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EXECUTIVEMANUFACTURING

The Adaptive Organization

LEADERSHIPJOURNAL

B O LD I D E A S F O R A B E T T E R F U T U RE / M A RC H 2 0 1 2 / TW E N TY D O LLA RS

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D I A L O G U E “We say to our people that it’s your obliga-tion to disagree. I still don’t believe I know everything.”— A l a n F o s t e r Director of Operations, McLaren Automotive........................................................................................................................

Quick Response Manufacturing:

IT’S ABOUT TIME—TO ADAPT The University of Wisconsin’s Rajan Suri argues that reduc-

ing lead times trumps the advantages of Lean and cost-based methods.

DEVELOPING AN ADAPTIVE CULTUREA collaborative, fl exible structure is the key to rapid change, say Jeff Lawrence and Nadir Ahmad of Cambridge Leadership Associates.

THE MULTIPLIER EFFECTRockwell Automation’s Keith D. Nosbusch and John A. Bernaden explain how smart manufacturing can spark industry-related employment.

A l a n F o s t e r Director of Operations, McLaren Automotive........................................................................................................................

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Th i s I s s u e ’ s Th e m e

Adaptive Organizationo pi n i o n8/Developing an Adaptive Culture: The Time Is NowBy Jef f Lawrence, Principal, and Nadir Ahmad, Consultant, Cambridge Leadership Associates

Does your manufacturing company have the collaborative organi-zational structure, flexible technology, and system-wide empower-ment to adapt successfully to rapid change?

12/It’s About TimeBy Rajan Suri, Emeritus Professor and Founding Director, Center for Quick Response Manufacturing, University of Wisconsin-Madison

For makers of custom and low-volume products, Lean and tradi-tional cost-based improvement methods may not be the best fit.

d i a lo g u e20/McLaren’s Flexible FactoryBy Paul Tate, Executive Editor, MELJ

British automotive company McLaren is heading for the fast lane of the world’s luxury car market. Its new purpose-built produc-tion facility, with Alan Foster in charge, is based on a forward-thinking operational philosophy of simplicity and flexibility.

r o u n dta b l e28/A Passion for AgilityEdited by Jef f Moad, Executive Editor, MELJ

Members of the Manufacturing Executive Leadership Council discuss the organizational, cultural, and leadership qualities that enable adaptability.

The

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EXECUTIVEB O L D I D E A S F O R A B E T T E R F U T U R E

LEADERSHIPJOURNAL

34/Resistance Is FutileBy Mark Symonds, President and CEO, Plex Systems

Here’s a look at some of the changes that may be headed your way, and fi ve ways that manufacturers can prepare themselves for the onslaught.

41/c a s e s t u dy

Strategies for an Adaptive CultureBy Sanjay Singh, Head of Global Strategy, Manufacturing, HCL Technologies

India’s HCL Technologies has deployed a fi ve-point strategy that will enable manufacturers to build more adaptive global organizations.

44/Creating Agility, Resistance, and Innovation Through Right-Time Business IntelligenceBy Craig Hartman, Senior Executive Director, and Michael Killian, Senior Business Advisor, Cisco Systems

In a world where millions of connected devices are creating vast amounts of data, manufacturers need to develop strategies that can turn this data into meaningful infor-mation to help drive faster decision-making and create sustainable differentiation.

48/The Multiplier Eff ect: There Are More Manufacturing-Relat-ed Jobs Than You ThinkBy Keith D. Nosbusch, Chairman and CEO, and John A. Bernaden, Director of Corporate Communications, Rockwell Automation

The embrace of smart manufacturing tech-nologies will turn conventional wisdom about indirect jobs creation on its head and change the image of the industry itself.

4/e d i to r ’ s l e t te rThe Urgency of AdaptationBy David R. Brousell, Vice President & Editorial Director, MELJ

6/Best of the BlogsExtracts from among the best blogs on the global Manufacturing Executive Website (www.manufacturing-executive.com)

57/Board of GovernorsMeet the members of the Manufacturing Leadership Council’s board

60/o pi n i o nFour IT Forces That Will Change the Way Manufacturers WorkBy Pierfrancesco Manenti, Head, Europe, Middle East and Africa, IDC Manufacturing Insights

62/Community VoicesExcerpts from some of the hottest discus-sions on the global Manufacturing Executive Website

64/The CouncilMeet some of your fellow members on the Manufacturing Leadership Council

› Join the conversations atwww.manufacturing-executive.com.And read the latest blogs by yourpeers and Manufacturing Executive editors.

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MANUFACTURING EXECUTIVE LEADERSHIP JOURNAL is published six times a year by Thomas Publishing Company, LLC. 5 Penn Plaza, New York, NY 10001. J.E. Andrade, Chmn. of the Board;C.T. Holst-Knudsen, Pres.; R.J. Anderson, V.P., Planning; M. Peipert, V.P., Finance; I.J. Molofsky, V.P., Human Resources. Executive Offi ce: 5 Penn Plaza, New York, NY 10001. Tel: 212-695-0500. 6 issues, $150; single copy, $20. ©2012 by Thomas Publishing Company. All rights reserved. MA, Managing Automation, Manufacturing Executive are registered trademarks of Thomas Publishing Company.

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W W W. M A N U FAC T U R I N G - E X E C U T I V E . C O M

M E G l o b a l L e a d e r s h i p C o m mu n i t y

tations, and new, pervasive technologies alter the industrial landscape. When you speak to manufacturing executives these days, there is an urgency and immediacy in their voices about change, and change from many angles.

The language of change used by executives today underscores how critical fi nding new ways of doing things has become. Whether they speak about “fl exibility,” agility,” “resil-iency,” or simply greater “speed,” the message is the same —manufacturing has to adapt.

This issue of the Journal is devoted to ex-ploring the idea of adaptation in manufac-

turing at many levels. In “It’s About Time,” University of Wisconsin-Madison Emeritus Professor Rajan Suri discusses what the prin-ciples of Quick Response Manufacturing can do to reduce lead times and trim costs. In our Dialogue interview, Executive Editor Paul Tate talks with Alan Foster of British auto-maker McLaren about the company’s new “fl exible” production facility for its latest lux-ury sports car.

In addition to the package of articles in this issue on the theme of adaptability, we are publishing what we think is a ground-breaking article on the manufacturing em-ployment picture, an issue whose urgency is second to none. In “The Multiplier Effect: There Are More Manufacturing-Related Jobs Than You Think,” Rockwell Automa-tion Chairman and CEO Keith D. Nosbusch and Director of Corporate Communica-tions John A. Bernaden argue that the em-brace of smart manufacturing techniques can create millions of new indirect jobs sup-porting manufacturing and, in the process, change the image of the industry itself.

Continue the discussion about adaptabili-ty at www.manufacturing-executive.com. M

N THINKING ABOUT THE MEANING OF ADAPTATION, CHARLES Darwin, the English naturalist whose 1859 book On the Origin of Species promulgat-ed the theory of natural selection, naturally comes to mind. “It is not the strongest of the species that survives, nor the most intelligent. It is the one that is most adaptable to change,” Darwin reportedly said. This law of nature, if you will, has been at the center of

thinking in manufacturing for many years, but it has come into sharp relief recently as market forces such as globalization, an aging workforce, changing customer demographics and expec-

MANUFACTURINGEXECUTIVE LEADERSHIP

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The Urgency of Adaptation.............................................................................................................................................................................................................................................................................................................

