The focused factory
New approach to managing manufacturing sees our productivity crisis as the problem of 'how to compete'
The conventional factory attempts to do too many conflicting production tasks within one inconsistent set of manufacturing policies. The chief result is that the plant is likely to be non-competitive because its policies are not focused on the one key manufacturing task essential to successfully competing in its industry. In this article, the author discusses the concept of focused manufacturing, which offers the opportunity both to stop compromising each element of the production system and to build on competitive strength.
Mr. Skinner is the James E. Robison Professor of Business Administration at the Harvard Business School. His research and teaching have centered on the problems and opportunities of U.S. manufacturing companies, particularly in regard to the relationship between production operations and total corporate results. He is a five-time HIM author, including "The Anachronistic Factory" (January-February 1971).
The threat posed by foreign competition, the problem of industries suffering from "blue-collar blues," and the increasing complexity and frustration of life in the factory have forced public attention back to the industrial sector of the economy. Many years of taking our industrial health and leadership for granted abruptly ended in the 197os when our declining position in world markets weakened the dollar and became a national issue.
In the popular press and at the policy level in government, the issue has been seen as a "productivity crisis." The National Commission on Productivity was established in 1971. The concern with productivity has appealed to many managers who have firsthand experience with our problems of high costs and low efficiency.
So pessimism now pervades the outlook of many managers and analysts of the U.S. manufacturing scene. The recurring theme of this gloomy view is that (a) U.S. labor is the most expensive in the world, (b) its productivity has been growing at a slower rate than that of most of its competitors, and therefore (c) our industries sicken one by one as imports mushroom and unemployment becomes chronic in our industrial population centers.
In this article, I shall offer a more optimistic view of the productivity dilemma, suggesting that we need not feel powerless in competing against cheaper foreign labor. Rather, we have the opportunity to effect basic changes in the management of manufacturing, which could shift the competitive balance in our favor in many industries. What are these basic changes? I can identify four:
Aurtio.t's now: This article is an analysis based on my cases written in the electronics, plastics, textile, steel, and industrial equipment industries, supplemented by recent protect research in the furniture industry. Financial support far this work provided by the Harvard Business School Division of Research and course development funds is gratefully acknowledged.
1. Seeing the problem not as "How can we increase productivity?" but as "How can we compete?"
2. Seeing the problem as encompassing the efficiency of the entire manufacturing organization, not only the efficiency of the direct labor and the work force. (In most plants, direct labor and the work force represent only a small percentage of total costs.)
3. Learning to focus each plant on a limited, concise, manageable set of products, technologies, volumes, and markets.
4. Learning to structure basic manufacturing policies and supporting services so that they focus on one explicit manufacturing task instead of on many inconsistent, conflicting, implicit tasks.
A factory that focuses on a narrow product mix for a particular market niche will outperform the conventional plant, which attempts a broader mission. Because its equipment, supporting systems, and procedures can concentrate on a limited task for one set of customers, its costs and especially its overhead are likely to be lower than those of the conventional plant. But, more important, such a plant can become a competitive weapon because its entire apparatus is focused to accomplish the particular manufacturing task demanded by the company's overall strategy and marketing objective.
In spite of their advantages, my research indicates that focused manufacturing plants are surprisingly rare. Instead, the conventional factory produces many products for numerous customers in a variety of markets, thereby demanding the performance of a multiplicity of manufacturing tasks all at once from one set of assets and people. Its rationale is "economy of scale" and lower capital investment.
However, the result more often than not is a hodgepodge of compromises, a high overhead, and a manufacturing organization that is constantly in hot water with top management, marketing management, the controller, and customers.
A simple but telling example of a failure to focus is uncovered in this case study of a manufacturer, the American Printed Circuit Company (APC):
APC was a small company which had been growing rapidly and successfully. Its printed circuits were custom-built in lots of 1 to 100 for about 20 principal customers and were used for engineering tests and development work. APC's process consisted of about is operations using simple equipment, such as hand-dipping tanks, drill presses, and manual touch-ups. There was considerable variation in the sequence and processes for different products. Delivery was a major element for success, and price was not a key factor.
APC's president accepted an order from a large computer company to manufacture 20,000 printed circuit boards—a new product for the company—at a price equivalent to about one third of its average mix of products. APC made the decision to produce these circuit boards in order to build volume, broaden the company's range of markets, and diversify the line. The new product was produced in the existing plant.
The result was disastrous. The old products were no longer delivered on time. The costs of the new printed circuit boards were substantially in excess of the bid price. The quality on all items suffered as the organization frenetically attempted to meet deliveries. Old customers grew bitter over missed deliveries, and the new customer returned one third of the merchandise for below-spec quality. Such heavy losses ensued that the APC Company had to recapitalize. Subsequently, the ownership of the
company changed hands.
The purpose of this article is to set forth the advantages of focused manufacturing. I shall begin with the basic concepts of the focused factory, then follow with an analysis of the productivity phenomenon, which tends to prevent the adoption of the focused plant concept. Finally, I shall offer some specific steps for managing manufacturing to accomplish and take advantage of focus.
Basic concepts
From my study of approximately 50 plants in six industries, I can pinpoint three basic concepts underlying focused manufacturing. Consider:
1
There are many ways to compete besides by producing at low cost. This statement may be self-evident to the reader (particularly, to one in an industry which has been badly hit by low-priced foreign imports and has been attempting to compete with better products, quality, or customer service and delivery). Nevertheless, it still needs saying for two reasons.
One is simply the persistent attitude that ways of competing other than on the basis of price are second best. The other is that a company which starts out with higher manufacturing costs than its competitors is in trouble regardless of whatever else it does.
While these assumptions may be true of industries with mature products and technologies, they are not at all true of products in earlier stages of their life cycles. In fact, in many U.S. industries, companies are being forced to shift to products in which technological innovation in the form of advanced features is a more critical element of competitive ad-
vantage than cost.
2
A factory cannot perform well on every yardstick. There are a number of common standards for measuring manufacturing performance. Among these arc short delivery cycles, superior product quality and reliability, dependable delivery promises, ability to produce new products quickly, flexibility in adjusting to volume changes, low investment and hence higher return on investment, and low costs.
These measures of manufacturing performance necessitate trade-offs-certain tasks must be compromised to meet others. They cannot all be accomplished equally well because of the inevitable limitations of equipment and process technology. Such trade-offs as costs versus quality or short delivery cycles versus low inventory investment are fairly obvious. Other trade-offs, while less obvious, are equally real. They involve implicit choices in establishing manufacturing policies.
Within the factory, managers can make the manufacturing function a competitive weapon by outstanding accomplishment of one or more of the measures of manufacturing performance. But managers need to know: "What must we be especially good at Cost, quality, lead times, reliability, changing schedules, new-product introduction, or low investment?"
Focused manufacturing must be derived from an explicitly defined corporate strategy which has its roots in a corporate marketing plan. Therefore, the choice of focus cannot be made independently by production people. Instead, it has to be a result of a comprehensive analysis of the company's resources, strengths and weaknesses, position in the industry, assessment of competitors' moves, and forecast of future customer motives and behavior.
Conversely, the choice of focus cannot be made without considering the existing factory, because a given set of facilities, systems, and people skills can do only certain things well within a given time period.
3
Simplicity and repetition breed competence. Focused manufacturing is b