Adapted from a presentation given by Paul Bittinger at a recent European Manufacturing Strategies summit
Paul Bittinger, Ex-Procter & Gamble Supply Network Operations Transformation Manager, shares insights that he gained over 31 years. This post, adapted from a presentation he gave at the 2012 EMS summit, discusses how organisations should move off a sine curve and onto an S-curve to ensure that performance success is built into the very fibre of the organisation.
Move off the sine curve and onto the S-curve
Paul knows from experience that it is indeed possible to make plants in high-cost locations more competitive by using an integrative improvement system combined with a move from plants performing along an S-curve, and not a sine curve, which is often the case.
The sine curve is indicative of what often happens with performance improvement initiatives, and is the reason why they sometimes get such a bad rap: a good plant manager joins the company and so the performance improves. He or she leaves two years later and is replaced by a mediocre plant manager and performance drops, and so it goes, resulting in a yo-yo effect.
The S-curve, on the other hand, is indicative of an organisation that is not reliant upon the plant manager for performance success. One of the tenets of a good integrative improvement system must be to embed the continuous improvement capability into the fibre of the organisation so that improvement happens not in spite of the plant manager, but also not because of the plant manager. Improvements will then go on progressing upwards regardless.
When an organisation, plant or site moves successfully upwards on this S-curve, the site matures in its integrative improvement efforts and abilities. And the more mature an organisation is, the more efficient they become.
Successful global sourcing from high-cost plants
“About five years ago I was the supply network leader for the Global Healthcare Sector”, said Paul. “In that role, I was responsible for all supply chains in the health sector worldwide, and as such one of my responsibilities was global sourcing.” Global sourcing is usually concerned with finding the most efficient and preferably low-cost way to supply products and services. It seeks to find lowest labour costs, lowest cost distribution channels, and lowest raw material costs amongst others. So why then was Paul happy to source from plants in high-cost locations? And how did these plants in high-cost locations even manage to succeed in the face of cheaper alternatives out in the east?
“When sourcing or assessing plants to see whether we should consider moving them, I’d look at structural cost: wage rates, utility rates, distribution channels, etc. Generally, as a supply network leader, you don’t take plant performance into account, because as mentioned above, most plants are on a sine curve, so whether they’re in a peak or a trough, it generally doesn’t last! On a sine curve, performance success is in a continual state of flux. Looking at these three metrics, two countries would always be on the top of my list of sites that we should consider relocating because of high costs: Germany and Japan.”
Plants in both these countries had the highest structural costs of any of the plants around the world. Both countries have high wage rates, high utility rates, and start-up costs were high with ongoing need for investment into the plant. Yet, Paul never opted to move these plants, and continued to source from them. Why?
“Those plants had the greatest organisational maturity of all the worldwide plants in the healthcare sector. For example, at the German site we had gotten their organisational capability maturity so high that about a quarter of the plant was a lights-out operation, and the rest of the plant had the highest productivity of any plant in the world. Of course there were lower-cost sites elsewhere, such as in Indonesia, but the German plant had the most productive and lowest cost manual customisation operation that was more standardised to standard work than any of our other operations in the developed world.
These efficiencies and plant maturity by far offset the higher structural costs, which is why these plants were not moved. Their improvement capability was so mature that they were able to repeat high quality standard work time after time.
For best practice operating strategies to have a sustainable impact, we recommend that it be implemented as part of a process-driven integrative improvement system.
Download The Definitive Guide to Integrative Improvement to find out more about how an integrative improvement approach can deliver sustainable performance improvement results for your business.
|The TRACC framework helps organisations build standardised and integrated good practice and performance capacity across their Plan, Source, Make and Deliver functions. Simultaneously it accelerates their collaboration and alignment capacity to build world class end-to-end value chains, enabling the organisation itself to become the ultimate source of sustainable competitive advantage.