Editor’s Letter / David R. Brousell

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W W W. M A N U FAC T U R I N G - E X E C U T I V E . C O MM E G l o b a l L e a d e r s h i p C o m mu n i t y

ploring the idea of adaptation in manufac- this issue on the theme of adaptability, we are publishing what we think is a ground-breaking article on the manufacturing em-ployment picture, an issue whose urgency is second to none. In “The Multiplier Effect: There Are More Manufacturing-Related Jobs Than You Think,” Rockwell Automa-tion Chairman and CEO Keith D. Nosbusch and Director of Corporate Communica-tions John A. Bernaden argue that the em-brace of smart manufacturing techniques can create millions of new indirect jobs sup-porting manufacturing and, in the process, change the image of the industry itself.

Continue the discussion about adaptabili-ty at www.manufacturing-executive.com.

PRESIDENTHEATHER L. HOLST-KNUDSEN

+1 [email protected]

VICE PRESIDENT &EDITORIAL DIRECTORDAVID R. BROUSELL


Editorial

EXECUTIVE EDITORPAUL TATE

+44 (0) 7973 [email protected]

EXECUTIVE EDITORJEFF MOAD


MANAGING EDITOR JAY E. BLICKSTEIN


Columnist

PIERFRANCESCO MANENTIIDC Manufacturing Insights

Milan, Italy

Design & Production

DESIGN DIRECTORBEST & CO.

[email protected]

PRODUCTION DIRECTORREGGIE RIOS+1 212-629-1520

[email protected]

CROSS-MEDIA PRODUCTION SPECIALIST

PHILLIP GALLOF+1 212-629-1503

[email protected]

WEB DESIGNERPAUL POLICARPIO


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Manufacturing Leadership Council, 5 Penn Plaza, 8th Floor, New York, NY 10001• 212-629-2164 or 888-280-6794

TAKE YOUR LEADERSHIP SKILLS TO A

GAME-CHANGING LEVELSucceeding in our rapidly shifting manufacturing landscape requires the ability to adapt your strategy, your organization, and your people with speed and agility. The Manufacturing Leadership Council’s Adaptive Leadership Program offers you the knowledge necessary to make it happen. Open exclusively to Platinum-level Members of the Council, the program is offered in cooperation with Cambridge Leadership Associates (CLA) – an international leadership development practice founded in 2003 by Harvard University faculty Ron Heifetz and Marty Linsky. CLA is known worldwide for helping executives and top teams perform at their peak, to drive results in constantly changing environments.

Sign up for the Council’s Adaptive Leadership Program and discover why companies such as Microsoft, Cisco Systems, Eli Lilly, IBM, Johnson & Johnson, Merck, Pfi zer, and Shell Oil have made Adaptive Leadership part of their competitive advantage.

To learn more, please contact a Council representative at (212) 629-2164 or 888-280-6794, or access our “On Demand” Adaptive Leadership Webinar at manufacturingleadershipcouncil.com/programs

Helping to Defi ne and Shape a Better Future for Manufacturers Worldwide

“It is not the strongest who survive but those who are most adaptable.”

CHARLES DARWIN

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N E X T G E N E RAT I O N L E A D E R S H I P A N D C U LT U R E

Manufacturing Leadership: Will Adaptability RuleThe Future?

Extract: Are today’s manufacturing leaders as adaptable as their factories and supply chains? Not yet, per-haps. But they need to

be. Adaptive leadership goes far beyond operational issues. It en-compasses broader but increasing-ly essential leadership qualities for building an open and fl exible vi-sion of the future; the personal skills to inspire people to think dif-ferently about problems and obsta-cles; and the professional ambition to drive extensive cultural change across borders, functions, and gen-erations. There is no “business as usual” anymore. That’s the last ref-uge of the unenlightened and the uninformed. The manufacturing world and the manufacturing world’s customers have moved on. Exceptional leadership in the de-cades ahead will be characterized by manufacturing leaders who have learned to adapt and thrive in challenging times. People with a clarity of vision who can create a mindset across their organizations

that understands why and how to embrace change—never fl inching from the challenges ahead and al-ways thinking differently. Manu-facturing Executive feels that adaptive leadership approaches are so critical to the future of man-ufacturing that we have launched a special course for Manufacturing Leadership Council Members.Find out more by listening to our free introductory Webinar, “Lead-ing Adaptive Change in Manufac-turing,” via the Manufacturing Executive Website, www.manu-facturing-executive.com.Paul Tate is Executive Editor of Manu-facturing Executive.Read the full blog: http://www.manufac-turing-executive.com/community/leader-ship_dialogues/next_generation_lead-ership_and_culture/blog////manufacturing-leadership-will-adaptability-rule-the-future

THE ADAPTIVE ORGANIZATION

Innovation at the Core

Extract: For several years now, I’ve no-ticed a disconnect of sorts between manu-facturers and the companies that pro-

vide the ERP and other software suites on which most businesses run. Increasingly, the software vendors like to talk about the in-novations they are bringing to the

edges of their applications. They are busy adding things like mo-bility, social networking, “big data”-capable analytics, and role-based user interfaces to their enterprise application suites. The implication from the vendors is that there’s not much need to in-novate on the core business func-tionality of these applications, that customer requirements at the core are static, and that those requirements have largely been met. But the stories I hear from manufacturers paint a different picture. Manufacturers are still keenly interested in the core func-tionality of their enterprise soft-ware. They want applications that, out of the box, support the busi-ness processes that are essential and unique to their business and their vertical industry. And they want applications with core func-tionality that keeps up with what, in many vertical industries, is a very dynamic set of requirements. Think about it. As pharmaceutical manufacturers embrace concepts like continuous manufacturing,and as automotive OEMs attempt to move toward mass customiza-tion, the way they do everything from sourcing materials to plan-ning production is changing dra-


JOURNAL

..................................................................................................................................................................................................................................................................................................................................................................... ..................................................................................................................................................... Best of the BlogsThe following extracts are taken from among the best blogs on the global Manufac-turing Executive Leadership Community Website. You can join in, read more, and

respond with your own point of view at www.manufacturing-executive.com.

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Paul Tate

Jeff Moad



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matically. They need their enter-prise software to support those changes.Jeff Moad is Executive Editor of Manu-facturing Executive.Read the full blog: http://www.manufac-turing-executive.com/community/leader-ship_dialogues/the_adaptive_organization/blog/2012/01/12/innovation-at-the-core

G lo ba l Va l u e C h a i n o p t i m i z at i o n

The Global View: Don’t Judge Me by My Dirt Floors

Extract: In the 1980s, on one of my first trips to Asia as an engineer, I was in Japan visiting some of the plants that make Seiko

watch components. Part of my job was to help transfer precision watch manufacturing equipment and adapt it to new markets ori-ented toward custom equipment for making calculators, electron-ic auto parts, and medical equip-ment. When we later went to visit the machine shop in Tokyo, I was expecting a surgically clean facili-ty not unlike some of the Seiko Instruments facilities where I had been working. As we entered the building, I saw that the floors were dirt. There were many CNC machines operating, each sitting on its own concrete pedestal. I had seen concrete floors, and wooden floors in GM’s massive transmission plant in Michigan as well as in New England manu-facturing centers built in convert-ed multistory mills. But this was the first facility where I had seen dirt floors. Today, as I travel in Asia, I still come across facilities

with dirt floors. In China, where whole communities are being torn down, reconfigured, and re-built, I have come across facilities that look like they are in a war zone, with neighboring walls torn down or streets that end and start randomly. When you have a focus on best price with highest quality and timely delivery, you then have to decide what your priority is regarding the appearance of plants used by suppliers and con-tractors. Although I know that quality and appearance are often aligned, and while I appreciate the teachings and lessons of Lean manufacturing, I want to empha-size that floor type does not al-ways correlate to quality of out-put—especially in Asia.Everette Phillips is CEO and president of Global Manufacturing Network.Read the full blog: http://www.manufacturing-executive.com/community/leadership_dia-logues/global_value_chain_optimization/blog/2012/01/18/the-global-view-dont-judge-me-by-my-dirt-floors

