Six steps to create a production strategy

August 28, 2012

What are the most important tasks of a production manager?

In my opinion they are:

1. Recruit imaginative personnel

2. Establish a firm, long-term vision and a strategy to achieve this

3. Demonstrate that the company is serious about the strategy in everyday situations

I am sure you spend a lot of time on the first task.

This article is about how to succeed with the other two.

Part 1

Most companies strive to become better at adapting to changes in the business environment. In today's globalized economy, market fluctuations and changes in customers' preferences move quickly and are felt in changes in the demand pattern. In production, this is felt almost immediately because stock levels are usually kept low.

Everyone who works in production must, therefore, adapt and be able to react quickly to what happens around us. In many companies, the employees have now become accustomed to this situation and the requirement for flexibility can in many ways be considered both healthy and natural. This is a part of the lean philosophy.

What about the long-term perspective?

There is, however, a pitfall that is easy to fall into. In our eagerness to be flexible, it can sometimes be difficult to maintain the level of planning and long-sightedness. If this is allowed to continue for too long, it could have serious consequences.

Generally speaking, however, short-term planning works quite well. For example, operational decisions are taken daily at all levels in the organization and most situations are adequately dealt with.

Medium-term planning could perhaps be done more regularly, but at least it will be addressed during the budgeting process.

What suffers most in some companies is long-term planning. If our operational and tactical decisions are not balanced with the strategic plan, we risk landing up in a situation where we are no longer in control of events. Instead, more and more, we only react to situations that are out of our control. If this is allowed to continue for several years, there is a big risk that production development ceases and we could land up in a state of stagnation.

Consequences of the lack of strategy

When a company has lacked a strategy for a long time, it is indirectly noticeable in many ways. Here are three examples:

1. It is difficult to execute projects. Without a comprehensive plan, there is a risk that far too many projects are launched simultaneously, and it then becomes difficult to prioritize and give each project the support and resources that it requires. Project management will also experience that the aim of the projects is often unclear since it is difficult for them to see the full picture of where the company is headed.

2. Maintenance becomes expensive. Maintenance tasks can only be improved with long-term efforts. Without a strategy, you either lose reliability or incur excessively high costs.

3. Inefficient production Without a comprehensive long-term plan productivity development is put at risk. If you, for example, do not adapt your system support and production flow at the same pace as the product offering changes, the production staff will struggle to maintain efficiency.

Many companies have no production strategy

According to statistics from a Stratego research project in Sweden, 52% of production companies lack any concrete form of production strategy.

Many of the 48% that said that they did have a strategy did not consider it robust enough. Some only had guidelines for "growth and cost control" but lacked any plan of how to convert this into reality. The best companies, however, had a clear plan for their development which was concrete, with quantifiable goals – something that I believe should be patently obvious.

Part 2 – Who thinks strategically?

Just exactly whose responsibility is it to think strategically in production? First-line management has limited opportunity for this. They often have a large number of workers reporting to them and need to focus on the here-and-now to manage deliveries, safety, personnel issues and the like.

Far too often, management on the higher levels are involved in the daily business. Don't misunderstand me. To be visible on the production floor is positive and should be encouraged. Among other things, it is an essential requirement for a lean project to succeed. However, there is a danger. If the boss does not have a long-term plan to stick to, he/she is going to get too involved in day-to-day matters. One gets involved in operative detail and makes decisions that the organization should be capable of solving itself.

Many companies have hired in assistants such as lean coordinators and others. This is excellent and adds strength to the undertaking. Often, though, the level of expertise of these assistants is too basic for them to be able to decide single-handedly on a plan of action for the entire unit.

The responsibility for ensuring that a production strategy is in place lies therefore naturally with the head of production or someone in a similar position. To assist him this manager should use an experienced individual to produce solid data to underpin decisions in cooperation with the key persons in the organization.

The strategy needs to be confirmed and agreed off jointly by the entire management of the company since it is this management's responsibility to implement the strategy.

Working with a universal perspective

To compose a development strategy, you need to elevate your thoughts. It is a case of trying to ignore everything in the daily production environment that creates unpredictability. Forget for a moment what the situation is today – layout of machinery, breakdowns, culture and habits.

To be sufficiently creative for the task you need to consider the entire factory as one single machine. This machine has some customers that require a certain number of products to a certain level of quality. In the future, new products will be requested, and we will have more customers demanding higher standards of quality. The aim of the strategy is to describe how we satisfy them in the most efficient way possible.

The only people who have a total overview of the production process are the production department. However, you cannot give the planning department the task to formulate a production strategy because they only optimize production with the technical apparatus which exists today and seldom know what can be done to develop this.

To achieve our goals we need a broader development strategy and one which, in addition to the planning aspects, also considers the technical advancement, changes in our way of working and how we best use IT support to our advantage.

Part 3 – Six steps to create an efficient production strategy

Step 1 – Set challenging long-term goals

Normal efficiency improvement rate is often around 6% a year. Many companies can handle this level with their normal capacity to expand. 6% a year over five years represents an improvement of 34% over the period.

