareness of their manufacturing operations -- resulting in a decline that we feel is really threatening.

On the other hand we’ve seen a handful of companies that actually treat manufacturing as an incredibly important part of their competitive advantage and they have reaped amazing rewards from it.

With all the sources available for manufacturing now, it really is a “make or break” moment. Now is the chance for companies to really step up and treat manufacturing like an important part of their business, to invest in technology, begin a lean program and think about how to beat their competition using their manufacturing capabilities.

Mnet: Why do some companies view manufacturing operations as less important?

Winkler: We researched this for a long time, surveyed COOs and visited manufacturers and found that manufacturing has become viewed as a cost center, or a place to look for cost reductions. Many don’t consider it a place for competitive advantage and innovation.

Some companies have also lost their manufacturing sophistication and when we talk about global manufacturing, having sophisticated process technology is part of having a competitive advantage.

But it’s not happening everywhere, which is why we cite examples in the book of successful companies like Toyota, Procter & Gamble and Masterbrand cabinets.

While some may think of Procter & Gamble as a totally marketing-focused company, they actually concentrate a huge portion of their competitive advantage on making sure that every product is a low cost producer.

Mnet: What makes the companies you mention so successful?

Winkler: In Proctor & Gamble’s case they centralized their manufacturing and decided it would be a competitive advantage and invested appropriately.

When they make a process technology choice, they buy the different pieces of equipment from different suppliers so only Proctor & Gamble can manage the entire process. They make sure that it’s done in such a way that competitors won’t be able to copy their process. This is important because it’s easy to copy a product, but to copy a process, you’d have to go into a plant or use the same equipment vendor, but when no equipment vendor is able to see the entire process it makes it difficult to copy.

They also use their manufacturing to compete against outside producers. If they find another product that costs less, they’ll try to figure out why. In general their expectations are that their plant has to be the lowest cost producer and they are constantly in the marketplace monitoring their competition to ensure they remain competitive.

Mnet: Who should read your book?

Winkler: It’s directed to the heads of manufacturing, the CEO, the CFO, and people involved in the company’s manufacturing strategies.

This book helps manufacturers think through “How do I use manufacturing to win in the marketplace?” “What am I going to do with my manufacturing capability to make it a competitive advantage?” and “Have I done something in the past to lose competitive advantage -- and now what do I do to get it back?”

Today your manufacturing may be viewed as a cost center, but tomorrow you will want it to be a competitive advantage. That’s what our book tries to address -- how companies can shift manufacturing from a liability to a competitive advantage.

There are 8 different sources that we describe in the book that can ‘break’ manufacturing and this helps manufacturers address how to deal with those sources appropriately.

Mnet: What are some of the particular challenges that manufacturers face?

One of the sources that is really putting pressure on companies that wasn’t before is material costs. Raw materials at one time were so cheap that manufacturers could afford the wasted scrap. But increases in material costs have put more pressure on reproducing items or creating processes that do not waste materials.

Within that material shortage, one of the biggest issues is oil prices. The rise in oil prices is going to dramatically change the way we think about manufacturing and what it costs to move product around. Manufacturers will be forced to rethink where their products are made.

Labor is an issue everywhere. There is a real demand for talent, and companies that create an environment where employees take pride in their work and feel like an important part of a team, are doing a better job and keeping that talent.

Product variety is another issue. Today’s customers want items that are different from what other consumers have so product variety is important. But from a manufacturing perspective this can be difficult to manage.

Another source is how to meet demand. We’re seeing many companies that become successful very quickly, but they still don’t have the ability to meet the demand. So how are they going to manage their utilization and capacity so they can decide when to meet demand and when to just raise the price a bit while still being competitive?

Mnet: What one lesson do you hope readers gain from this book?

At the CEO level, I would hope they can answer the questions “How am I going to make manufacturing competitive?” and “How am I going to beat my competition?” and “What on my agenda is going to make that happen?”

A few levels down, it is much more specific as manufacturing engineers figure out how to make their process technology superior to others.

The CFO should gain insight regarding what to invest in differently than before to bring back manufacturing’s competitive advantage. The CFO should look closely at capital and staff requests for manufacturing.

Mnet: What is global competition’s importance in today’s manufacturing?

Culturally, manufacturing has taken a different degree of importance in different countries.

If you go through manufacturing plants in Japan, they really think manufacturing is at the core of what they do. But when you walk through plants in the U.S. you’ll get a very mixed feel. In about half the cases you’ll find that you’re walking through plants where they haven’t upgraded their process technology or even considered lean manufacturing. In those cases we’d leave a plant and say “Wow, we’re really in trouble.” I think for the U.S. that is a pretty serious issue. On the other hand, walking through plants in China, I find it’s amazing what they can do.

I think there are different challenges to manufacturing in different parts of the world, but the importance it gets and the way its treated really varies greatly.

Mnet: What one biggest factor causes manufacturers to ‘break’?

The main issue is the importance placed in the way manufacturing is viewed by the overall organization. Companies that repeatedly place manufacturing low on its list and consider it a cost center will be at the greatest risk.

You can see this ‘break’ moment has already happened in many of the Tier 1 automotive companies. They robbed themselves of a competitive manufacturing footprint -- they didn’t have innovative process technology and when the industry went down they suddenly all went bankrupt. And if you look around the world and think it is an automotive problem in general, ask yourself -- have Korean manufacturers gone bankrupt, have the Japanese? Europeans? No. It was only U.S. manufacturers.

Unless companies invest in their manufacturing, many other industries could face a similar ‘break’ moment.

Conrad Winkler is a vice president of Booz Allen Hamilton, based in Chicago, and an consultant for manufacturing strategy, manufacturing transformation and supply chain management. Co-author Kaj Grichnik is a vice president of Booz Allen Hamilton and specialist in manufacturing transformations based in Munich. Both have written numerous articles on manufacturing and other operations-related topics.

Booz Allen Hamilton, a global consulting firm, serves clients on six continents in the areas of corporate finance and business analysis, information technology, operations and logistics, organization and change, product and service innovation and more. Visit www.boozallen.com for more information.

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