G lo ba l Va l u e C h a i n o p t i m i z at i o n

Data Sharing: It’s All About Trust

Extract: It’s a basic te-net of faith in supply chain circles that data can substitute for in-ventory, and that the best way to improve

supply chain velocity, efficiency, and performance is by sharing data throughout the supply chain. As an example, providing suppliers with access to point-of-sale data is seen as the defini-tive cure for the so-called “bull-whip effect”—the tendency for

small changes or disruptions at the far end of the supply chain (end-user, retailer) to multiply as they move up through the chain to become major fluctuations for suppliers. “We have found that the more information we can share with our partners, the more costs we are able to drive out of the system, so we both gain,” says Scott Craig, director of replenishment for Hannaford Brothers regional supermarkets. There are many ways to employ this strategy to improve supply chain performance. Sharing your production schedule with trusted suppliers, for example, allows them to better coordinate their own production to meet your needs. Collaborating with distributors and customers to develop better forecasts is an-other example. This all sounds good in theory, but many com-panies have been reluctant to take steps in this direction be-cause they don’t have the kind of working relationship with sup-pliers that allows them to feel comfortable sharing this de-tailed information about their business. Until a sufficient level of trust and partnership is estab-lished between a company and its suppliers, the benefits of data sharing will remain out of reach.Mark Symonds is President and CEO of Plex Systems and a member of the Manufacturing Leadership Council.Read the full blog: http://www.manufacturing-executive.com/community/leadership_dia-logues/global_value_chain_optimization/blog/2011/12/16/data-sharing-it-s-all-about-trust

Best Blogs / hot topics

everette phillips

mark Symonds

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Developing an Adaptive Culture:

The Time Is Now

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Does your manufacturing company have the collaborative organizational structure, flexible technology, and system-wide empowerment to adapt successfully to rapid change?

Opinion / Jeff Lawrence / Nadir Ahmad



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Organizations, as well as groups of people, are more resilient and responsive when they can access the entire breadth of collective capacity.

HE URGENT NEED FOR MANUFACTURERS TO BECOME more adaptive in their organizations has been thrust front-and-cen-ter onto the world stage in recent months. There’s a lot at stake. At the World Economic Forum in Davos, Switzerland, earlier this year, the Boston Consulting Group Strategy Institute released the results of a special study that found adaptive organizations significantly

Toutperform industry peers in terms of economic and financial gains.

In January, Fast Company magazine ran an article, “This Is Generation Flux,” stressing the importance of individual adaptability to thrive in today’s challenging job market.

Even President Obama, in his latest State of the Union address, spoke about the im-portance of adaptation and the trajectory the U.S. auto industry has followed over the last three years.

During the recent recession, some ob-servers advocated that certain automakers should be left to whatever fate the market dictated. Such a course of action would have put a million jobs at stake. Since then, not only has the U.S. retained those million jobs, but 160,000 more jobs have been creat-ed. Meanwhile, Chrysler has grown faster in the U.S. than any other major car company, and General Motors is the world’s number-one automaker. How did workers and auto-makers in a seemingly intractable stalemate adapt in such a way to settle their differenc-es? And what enabled the entire U.S. auto industry to evolve in this manner to create such a drastic turnaround?

All the indicators point to the need for companies working in the increas-ingly dynamic manufacturing industry to learn how to quickly sense and respond to change, and to develop a greater ability to anticipate the changes now required for fu-ture success.

The Challenge of Adaptation

For a manufacturing enterprise, the chal-lenge of adaptation is particularly acute. Manufacturing has traditionally been capital-intensive, making it more diffi cult for companies to alter course quickly than organizations in, for example, the fi nan-cial-services sector. However, the qualities that are necessary for adaptive capacity are more cultural than material. Therefore, in theory, any manufacturing organization can prepare itself and its people with the skills that are necessary.

Adaptation is often diffi cult because it re-quires organizations to constantly assess what, of all the things they are doing, is con-tributing most to their success. What values and practices are so core to who they are, and are so much of their essence, that they must be brought forward for the future? Correspond-ingly, what values and practices that have helped them achieve past success, but are no

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Nadir Ahmad is a consultant at Cam-bridge Leadership Associates.

Je� Lawrence is a principal at Cambridge Lead-ership Associates (CLA), an interna-tional leadership development practice based in New York.

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longer viable, must now be left behind?The U.S. auto industry is a vivid example.

For years, the industry ignored the warning signals that the world was looking for a dif-ferent value proposition than big, gas-guz-zling cars. The market has now returned af-ter the recession, but has been transformed by more fuel-effi cient technologies and en-vironmentally aware global consumers.

Similarly, many of the big pharmaceuticals

companies could not wean themselves from their tried-and-trusted formula for block-buster success. Advances in the production of generic drugs began to cut deeply into their profi ts, and the world began to ques-tion whether it was morally tolerable to have products that could make people healthy but not make them readily available at prices that were closer to the cost of making them, rather than the cost of inventing them.

So, after helping hundreds of organi-zations like these adapt, we believe that an adaptive organization requires the presence of fi ve core qualities to succeed. As you read this, rate your own company culture on the presence—or absence —of each element.

1. Shared Responsibility: Adaptive cultures are able to respond to changes in complex ways. Doing this requires a deep understand-

ing about the strengths and resources that exist across the enterprise. Organizations, as well as groups of people, are more resilient and responsive when they can access the entire breadth of collective capacity. In less adaptive organizations, the awareness and connections are nonexistent or unknown. So, the question to refl ect on for your organization is whether people can or cannot make these connections. At the individual level, to what extent are people rewarded for collaboration versus indi-vidual distinction? At the organization level, to what extent do people act from the perspec-tive, and for the betterment, of the whole orga-nization, as opposed to worrying about pro-tecting their individual silos?

2. Elephants on the Table: There’s an age-old cliché about unresolved family issues: the family gets together, Uncle Charlie gets drunk, but nobody talks about Uncle Charlie’s drinking because it’s too diffi cult and painful. That’s what’s called an “el-ephant in the room.” Imagine that those elephants are standing on your conference or meeting-room table, and ask yourself, do the important, diffi cult conversations ever get from inside people’s heads or around the coffee machine to the meeting room it-self ? Are there structures, incentives, and/or support for people to speak the “un-speakable”? Does your team take those on in meetings, or is there a “meeting after the meeting” syndrome where the real stuff only gets discussed and decided afterward?

3. Institutional Refl ection and Continu-ous Learning: As the world changes around us, what we do, and how we do it, has to change, too. Change is hard, so it is impor-tant to understand what needs to change and why, and to ensure that we have cho-sen the right changes. This is particularly important where an organization is trying to make some signifi cant changes—even if they seem minor at the time—in how they


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The qualities necessary for adaptive capacity are more cultural than

material. In theory, any manufacturing group can prepare itself and its

people with the necessary skills.



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operate, how they come together, how they take on problems, or how they deal with their key constituents. Does the organiza-tion dedicate its support, and individual and collective time, for reflecting on experi-ence and learning from others? To what ex-tent does the organization commit time and space and skill to getting a true perspective on its own work?

