Winning the Zero Sum Game

The job shop industry is fiercely competitive, and anything that reduces cost or improves performance is usually of great interest to the shop owner. In recognition of this situation, most of the literature on Lean presupposes a need for improvement. Our past articles are no exception.

On the assumption that continuous improvement is inherently a good idea, we have offered a variety of thoughts on how Lean and its companion techniques can be used to achieve ever-increasing levels of profitability and customer service

However, from a business perspective we want to suggest another way of thinking about Lean. If we can tie our improvement efforts to an overall plan that positions us more competitively in the marketplace, the impetus to execute kaizen events and other improvement activities increases dramatically and the impact of the change is more profound.

Said another way, if our lean implementation effort supports directly our strategic business plan, it can make a critical contribution to helping us become the company we want to be.

We will address this opportunity in two parts. In this article, we will explore the general relationship between improvement plans and the business strategy. Next month, we will look at specific ways in which Lean tools and other improvement techniques can be used to shape a unique value proposition.

Business-A Zero Sum Game

Most shop owners are driven by two basic objectives: they want to survive and they want to grow. One might argue that profit would come first, but we often willingly sacrifice profit in the short term to ensure our survival or to finance growth. And of course, survival, growth and profit all turn on the revenue that we take in.

Some companies drive their revenue by creating a market for unique products of their own design. They often compete with niche or mass marketing and proprietary product technology. Not so with job shops.

These companies manufacture parts or products designed by their customers. The pool of potential accounts is usually bounded geographically and it is a finite universe. In addition, there is, more often than not, an excess of capacity in most job shop industries. In this competitive environment, growth in one company must come at the expense of others. Mathematicians call it a "zero sum game."

Explicit recognition of the nature of this situation is the first step in fashioning a business strategy that will bring about extraordinary growth and profitability by simply outperforming the competition.

Being average dooms us to financial stagnation and eventual decline. But if we can meet customer needs flawlessly, at a cost below that of our competitors, we can grow and prosper.

With a commitment to superior performance, we will search for and employ any and all techniques that can set us apart from the competition.

The Continuous Improvement Movement

The continuous improvement of business processes, with Lean as a primary tool kit, has gained popularity and momentum as both job shops and OEM companies have learned that the continuous improvement philosophy and accompanying techniques really work to create a competitive advantage.

Figure 1 shows that in the 1950s, 60s and 70s, increasing consumer demand and natural economic growth was enough to ensure success for most manufacturers. If a company learned to run the ongoing business effectively and add capacity on a timely basis, the basic objectives of survival, growth and profitability could be realized. Investment in the improvement of business processes was, at most, an afterthought.

However, the late 1970s and early 80s saw a significant decline in ?natural? economic growth owing to slowing population growth and the advent of the global economy. These changes threw many manufacturers (both job shops and OEMs) into the ?zero sum game? described above. Now the need to provide better products and services at lower costs became dominant. The race for perfection was on.

Improvement With a Purpose

The drive for improvement over the past 25 years has spawned a plethora of tools and techniques aimed at eliminating waste and pushing productivity up. But the improvement effort takes on an added dimension when it is used to achieve a specific set of market driven objectives. Figure 2 depicts this idea.

The Business Strategy defines the customer base that we want to serve (the target market) and the products or services that we will take to that market. The strategic business plan also documents the customer expectations which, when met perfectly, will set us apart from our competitors.

The Manufacturing Mission details the difficult performance goals that must be met by operations to support the business strategy. We call it the ?Name of The Game? for manufacturing. The mission will be expressed in terms of on time
delivery performance, quality indicators, lead times, productivity levels and other key measures. These will be stretch goals, because if they are too easy they will lack the potential of meeting customer expectations in a superior way such that competitors are left behind.

Arriving at the manufacturing mission requires clear thinking and hard work. The task is complicated by the fact that there are often several customer groups with quite different expectations. The kind of performance that will ?win the day? may vary significantly from one segment of our customer base to another.

Careful analysis focused on key accounts (or prospective accounts) will eventually lead us to that set of performance targets that, when achieved, will enable us to take market share away from the competition.

The next question is: "What will we do differently to attain our goals?" The answer will lie in reconfiguring elements of our Manufacturing Strategy (see Figure 2).

In the spirit of continuous improvement using Lean tools and other techniques, we will ultimately need to reengineer key business processes; but we will find that process improvement will eventually bring us to significant modifications and upgrades of our critical manufacturing resources, specifically:

• Process Technology
• Facilities
• Systems
• People
• Supply Chain

When we focus on changing these resources to better meet the strategic needs of the business; i.e., to achieve the manufacturing mission, the continuous improvement process opens a whole new world of opportunity. Now, every Kaizen event and other improvement activity contribute directly to the development of a true competitive advantage.

Conclusion

An old adage suggests that "if you don't know where you're going, any road will do." We certainly do not want to lead the business down any old road, nor do we want to embark on a Lean/continuous improvement program that is a shotgun effort to save a few dollars or achieve isolated and unrelated goals.

Most job shops are very resource constrained. We can only carry out a few significant improvement projects in any given year. Let's be sure that every improvement effort helps in a significant way to make us a competitive powerhouse.

Next month we will explore in detail how we use Lean tools and other improvement techniques to fashion a winning manufacturing strategy.

David Dixon is president of Technical Change Associates and a registered professional engineer with more than 35 years of experience in lean manufacturing, Six Sigma and other improvement initiatives.For more information, visit www.technicalchange.com, or call 801-621-8980.