Small Manufacturers Are Not Little Versions of Major Manufacturers, Part 1

By MICHAEL COLLINS, Author, Saving American Manufacturing

Have you ever wondered why manufacturing process improvement programs are introduced with great fanfare, but eventually fade away? A good example is Six Sigma, which is the answer to process variation. It was originally developed by Motorola and then General Electric (GE), and Honeywell adopted it for all of its divisions. Now, GE and Honeywell have backed away from Six Sigma, as have hundreds of other manufacturers.

When manufacturers back away from one of these systems or abandon it because they don’t achieve results, consultants usually say the problem is that:

1. The company simply couldn’t change their culture or decision-making to achieve goals.
2. The company failed to implement and use the whole program.
3. The implementation was turned over to a specialist team who did not get the job done, etc.
4. I think there may be other explanations as to why many of these process improvement programs fail.
5. Management perceives that the cost of implementation exceeds the expectant results.
6. Tools and programs are viewed as too complex and requiring extraordinary amounts of indirect labor hours.
7. The manufacturer is told they must swallow the whole banana bunch (continuous improvement program) to achieve results rather then get incremental results.
8. Smaller manufacturers are told they can use the same program used by Toyota or Caterpillar, no matter what shape their systems or resources are in.

To better understand why many manufacturers back away from these programs, you must first understand that manufacturing companies in the U.S. are not a homogeneous group. From more than 30 years of working with manufacturing companies of all sizes, I suggest that there are at least four distinctly different types, and there are logarithmic differences between these types in terms of resources, knowledge, experience, staff and the wherewithal to deal with change.

The Collins Classification of Manufacturers

TYPE 1	TYPE 2	TYPE 3	TYPE 4
MICRO	FAMILY OWNED	PROFESSIONALLY MANAGED	GIANT PUBLIC
1-19 EMPLOYEES	20-99 EMPLOYEES	100-1,000 EMPLOYEES	1,000+ EMPLOYEES

A Type 1 micro-manufacturer might be just a few people managing a small shop with little operating capital and a day-to-day fear of generating enough cash flow to keep the doors open. About 50 percent of these companies do not last beyond five years.

A typical Type 2 manufacturer is a family-owned business with less than 100 employees, a few known customers and decent cash flow. However, Type 2s are generally very good technically, but very weak in terms of the accuracy and sophistication of their systems. For instance, they generally mix up fixed and variable costs, which means they can’t compute break-even sales or establish a contribution margin. In addition, few of them have up-to-date cost accounting systems that show accurate costs and margins, and I have found that very few compare their quoted costs to actual costs. This makes their ability to compete in the new marketplace very suspect and dangerous when they are pricing a large-volume order.

Type 3 manufacturers are midsize companies from 100 to 1,000 employees, are usually managed by a professional staff and have well-developed systems.

I also need to mention the Type 4 publicly held manufacturers who have the power to control entire industries and supply chains. They are the companies that generally pioneer all new processes and continuous improvement systems, such as Lean manufacturing from Toyota and Six Sigma from Motorola.

These four types of manufacturers are so different in their knowledge and resources, that one solution seldom fits all four. Hence, suggested solutions and strategies need to be tailored to the type of small and medium manufacturer (SMM).

The following chart on the total number of manufacturing establishments clearly shows that 92 percent of all manufacturing companies are Type 1 and 2 companies that have less than 100 employees. The problem is that most of the process improvement systems were originally designed for the 861 Type 4 companies, and are pushed down to Type 1, 2 and 3 manufacturers.

To explain the problems of process complexity, I would like to suggest that small manufacturers are not small versions of large manufacturers. One of the most popular approaches to helping SMMs is the assumption that the same theoretical concepts or solutions pioneered by giant manufacturers also work for SMMs.

Please tune into tomorrow’s Chem.Insider Daily for part two of this two-part series. What’s your take? Please feel free to comment below! For more information, please visit www.mpcmgt.com.