4. Sensitivity to Authority: Organizations with a high sensitivity to authority depend entirely on that authority for direction, pro-tection, and order. In a way, that describes all organizations. Adaptive organizations also rely on individuals within the company to interrupt unproductive patterns, name elephants, and create new ways of work-ing. But the authority figure rarely has all the answers, nor always understands the competing commitments or the view from the trenches necessary to solve the prob-lem. Creating an environment where both authority and leadership co-exist in the service of progress is what makes organi-zations more adaptable. To what extent are people in the organization valued for their own judgment, rather than their capac-ity for divining the preference of the boss? That is, which question do people tend to ask when they are uncertain: “What would my boss do now?” or “What’s best for the organization now?”

5. Customized Professional Development: What has worked for the organization and the individual up to now won’t necessar-ily take the company forward in the future. The world changes, and in order to thrive, individuals and organizations have to evaluate what is working and what isn’t. If something isn’t working, how do the peo-ple in your organization become aware of it, and prepare to do something different? When someone is given a new assignment, can they be assured they have been placed

there to learn and grow, or do they assume they should put their head down and do ex-actly what they did in their last assignment?

As you reflect on the rating you gave your organization, what are the stories that came to your mind? What is your assessment saying about your organization or team? Do individ-uals and teams in your organization succeed because of the culture—or in spite of it? What would it take to move the adaptability ratings of the organization to a higher level?

Make no mistake, the rate of change in the manufacturing world will only get faster. The key to thriving in that ever-changing world will be to build adaptive organizations that can learn their way toward a more pro-ductive future. M

What has worked up to now won’t necessarily take the company forward in the future. The world changes, and in order to thrive, individuals have to evaluate what is working and what isn’t.................................................................................................................................................................................................................................................................................................................................................................................................................................................................................

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Leading Adaptive Change in ManufacturingLearn how to adapt and thrive in challenging times

› Find out more about Manufacturing Executive’s special Leading Adaptive Change in Manufacturing program, exclusively designed for Manufacturing Leadership Council Members.

› Listen to the introductory Webinar with Cambridge Leadership Associates at http://www.manufacturing-executive.com/community/webinar_adaptive_leadership.

› Book your place on the 2012 Leading Adaptive Change in Manufacturing program.

› Call 888-280-6794 or send e-mail to [email protected].

W W W. M A n u fAC T u r I n g - e x e C u T I v e . C O M

M e g l o b a l L e a d e r s h i p C o m mu n i t y

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It’s About Time

B y R a j a n S u r i

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For makers of custom and low-volume products, Lean and traditional cost-based improvement methods may not be the best fit. Instead, an approach that optimizes agility and dramatically reduces lead times across the enterprise is the way to go.

@RB03_Suri_v4.indd 2 2/16/12 9:48 AM


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zation of your entire en-terprise and your supply chain. For certain types of companies and markets, an agile organization that responds quickly to or-ders, changes, and other events will not only satisfy customers with short lead times but also take a huge chunk out of the remaining 93% of costs. The result is both quick re-sponse to customer demand and the ability to compete with any factory, making prod-ucts anywhere in the world.

For low-volume or custom-engineered products, neither traditional management methods nor the newer Lean approaches provide the best cost-reduction strategy. Tra-ditional, cost-based methods optimize for economies of scale. But these methods also result in long lead times in the supply chain and factory. These lead times result in added costs of planning, forecasting, expediting, work-in-process, and fi nished-goods inven-tories; lost sales; obsolescence; and more.

Similarly, because Lean methods were designed for high-volume, repetitive manufacturing environments, many Lean tools break down when applied to low-vol-

ume or custom manufacturing. The Center for Quick Response Manu-

facturing, along with more than 200 part-ner companies, has developed during the past 15 years an alternative strategy for reducing lead times and costs, particularly for manufacturers of low-volume and cus-tom products. Using the principles of what we call Quick Response Manufacturing (QRM), our partner companies have re-duced lead times by more than 80%. At the same time, they have realized cost reduc-tions of 15%-25%, outweighing the labor-cost advantages of low-wage countries.

Thinking Beyond Lean and Six Sigma

The core tools in Lean such as takt time and level scheduling are de-signed to eliminate variability in

operations. Six Sigma also targets reduction of variability. While this sounds good, the trouble with these approaches—and why we need to think beyond them—is that manage-ment literature has not clarifi ed the issue of

T rue or false: U.S. manufacturing jobs will continue to be lost to China and other lower-cost countries because we simply can’t compete with their labor costs. False. Typically, only 7% of the fi nal price of your made-in-the-USA product is due to direct labor. So, what accounts for the remaining 93%? Your organization. Or more precisely, the organi-

Traditional, cost-based methodsoptimize for economies of scale. But these methods also result in long lead times in the supply chain and factory.

Rajan Suri is Emeritus Professor and Founding Di-rector of the Center for Quick Response Manufacturing at the University of Wisconsin-Madi-son. His latest book on QRM is It’s About Time (Productivity Press, ).

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Feature / It’s About Time /4/8

variability in a manufacturing business. In fact, there are two types of variability: › Dysfunctional variability, caused by errors and poor systems. Examples are re-work, machine breakdowns, and constantly changing priorities.› Strategic variability, introduced by a company to maintain its competitive edge. Examples are serving markets with unpre-dictable demand, offering a high variety of options, and customizing products for indi-vidual customers.

Like Lean and Six Sigma, QRM aims to eliminate dysfunctional variability. Howev-er, you don’t want to eliminate strategic vari-ability if it is the basis of your competitive advantage. So, in QRM you do not eliminate strategic variability, you exploit it.

In fact, exploiting strategic variability is becoming increasingly important. The future of manufacturing in advanced na-tions such as the U.S. lies in “mass custom-ization”—providing individually tailored products in short lead times.

A truly agile organization, in my view, is one that is able to exploit strategic vari-ability and respond to demands for myriad products without becoming overwhelmed by complexity. QRM provides an enter-prise-wide framework that allows manu-facturing companies to exploit strategic variability and still operate effectively, often more effectively than before. QRM achieves this through four core concepts that can help manufacturers significantly reduce lead times by changing traditional practices:

1 Realizing the Power of Time 2 Rethinking Organizational Structure3 Exploiting System Dynamics4 Implementing a Unified Strategy Enterprise-Wide

Core Concept #1: Realizing the Power of Time

What if your company’s lead times were 90% shorter? What activities and tasks could be

eliminated? What investments in materials or resources could be reduced? Also, what new opportunities would be available to your com-pany? To help cement my point, take a few minutes to list a few items in each of these cat-egories (see sidebar for examples).

This list should help you realize that these items are truly waste in your enterprise. They are vestiges of your long lead times. This is an eye-opener for executives as they see that there is more waste due to lead times than they thought.

Note that hardly any of these lead-time-re-lated costs involve direct labor. Most of them are indirect costs. Even purchased material costs, which can be a significant portion of a product’s final cost, can be reduced by short-ening lead times. By implementing QRM in their supply chains, companies have reduced costs at suppliers’ factories as well as their in-

............................................................................................................................................

The future of manufac-

turing in advanced

nations such as the U.S. lies in “mass cus-tomization”—

providing individually

tailored prod-ucts in short lead times.