This means that, if your aim is to increase productivity by only 34% over five years you will not need any development strategy to achieve it!

World-class companies manage to sustain improvements in the production of 15% a year. This equates to a doubling of production over a five-year period. If you set this type of target, you will need a strategy to succeed. Let's start creating!

Obviously one goal will not be sufficient. If you only focus on productivity increase, it is easy to come up with solutions like "tear down the factory and build a new one". You need a ceiling for investment levels, stock levels, and total costs.

Step 2 – Identify an expert

The ideal expert is someone you trust. It could be someone who works for the company, or it could be a consultant.

The important thing is that the personal chemistry is right. Your expert must be able to work together with you and mix with your associates at all levels.

Your expert must also have a broad knowledge base. To have undertaken a similar task earlier is an obvious requirement as is being fully conversant with all aspects in the lean toolbox. If we're dealing with the production process he/she also requires an understanding of other ways of getting results, such as Six Sigma, production-related IT solutions, maintenance, and production finance. Every challenge is unique, so it's a case of not falling into the same old rut as before.

A knowledge of your specific industry is of course desirable, but the most important aspect is that your expert has experience from several industries so that he/she can distinguish between what is related to your industry and what is generally applicable.

Step 3 – Identify where the potential is greatest

Each production strategy must be based on the company's unique situation. A company often focuses on costs and growth. It would make sense to study the financial picture to identify which area has the greatest potential.

With your expert's help, go through each area of cost and estimate how much this could be reduced, per item produced. In some industries, the greatest potential lies in reduced consumption of raw materials or energy, others in personnel costs per produced item, while, for some, the potential is in maintenance costs. Then produce a breakdown of how improved production can increase sales, for example because of improved security of supply or an improved level of quality.

Using this, you will get an indication of where to concentrate your efforts to achieve your goals and you can sharpen your focus somewhat.

Step 4 – Draw up a thorough situation analysis

The next step is to draw up a comprehensive situation analysis. This is where your expert starts working in earnest. I recommend you carry out a detailed analysis that covers the total production function. If your analysis is too superficial the strategy will only be able to recommend further studies but will not give any direction. You need to be most accurate in the area with the highest potential for financial improvement. The analysis needs to have a "hard" and a "soft" aspect. "Hard" focuses on measurable factors and outlines areas like:

  • Technical capacity - this includes production efficiency (OEE), stability, utilization and shift work
  • Costs, including costs of shortages, costs of quality and maintenance
  • Capitalization, setup times, lead times and batch sizes.
  • Bottlenecks – where and when
  • Layout and flow
  • Personnel requirement per unit or process

The "soft" analysis could, in fact, be based on interviews. It identifies other important factors that are not easily measurable. The aim is to get an idea about questions like:

  • Styles of working, culture and co-operation
  • Standardized working methods
  • Care and cleanliness of the equipment
  • How improvements are implemented
  • The capacity and experience available to carry out the necessary projects

By analyzing the final material, the strong and weak aspects can be identified. Suggestions for improvement can be documented, and we can calculate the size of the areas of high potential.

Consult with personnel about the situation analysis to confirm the quality of the findings and provide them with the relevant feedback.

Step 5 Develop the strategy

The strategy develops out of the situation analysis you have drawn up. Your expert, together with a working group, examines the different scenarios, sketches different layouts, calculates results vs. targets and assesses feasibility. This needs to be a continual process with a multi-functional approach.

One set of tools is seldom sufficient to attain your goals. Instead, you often need all the relevant tools to achieve your aims efficiently. A few examples of what could be included in a development strategy are concrete strategies for:

  • Improving the stability of the process by, for example, using statistical methods to fine-tune the operation and introduce an automatic overall control
  • Identifying which key data are the most relevant e.g. OEE measurement
  • How and whether IT support should be used to support decisions based on facts, optimization and to automate labour-intensive processes
  • How bottlenecks come about and where investment is called for
  • How to improve layouts and flows to minimize the number of unnecessary operations and free up floor space for new production
  • How lead times and tied-up capital can be reduced e.g. by examining set-up times, paced flows, leveling and introducing a Kanban system
  • The feasibility of releasing operators from machines and pure supervisory tasks so that they can operate several machines or prepare for the next order.
  • How reliability can be improved by expanding maintenance tasks

And so on….

However, it is not sufficient to list some measures. One needs to outline what must be done, when and what level of resource will be required for each of the measures.

Step 6 Visualize and confirm the development strategy

Visualize the development strategy so that it is easy to understand. This can be done using a gant chart of the most important tasks, creating a 3D image of the new layout and producing effective presentation material.

Implementation

The strategy should not be considered to be merely a document that is being used to start some projects. It should provide support to ensure that the everyday operational and tactical decisions proceed in the right direction - the direction you have agreed is best for the long-term interests.

As the head of the production, your responsibility is to ensure that the organization has the prerequisites to achieve the objective, and you get the where-with-all to plan and react long-term.

Your expert supports you and the company along the way with training, coaching and advice.

By Oskar Olofsson

Please contact me for unconditional discussions about your situation.

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