Jack Healy
Published: Sunday, November 1, 2009 - 14:22
Recently released labor market, manufacturing, and consumer data indicate an economy steadily emerging from the long recession. One of the most gratifying indications of this change was the Associated Industries of Massachusetts Business Confidence index showing a continued gain of 1.8 points in September for an overall business confidence level of 42.4 (the highest since September 2008).
Despite the changes, confidence levels in manufacturing have not returned to the point where there is a general belief that the current improvement is permanent, at least for manufacturers in New England.
A recent report from the New York Federal Reserve Bank indicated that New York state’s “manufacturing activity has risen unexpectedly to its highest level in five years on surging new orders, shipments, and employment.” Unfortunately, there has been no similar report for New England, which could be something of a blessing as a recent survey taken in May of this year indicates that manufacturers in New England may need to address a number of their operating issues before pressing their reset buttons.
More than 2,500 manufacturers, responding to a Manufacturing Performance Institute Next Generation Manufacturing (NGM) survey, indicated a significant gap for New England manufacturers between good intentions (awareness of the importance of NGM strategies) and their ability to implement these strategies through best practices. In addition, some manufacturers are not looking to the future (i.e., they do not recognize the importance of these strategies) and consequently, do not recognize the growing gap between their current performance and what the market will be requiring in the years ahead. Some of the study’s findings are included below.
What gets measured gets done. However, manufacturers across the country, and especially in New England, don’t measure outputs well. The presence of measurement systems and review processes is a reliable indicator of an organization’s willingness and ability to continuously improve.
Production performance and metrics are some of the easiest measures for a manufacturer to monitor, yet, surprisingly, 19 percent of New England manufacturers have no measurement system or review processes in place. While 34 percent of New England firms have advanced systems or reviews in place, they are significantly behind the national performance. Nationally, 49 percent of the manufacturers—who are at or near world-class status for process improvement—have advanced measurement systems and reviews in place.New England is not going to win any competitive race as a manufacturing region unless this gap is closed.
While the majority of manufacturers view their employees to be assets to their companies, the survey shows that the majority do not utilize all of their assets. While more than one third of New England manufacturers (37%) have a majority of their employees regularly participating in empowered work teams, 37 percent have less than a quarter of their work force participating in such teams. This contrasts to the nationwide manufacturers who have 50 percent of their employees participating in empowered work teams.
Assessing the performance of a company’s supply chain is complex and encompasses myriad metrics (e.g., quality, timeliness, reliability), cost factors (e.g., carrying costs, transportation), and requires constant monitoring. Approximately 12 percent of New England manufacturers describe their supply chains as advanced: real-time communication of demand signals, an entire supply chain flexible to spikes, standard delivery times consistently met, and just-in-time inventories. This, coupled with the fact that less than 3 percent of New England manufacturers (strategic suppliers and customers) are active participants in their supply chain operations, indicates a significant opportunity for improvement.
The Next Generation Manufacturer Study has shown that surprisingly few firms have gained any real leading position in becoming world class with respect to their operational capabilities. Obviously those companies surveyed can benefit from their insights by addressing and correcting their weaknesses. Not to do so must be attributable to a belief that it is not important to become globally competitive and that their organization’s current performance will be sufficient to see the company through in the future.
McKinsey and Company point out the fallacy of the status quo management style in their paper “Management Practice and Productivity: Why They Matter.” This report also acknowledges that the same opportunities that have been brought out in the Next Generation Manufacturer Study exist across the world.
McKinsey notes that a systematic management approach to manufacturing is accessible to any firm, anywhere. The McKinsey report also goes on to state, “Yet surprisingly few firms have made any attempt to gain an insight into the quality of their management behaviors. Those that do so give themselves the opportunity to access rapid, cost-effective, and sustainable competitive advantage. Better managed firms need more highly skilled workers and make better use of them, while better educated managers will be the key component of the performance transformation that both established and emerging economies must undertake if they are to maintain and improve their global position.”
McKinsey client’s pay a lot for this advice, offered here for free. Anyone who is not satisfied with the status quo and is willing to understand the quality of their own management behaviors can do so by asking Mike Prior at michaelp@massmep.org for a free “Next Generation Manufacturer Profile Survey” for their organization.
When those who see no reason to change press their “Reset Buttons” they will just be resetting and institutionalizing their current performance with the hope that the status quo will be sufficiently competitive in the future. Hope is not a plan, but the choice is open to everyone. There is a quote from St. Augustine that should be given to every manufacturer in New England as a reminder that “We are the times—such as we are—such as the times.” Instead of trying to blame other factors such as costs, regulations, or foreign competition, we may well take out a mirror when looking to affix blame for our own demise.
Jack Healy is the director of operations at the Massachusetts Manufacturing Extension Partnership (MassMEP) located in Woburn, Massachusetts. He is committed to helping manufacturers throughout Massachusetts. He is recognized for his leadership and service as one of the 2010 Business Leaders of the Year by the Woburn Business Journal. Also he was awarded the 2008 MEP Innovator of the Year Award for developing a program that filled hundreds of vacant positions during a shortage of trained CNC machine operators in the state.
The Massachusetts Manufacturing Extension Partnership (MassMEP) assists organizations to better compete in a global economy through MassMEP’s services in performance-based training, enterprisewide resources, work-force strategies, and growth solutions.
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About The Author
Jack Healy
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Comments
Following the false data trail
I am amazed at how supposed quality people can fall for the oldest trick in the book, government backed data. Of course the picture is rosy and everything is back on track and looking good (according to the government). However perform a gut check in reality land. Lay offs are continuing and joblessness remains at an all time hight. The CBOE VOLATILITY INDEX or VIX, is going in the opposite direction (30 and climbing). I actually work in manufacturing, and orders for our goods remain flat or are decreasing in the United States.
The real picture:
Jittery retailers are slashing inventory prices already, expecting a sales year much worse than that of 2008. The retail sales numbers that Jack refers to are people picking up on those early bargains. Retail will eventually turn into a bargain basement fury, before the first week of December, as retailers literally dump inventories to save them selves from bankruptcy. The result will be extremely low to negative profit margins in the retail market for 2009. Resulting in greatly reduced credit ratings for retailers in 2010.
Market investors will avoid the retail markets like the plague, seeing their losses mount up for two consecutive years. This will continue to effect the market until essential items will be the only solid investment opportunities. Non essential retail items will continue to fall until they reach a point of prepaid, order only, status (just as the aircraft industry is now).
What you are watching occur is actually the death of the current retail marketing method of forecasted sales and forecasted inventories for non-essential items.
State governments have watched their budgets dwindle by billions of dollars and are using federal funds to prop up employees that are no longer needed and can not be afforded. The retail industry will undergo a slaughter house of job losses in early 2010, along will extreme reductions in real estate rentals (look for malls to have plenty of extra space).
With nearly (real number) 15% of Americans currently out of work and another 4% - 5% facing layoff from the failing retail industry, combined with the worry of the remaining employed, retail sales for anything other than necessary items will dwindle to an all time low.
People use your common sense, look at the escalating foreclosures, look at the job losses, look at the retail dumping that is occurring right now, look at the volume of out of state tags in areas where there is any work available, does this look like an economy that is coming out of recession?
We are now 9 months into the 18 months of the stimulus which promised 3-4 million new jobs. Now we are being told 1 million education jobs have been saved (of course without support data). Its near impossible to see us gain 3-4 million jobs in the remaining 9 months, knowing the losses looming in the retail industry.
Manufacturers who wisely prepare for a market swing toward customer orders, and who have the reaction timing to meet market demand, will be the winners.