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Enterprise-Wide Waste Due to Long Lead TimesExamples of activities and costs that would shrink or be eliminated if lead times were reduced:

• Expediting of hot jobs• Production meetings to update priorities• Overtime costs caused by the need to speed up late jobs• Time spent by sales, planning, scheduling, purchasing, and other departments to develop forecasts and frequently update them• WIP and finished-goods holding costs, handling activities, and space usage• Obsolescence of parts made to forecast• Quality problems not detected till later, causing rework or scrap• Sales time for expediting jobs and explaining delays to customers• Complex computer and organizational systems to run this environment

Examples of lost opportunities because of long lead times:

• Opportunity to increase sales of current products• Opportunity to gain market share through rapid introduction of new products

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ternal lead-time-related waste. But the beauty of this approach is that

at the same time, companies have achieved lead-time reductions of 80%-90% and huge improvements in on-time delivery and quality. Combined, these cost, quality, and lead-time improvements have given them tremendous competitive advantage.

Why aren’t managers more aware of the enormous impact of long lead times? Ac-counting systems miss the connection. Costs of indirect activities such as those on your list and in the sidebar are usually placed in an overhead pool that is applied across all products and disconnected from root causes.

In summary, this fi rst core concept shows managers why reducing lead times is so benefi cial and why they should make it a primary goal.

Core Concept #2: Rethinking Organizational Structure

To reduce lead times, you need to rethink the structure of your orga-nization. Figure 1 (see next page)

shows data for orders processed at a Mid-west manufacturing company (the numbers are averages from actual orders). A typical order goes through four departments, gen-erating a total lead time of 34 days. The gray spaces in Figure 1 show the “touch time” in each department, the time when someone is actually working on the order. This gray

space accounts for less than 20 hours. The rest, the white space in the fi gure, is time when nothing is happening to the order. Based on hundreds of lead–time-reduction projects, I can state that touch time usually accounts for less than 5% of lead time, and in many cases less than 1% .

Despite this statistic, traditional effi ciency programs focus on reducing touch time such as the labor time required to assemble a prod-uct, or the machining time on a lathe. This is further emphasized by accounting systems that assume product cost is driven by direct la-bor and/or machine times. To see the shallow-ness of such approaches, note that even a 20% reduction in touch time in the example above would amount to four hours, which would barely impact the 34-day lead time.

To reduce lead times, companies need to shift from cost-based to time-based think-ing. Seeking effi ciency, most businesses divide themselves into many specialized departments, each focusing on one aspect of the job. Cost pressures force managers to minimize resources, so people and ma-chines are highly utilized and there are backlogs in each department. Combined with the handoffs between departments, the result is long lead times and waste.

Instead of focusing on touch time, manu-facturers should concentrate on reducing total lead time, not just touch time. To reduce lead time while also creating an effective structure to deal with strategic variability, QRM makes four changes to traditional organizations:

› From functional to cellular: Func-


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Feature / It’s About Time //�

A typical order generates a total lead time of 34 days, but the “touch time” when someone is actually working on the order accounts for less than 20 hours.

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Related Articles: Innovation atThe Corewww.manufacturing-executive.com/core

Cutting Inventory? Know theConsequenceswww.manufacturing-executive.com/cutting

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Reducing Lead Times Requires a Time-Based Focus

tional departments are transformed into QRM Cells. Unlike many cells implement-ed today, QRM Cells do not require linear flow; they accommodate a variety of jobs with different routings. Not only are QRM Cells flexible, they are more holistic in their implementation, and can also be applied in-side and outside the shop floor.

› From top-down control to team own-ership: In place of supervisors, QRM Cell teams manage themselves and have owner-ship of all processes within their cell.

› From narrowly focused workers to a cross-trained workforce: Instead of rely-ing on highly specialized workers, people are trained to perform multiple tasks. Sig-nificant increases in quality and productivi-ty result from combining cell structure with cross-training and ownership.

› From cost-based goals to lead time re-duction: Traditional goals of efficiency and utilization are replaced with a relentless focus on lead-time reduction. We find that these or-ganizational changes and the focus on lead-time reduction also result in significant qual-ity and on-time delivery improvements.

National Oilwell Varco (NOV), head-quartered in Houston, has significantly re-duced lead times using QRM Cells. NOV is the world’s largest manufacturer of au-

tomated oil- and gas-well drilling and pipe-handling equipment, with annual sales of around $10 billion. NOV’s factory in Or-ange, CA, illustrates strategic variability. The facility makes 60,000 different parts annually, most in low quantities. But NOV was experiencing increasingly long lead times and late deliveries. Management at the factory felt that Lean was not suited to NOV’s customized, low-volume business. Instead, they decided to implement a QRM Cell for a set of customized products. With-in two years, the lead time of these products was slashed from 75 to four days.

In addition, as a result of the cell team’s im-provements and the benefits from reducing indirect costs such as supervisors, expediting, material handling, and floor space, the cost of these products was reduced by more than 30%. NOV’s Vice President of Global Manu-facturing Strategy, Greg Renfro, is now roll-ing out QRM to all of NOV’s factories.

Core Concept #3: Exploiting System Dynamics

When a factory manager spends $2 mil-lion on a new machine, he or she typically thinks, “We have to make sure this machine is busy making parts all the time.” But the fact is, you might actually make more profit

............................................................................................................................................

In a perfect world, you

could operate your factory at 100% ca-pacity. But in the real

world, orders don’t arrive as planned,

jobs can take longer, tools can break,

parts must be scrapped, and

so on.

M

$$$

Order Entry5 days

Component Fab12 days

Assembly9 days

Pack and Ship8 days

3 hours 12 hours 2.5 hours 2 hours

Total Touch Time: 19.5 Hours

Total Lead Time: 34 Days

Time-Based Focus

Cost-Based Focus

Touch Time

Elapsed Time

F i g u r E 1:

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Feature / It’s About Time /7/8

if the machine is completely idle for 15% of its normal working time.

Most managers would respond, “But we are wasting capacity, and our costs will be higher than those of our competitors who use fewer resources.” However, system dynamics theory tells us that lead times increase enor-mously as resource utilization approaches 100%. I explain this to managers via a simple graphic I call “The Magnifying Effect of Uti-lization” (see Figure 2).

We have experienced this effect in many as-pects of our lives. You get to a major airport

in the middle of the day and you are able to pass through security in a mat-ter of minutes. But arrive at the same airport around 5 pm, and it could take more than an hour. That’s be-cause suddenly, there’s too much demand on already maximized resources.

It’s the same in manu-facturing. In a perfect world, you could oper-ate your factory at 100% capacity with a plan that worked like clockwork. But in the real world, orders don’t arrive as planned, jobs can take longer, tools can break, parts must be scrapped, and so on. If you load up your factory based on high utilization of re-sources, even small dis-ruptions cause large back-logs because you don’t have enough slack capac-ity to catch up. The inter-esting point is that only a little spare capacity goes a

long way (see Figure 2, “The Miraculous Effect of Spare Capacity”).

Executives immediately worry about the cost of this spare capacity. But, with shorter lead times, the reductions in system-wide costs outweigh the investments in addi-tional resources, plus there is an increase in sales. Companies implementing QRM have found that their investment in spare capac-ity is paid back handsomely.

Phoenix Products, a Milwaukee-based high-mix, low-volume manufacturer of industrial lighting products, began im-plementing QRM five years ago. If you thought maintaining 15% idle time was cra-zy, listen to this: Phoenix routinely plans for 25% excess capacity. The company has seen that the cost is paid back several times over through reductions in indirect labor, ex-pediting, urgent shipments, and overtime. Revenue per worker has increased substan-tially, and lead time for a typical light fix-ture has dropped from eight weeks to two.

Core Concept #44: Implementing a Unified Strategy Enterprise-Wide

But this time-based mindset is not just about the shop floor. The same lead-time-reduction princi-

ples can be used enterprise-wide, including office operations, supply management, and production control policies.

