First published on Forbes.com
One of the clients we worked with had an epiphany. They realized, after developing ways to rapidly increase capacity, that they could actually run production significantly faster than they had anticipated and make a lot more product per day. A significant insight is they could do this without sacrificing quality. We knew this because we could review abundant historical data, design experiments to test variation in process and help them incrementally increase the speed of their lines and track closely for any problems or quality issues.
This created an unforeseen challenge: What would they do with the extra product?
Sell More, Lower Prices And Seize Market Share, Or Raise Prices With Higher Quality
This realization kicked off a candid discussion among members of the finance team, the operations team, and sales and strategy leaders around what the company should do with both the extra production capacity they never knew they had and their better control of quality. Can they sell more? Should they lower prices? Should they raise prices? Can they delay investments in new equipment and new facilities?
This company is in a commodity materials business facing brutal competition. As with most companies in such businesses, the company has used traditional financial measurement tools to set strategy. But GAAP income gives no insight about operating decisions at the margin, and because it’s been previously impossible to have a deep understanding of operational levers, the company has had to manage its business as everyone else does: with a lot of instincts, street smarts and reactivity.
Moving From Counting Product To Productivity
For more than a few years, the conversation in manufacturing has been around “How do we go digital?” And until recently, the discussion about how to realize the benefits of digital has been largely theoretical.
But now, with the advent of real progress (hastened in many cases by the urgent need to do more work in manufacturing companies remotely), the conversation is shifting. With the possible exception of companies whose value is driven almost entirely by brand value, most companies that sell physical products know that manufacturing is their core competency. If they can make products faster, with less scrap and rework, customize products more for the needs of individual customers, and be more reliable, then that gives them a huge competitive advantage.
But depending on market conditions, decisions about how to use such advantages are not straightforward. Digital is doing exactly what it should: providing more capability so that the companies that use it can move beyond evangelism to strategy.
Another customer of ours had no easy way to measure cycle times on its processes. It could count cost and volume of material inputs. It could count how much a plant could produce. But cycle times, and other inner workings of its processes, remained inaccessible and hard to analyze. This was despite a significant investment in digital technology.
When this customer was finally able to unify all its data sources into a common format and analyze correlations by mapping the entire production process across all variables, the company suddenly realized that it could rapidly increase its capacity. This happened in literally a matter of weeks, and the gain provided millions of dollars in increased capacity for a plant that was thought to be capacity constrained.
For plants that are capacity constrained, gains of this magnitude — which are not at all uncommon with digital — don’t just increase sales, but they impact major capital budgets. Companies can defer or avoid building new plants, saving many millions of dollars and enabling employees to focus on other efforts.
Thanks to the massive investments being made in digital, these capabilities are coming to many manufacturers. As they do, here is how manufacturers can shift their mindset from production to productivity:
• Make sure you have complete visibility into all critical production processes in real time and a manufacturing productivity platform in place. This platform should engineer all data across various formats to make it possible for mere mortals to compare, contrast and correlate in a simple browser environment.
• Rethink your KPIs and metrics. Once you can easily access measurements and data, then what do you want to do with it?
• Rethink your culture and workforce roles. Shifting from production to productivity entails more than technology. It also will rely on the workforce learning new skills or changing its frame of what a machine operator is expected to understand. This is not a strange ask — newer factories invariably are asking workers to do more with their minds and less with their bodies.
For every plant that goes digital, there is the real opportunity to consistently work much closer to the edge of full potential.
But that’s just the beginning of the work. Suddenly, everything is on the table: how much to make, what to emphasize to customers, what to charge. More capability shifts the discussion, often to unexpected places.