QRM provides a cell concept tailored for the office environment, called a Quick Re-sponse Office Cell, or Q-ROC. Activities like quoting, engineering, and order processing can significantly extend lead times and in-crease indirect expenses. Q-ROCs have been effective in reducing office lead times by up to 90%, as well as providing other benefits.

As manufacturing executives become more aware of the impact of lead times, they often begin to include time as well as cost as a sup-ply chain metric. As a result, QRM produces

0% 100%

Lead

Tim

e

Utilization

0% 100%

Lead

Tim

e

Utilization

The Magnifying Effect of Utilization

The Miraculous Effect of Spare Capacity

F i g U r e 2 :

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fundamental changes: It uses lead-time re-duction as a focus of supplier improvement programs, and it impacts the way sourcing decisions are made. For example, for certain parts, QRM encourages the use of local sup-pliers with shorter lead times rather than low-cost overseas suppliers that may have lead times of many months.

QRM also offers a new tool for produc-tion control in low-volume environments. Kanban systems are an important part of the Lean toolkit. Kanban works well with higher-volume manufacturing. But if a part has low annual usage, Kanban encourages you to carry inventory, which spends most of its time sitting around. And if you need to make a custom-engineered part, Kanban makes it diffi cult for you to have stock of that part ahead of time.

In low-volume environments, we encour-age the use of POLCA, which stands for Paired-Cell Overlapping Loops of Cards With Authorization. POLCA connects pairs of cells with circulating cards like Kanban. However, while a Kanban card is an inven-tory signal, a POLCA card is a capacity sig-nal, indicating capacity at the downstream cell. POLCA signals ensure that upstream cells work on jobs that will go somewhere instead of working on jobs that will end up sitting at other bottlenecks. Thus, POLCA makes more effective use of your capacity and keeps jobs moving. Areas that are bot-tlenecked get avoided, and work is sent to other areas that can use it.

Located in Milwaukee, P&H Mining Equipment manufactures large custom equipment such as mining shovels and draglines. P&H had been implementing QRM Cells for several years before it decid-ed to connect them with POLCA. During the fi rst year it implemented POLCA, P&H reduced its WIP by $3 million—even in the face of increasing production targets.

Securing Your Company’s Future

The arena in which manufacturers compete is morphing rapidly. Man-ufacturers in emerging countries are

rising as competitors. Technology is enabling increased product variety and customization. The Internet is changing the way customers interact with companies. In this fast-chang-ing world, agile organizations will come out on top. QRM offers an enterprise-wide strat-egy and detailed principles to enable compa-nies to become more agile and effective.

RenewAire is a Madison, WI, manufac-turer of energy recovery ventilation systems. It tailors each system to individual cus-tomer needs, resulting in tens of thousands of product variants. Through QRM, Re-newAire reduced product lead times by more than 80%. As a result, this tiny company gob-bled up market share from larger competi-tors and increased its revenue by 140% in fi ve years. It also saw a signifi cant productivity improvement, requiring only 73% growth in employees for that increase in revenue.

Factory workers in the U.S. live in daily fear of their jobs being outsourced to low-wage countries. The fact is, labor accounts for very little of the end-product price. By focusing on reducing lead times and applying other principles of QRM to reduce enterprise-wide costs, you can wipe out the labor-cost advan-tage of low-wage countries. Also, for custom-ized products that cannot be stocked, overseas com-petitors need extra time for shipping, so your low price combined with short response times will make it impossible for them to compete with you. M

............................................................................................................................................

The time-based mindset

is not just about the shop fl oor. The same

lead-time-re-duction prin-ciples can be used enter-prise-wide, including

offi ce opera-tions, supply management, and produc-tion control

policies.

M

@RB03_Suri_v4.indd 8 2/9/12 1:58 PM

McLaren’s Flexible Factory

British automotive company McLaren is heading for the

fast lane of the world’s luxury car market with an innova-tive new sports car design.

McLaren’s new purpose-built production facility, with

Alan Foster in charge, is based on a forward-thinking

operational philosophy of simplicity and fl exibility.

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Fast and furious: Foster says the new state-of-the art McLaren facility is part of “building an iconic car company.”

@RB03_Dialogue_v6.indd 2 2/9/12 2:16 PM

n the heady summer of 1966, the streets of Monte Carlo were an exciting place for the ambitious engineers of a new racing car company. Set up in the U.K. by New Zealand racing driver Bruce McLaren three years earlier, it was the company’s fi rst Formula One Grand Prix race. Some 48 years and 170 Grand Prix victories later, McLaren

is one of the longest-surviving racing car teams in the Formula One world, second only to Italy’s Ferrari. Under the executive chairmanship of Ron Dennis, McLaren has become more than just a racing car company. The

IMcLaren Group is now a diversifi ed set of collaborative, high-technology companies covering racing cars, precision electron-ics, advanced new composite materials, and high-tech manufacturing. All of them, Den-nis says, are “built on the shared synergies of innovation, creativity, imagination, and a commitment to excellence.”

McLaren’s latest venture is a potentially market-busting, $230,000, 205-mph luxury sports car to take on market leader Ferra-ri. McLaren calls it the MP4-12C, and al-ready has more than 2,000 orders booked. The company has also opened a dedicated new $79 million, 32,000-square-meter (344,000-square-foot) McLaren Produc-tion Centre (MPC) at its Woking, U.K., headquarters, where it aims to build up to 4,000 of the new cars each year. The low-profi le, eco-friendly building is just 11 meters (36 feet) high, but has a second level under-ground for storing parts before assembly and paint mixing for the car’s 56-stage paint pro-cess on the fl oor above. This sunken structure also cuts down heat loss, keeping the whole building within a degree of 22 degrees centi-grade (72 degrees Fahrenheit) at all times.

After a career with some of the world’s leading mass-market auto brands, Alan Foster is now McLaren’s Director of Oper-ations for the new state-of-the-art plant. In

our latest exclusive Dialogue interview with a leading global manufacturing executive, Foster talks to MELJ Executive Editor Paul Tate about how McLaren has designed its new production plant with an overriding focus on simplicity, fl exibility, and continu-ous innovation.

Q: What excites you about your role at McLaren? A: Cars fascinate me. I’ve lived, breathed, and slept auto my entire career. It’s my pas-sion. I came out of a facility that made one car about every 62 seconds—1,000 a day. Right now, we’re producing just 10 units a day in the current start-up phase. You may think that sounds quite relaxing, but the challenges are absolutely immense because you don’t have the logistical momentum behind you. You really have to think very cleverly and very subtly and with a degree of fl exibility that I’ve never encountered before. It’s the fusion of all of the infl u-ences and techniques that I’ve learned from around the world in the auto industry, with precision Formula One hand crafts-manship. It’s about building an iconic car company, not just transforming an exist-ing company—and that’s an opportunity someone with a passion for cars could nev-er let go by.

Dialogue / Alan Foster / McLaren Automotive//�




Q: How would you characterize today’s global auto industry?

A: If you go back 10 to 15 years, you could probably take all the car companies in the world and place them on a one-meter rule and they would be equally dispersed in terms of their overall ability. If you were to do the same now, most of those companies would probably be congested in the fi rst centimeter. The gap between us has closed signifi cantly. Everybody can do quality. Not just for car companies, but most manufac-turing companies. Whether you’re building Airbus wings, kitchen appliances, whatever, there’s an expectation from the customer base. You’re going to take it out of the box, and it’s going to do exactly what it says on the packet. It’s going to look good and feel good, and you’re going to feel happy about the money you’ve spent. Whether you’re spending $20,000, or $200,000, or a million dollars on a car, there is an expectation that it’s quality, it’s luxury, it doesn’t break down, is dependable, it looks fantastic, and it does everything that you expect it to do.

I think the Internet has massively con-densed the global market. People who used to be in countries that didn’t have acces-sibility to that information can now freely

access it. They have aspirations, and those aspirations are normalized. The general ex-pectation of people has gone up. That re-ally defi nes what’s happened in the last 10 years. Second place is just not acceptable anymore.Q: So, what’s driving McLaren’s new man-ufacturing strategy?A: For McLaren Automotive, we’re try-ing to redefi ne what owning a sports car means. We are always asking ourselves, how can we do this better, faster, or in an innovative or new way that challenges convention? This is a brand-new car from scratch. The business model is built around a luxury sports car that comes from the DNA of your Formula One team and our technical expertise in material technolo-gies and electronics technologies. We’ve brought technologies into this vehicle that were not available at this price point before. Playing to that power allows us to produce a product that makes us a more profi table organization. Q: What does your role entail in this new venture?A: There are two key aspects to my orga-nization here—manufacturing and qual-ity. As a manufacturing expert, I’ve always been extremely keen on the quality of the product. I see no differentiation in the two roles. It’s all about customer satisfaction. As Operations Director, one aspect is ev-erything around the physical manufactur-

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I think the Internet has massively condensed the global market. People who used to be in countries that didn’t have accessibility to that information can now freely access it.




ing of the vehicle—the body construction, the painting of the car, the assembly, and the certification of the car for shipping. That’s the manufacturing arm, and with that comes subsets of process planning, manufacturing, engineering, and working with the design teams. The second part is everything to do with the quality of the vehicle, and that spans all the way back into supply chain and the quality of prod-ucts from our partners—so it covers all the parts that come in through our goods and receiving group, which also sits under my role. Then, [we go] through the vehicle auditing and confirmation process, and final certification. And it goes right out into the warranty field, so there’s an after-sales warranty that comes back through my organization, too. It’s almost cradle-to-grave in product, and cradle-to-grave in manufacturing.

Dialogue / Alan Foster, / McLaren Automotive/4/6

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Executive Profile Alan Foster, Operations Director, McLaren AutomotiveNationality: BritishBased: Woking, Surrey, U.K.Education: Honours Degree (1st Class) in

manufacturing engineering and M.B.A., Cranfield University

Languages: English and GermanPrevious roles:

-General Assembly Unit Manager, Vauxhall Motors - Lean Consultant for GM International Operations, GM Europe - Plastic and Paint Unit Manager, Toyota Manufacturing U.K.

Flexible flyers: McLaren’s facility can be modified to produce a new model “at a few days’ notice,” according to Foster.


Q: Were you directly involved in the development of the new factory, too? A: Yes. Over the last three years, I’ve been working with our design teams on the con-ceptualization and development of the manufacturing facility, McLaren Produc-tion Centre, or MPC as we call it. We have been conceptualizing and designing it in such a way that it will cope with everything that I’m aware of through to the mid-2020s. So, trying to come up with a canvas and a production system that allows us to cope with everything our design team is current-ly thinking about for the future has already been preordained for life in MPC.Q: What makes the new McLaren Production Centre so di� erent?A: I think this is one of the fi rst times in the industry that a production facility has been built around the concept of the car itself. The plant layout, logistics, and quality pro-cesses have been designed to maximize the production requirements and effi ciencies of the vehicles we will produce. I’m aware of what our design team, engineering team, development teams are thinking for the fu-ture. This is a plant that is building a brand-

new car, designed from scratch. The next cars in the range are going to benefi t from that. You haven’t got to put in that infra-structure. For the future, it’s simply about minor modifi cations, alterations, and up-grades for future models from a root DNA that is now fi rmly established. I know what the product portfolio is going to look like, and I have designed a facility that allows that to be accommodated without any signifi cant infrastructure changes for the next 10 to 12 years. We’re not going to be breaking walls down. We’re not going to be moving great big pieces of equipment around and disrupting the production fl ow, creating noise and actually spending more money.Q: So, fl exibility was very important to your approach. A: The brief that we gave ourselves at the design stage was that we needed lots of fl exibility going forward. We don’t want to be spending an awful lot of money disas-sembling and moving things around, but we want to be able to adapt things quickly. The new plant is designed so that all the tooling and assembly stations are fl exible so we can change almost the entire layout of the plant at a few days’ notice. But I won’t be buying a new paint shop for many years. It’s the same with our dynamic test facility. It’s fl exible enough to cope with everything. That makes the whole process more effi cient for the future.


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[Advanced technologies] open the door to spare-part inventory management, so maybe you don’t need racks and racks of spare parts. You just dial in and get one made for you there and then.



ture. This is a plant that is building a brand-

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[Advanced technologies] to spare-part inventory management, so maybe you don’t need racks and racks of spare parts. You just dial in and get one made for you there and then.


@RB03_Dialogue_v6.indd 6 2/14/12 9:06 AM

So, for the next vehicle that we bring to market, I have a very modest manufactur-ing investment budget. That’s the payoff for making adaptability part of the design of the plant from the very beginning. And this approach reflects the marketplace. The market expectation is of something new next year, something new the year af-ter that, and something new the year after that. So, very rapid development, and very rapid change. People live in a fast-paced world, and they want a fast-paced re-sponse from manufacturing.Q: What do you think makes the new McLaren Production Centre so innovative?

A: I think it’s the overall simplicity of the system. One thing that pleases me most is that wherever I stand or wherever the man-agement team stands at any point in the shift, you can see everything that’s going on. In terms of the span of control and grasp of understanding of where your is-sues are, you can stand anywhere in MPC on that ground floor and you can see the body shop, the paint shop, general assem-bly, and the certification. You can feel and sense how the pulse is going.

It was also really McLaren Automo-tive’s first opportunity to bring all the dis-parate parts of manufacturing together. In our previous ventures, things had been displaced by up to 50 miles. It was a very disjointed system. Our logistics center was in a separate warehouse, so there were a lot of inefficiencies in that. Part of the model-ing that we did was to bring our automo-tive logistics center into MPC. As a part comes in, it’s now encoded and taken to the closest available docking station, then captured on a central database. It’s a very sophisticated system. All of that was mod-eled in terms of the parts flow to line, so that we could iron out any bottlenecks and

decide on the level of storage and capabil-ity that we wanted. Q: Was digital modeling technology helpful in that process? A: Yes. There was a lot of digital modeling involved in the design of the MPC itself. Things like airflow, the temperature pro-filing and energy consumption within the building, were also modeled. But also at a product level, I spent a lot of time over the last 2½ years on digital modeling, some-thing you typically see in larger-scale or-ganizations but maybe you don’t see quite so much on the lower-scale volumes. We pushed very hard on that.

If you take the new 12C, for instance, we digitally modeled more than 3,000 cars before we even made our first one by tak-ing the CATIA design information and the geometrical tolerancing system that we use, and digitally constructing the cars in a virtual way. The system is called 3DCS. It’s a digital modeling system, and it allows you to work out what the influence of en-gineering changes will be on the cosmetics of the vehicle. So, you can get back to the source in terms of engineering decisions, and that all links in with the manufactur-ing decisions you need to design and de-velop the best production systems. Q: What still keeps you awake at night?A: I’m more relaxed than I probably have

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This is a plant that is build-ing a brand-new car, designed from scratch. The next cars in the range are going to benefit from that. You haven’t got to put in that infrastructure.


been for the past six months now that the MPC is offi cially open. I always try to set myself the goal that when I leave at the end of the day, I have to feel I’ve completed something, but my mind never switches off. Some of our managers quite often will talk to me in the morning and go, “Do you never sleep?” I’m sorry; I woke up at 3 o’clock. This idea came into my mind, I fi red an e-mail off, and then I go back to sleep. I don’t see that as a pressurized environment. That is a self-challenge. It’s about always looking for an opportunity to improve. Q: What are your biggest challenges le� for the future? A: The biggest single challenge that I’ve got right now is that I will make no compro-mise on quality whatsoever. That’s over-riding. I will focus on the overall total cost package. We are a manufacturing orga-nization, but as a businessman, it’s about making a profi t. We need to match that objective by providing an excellent service that ensures our customers’ expectations are exceeded.

I think from the manufacturing standpoint, it’s going to be scaling up to the full output of a single shift. In about two years’ time we’ll

scale up to produce a full range of sports cars. That will necessitate a two-shift pattern; new ground for McLaren. A variety of different ve-hicles in production will require a much more complex manufacturing model, and the indi-vidual challenge will come from maintaining simplicity.Q: What new technologies excite you for the future? A: Through our Formula One team, we do a lot of rapid prototyping. We’re already working with advanced technologies, and are at the forefront of developing some of the more innovative and obscure materials for additive manufacturing. This is where our connection with McLaren’s Applied Technologies company comes in very handy. No longer is this stuff a kind of gloopy gel that it was in the past. We’re exploring dif-ferent substances, scented materials, stain-less steel powders, and so on. It opens up the door to spare-part inventory management, so in the future maybe you don’t need racks and racks of spare parts. You just dial in, and you get one made for you there and then. Q: How do you encourage that kind of in-novation across the McLaren culture? A: We have an edict that everything that we do should take your breath away, be it the engineering, be it our buildings, be it our behavior sets, the way that we talk with people. That ethos and way of working sets the behaviors right through our electron-ics organization, our Applied Technolo-


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We say to our people when we go through a new staff induction thatit’s your obligation to disagree. I’m happy for anybody to challenge me.I still don’t believe I know everything.



a single shift. In about two years’ time we’ll

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We say to our people when we go through a new staff induction thatit’s your obligation to disagree. happy for anybody to challenge me.I still don’t believe I know everything.


@RB03_Dialogue_v6.indd 8 2/14/12 9:06 AM

gies organization, and our client services. Every bit of McLaren exudes this connec-tivity. There’s a tremendous amount of conversation that goes on all the time where people are challenging things. That’s real-ly where the power comes from. We actu-ally say to our people when we go through a new staff induction that it’s your obliga-tion to disagree. If you see something that you don’t agree with, don’t be a shrinking violet. Challenge it. It might be a lack of information. It might be a misunderstand-ing. But on occasion, it is that clarity that comes from somebody who is not immersed in something. They can see things you can’t. As Operations Director, I’m quite happy for anybody to challenge me. I still don’t be-lieve that I know everything. Q: If you had a watchword for the future of manufacturing, what would it be? A: Never be satisfied with what you’ve done. M

Dialogue / Alan Foster, / McLaren Automotive/6/6

Fact File McLaren GroupHeadquarters: Woking, Surrey, U.K.Business sector: Automotive, motorsport,

advanced manufacturing, and high-tech engineering

Revenues: $476 million (£300 million)Net profit: $100 million (£63 million) Product sectors: Formula One motor racing,

high-performance sports cars, electronic systems, applied technologies

Key brands: Vodafone McLaren Mercedes Formula One team, McLaren MP4-12C high-performance sports car, McLaren Mercedes SLR and F1 supercars

Number of employees: 1,864Presence: Retailer network in 19 countriesProduction: McLaren Technology Centre

and McLaren Production Centre, U.K.

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Manual labor: The $230,000 McLaren MP4-12C, designed from scratch, is hand-built in the MPC facility.


Even as complexity increases, manufacturers must become more adaptable in how, and how quickly, they respond to everything from shifting customer expectations to natural disasters that threaten supply chains. At a recent meeting of the Man-ufacturing Executive Leadership Council, leaders discussed the organizational, cultural, and leadership qualities that enable adaptability. E d i t e d b y J e f f M o a d

A PAssion for Agility

@RB03_Roundtable_v5a.indd 2 2/9/12 2:55 PM

Roundtable Participants

Jim DavisVice Provost, Information Technology, and Chief Academic Technology Officer, UCLA

Robert DeanExecutive Director, Manufacturing Industry Vertical, Cisco Systems

John GagelManager, Sustainability, Lexmark International

John GercakVice President, Informa-tion Technology, Eaton Corp.

John JackoVice President and Chief Marketing Officer, Kennametal

George NickelDirector, Global Process Architecture, Johnson & Johnson

Richard SadeVice President, S&S Hinge

Vince SerpicoSenior Vice President, Operations North America, L’Oréal

Sanjay SinghHead of Global Strategy, Manufacturing, HCL Technologies

Mark SymondsPresident and CEO, Plex Systems

moderatorsDavid R. BrousellVice President & Editorial Director, Manufacturing Executive

Jeff MoadExecutive Editor, Manufacturing Executive

hat does adaptability mean to you? Does it mean being able to change over production lines quickly, re-spond more rapidly to customer

demands and service requests, customizing products for new markets, or something else? Serpico: Our business is all about launching new items, so adaptability is talked about quite frequently. With respect to the ability to move quickly, to see a market trend and to jump on it, manufacturing and the supply chain have to be in line with the marketing and sales thinking. Our key mission is to be fast and good in order to supply what’s needed to the cus-tomer. Our CEO asks us, “We have to get this to mar-ket by X. What can you do to trim the timeline, make it faster, or get it into the hands of the consumer faster?” Many of the con-versations revolve about what we can do to adapt the timeline.Gercak: For us, we have to have people who work in a more matrix organization and who are able to communicate across multiple functions, be open-minded and open to new things. That’s on the structure side.

From the execution side, it’s us getting better at antici-pating, getting better at planning, getting better at meet-ing mature market demand as well as emerging market demand overall, and we’ve got varying degrees of matu-rity across the organization in those.

Brousell:W........................................................................................................................................................................................................................

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Gagel: You have to plan for adaptability. Think about supply side volatility and dis-ruption—your continuity plans. How are you planning for things that might happen? A great example is the tsunami we had last year in Japan and the fl oods in Thailand, and their impacts on the supply chain. I would say our approach has been very similar to others, but I do think that this is something that you have to have top of mind all the time; otherwise, you’re going to get caught.

Sade: We took a mission two years ago where we went out to our customer base, took our top 50 customers, and did an old-fashioned survey of the

market and our performance. The survey came back to us, and it was very clear that we had some distinct advantages in the mar-ketplace versus our competition. One of them was the way we handled customer ser-vice and have adapted over the years from a technical-based organization to one that fo-cuses on speed to the customers, of getting information from them through a design to the shop fl oor and into manufacturing. Then we looked at the adaptability of our suppliers because, in our industry, every-thing is about the materials that we use in our production and how quickly we can turn raw material into fi nished products, and get them out to the marketplace.

We’ve done a lot of work with trying to look internally at what we had to do with adapting our workforce and ERP system to formulate this new business plan. We have an older workforce here. Some of our operators on the fl oor have been with the company 25 years. Our customer service people have been here 30 and 40 years. So, getting them to change the culture and

look at the [markets] in terms of speed and service has really been the adaptability that we’ve focused on for the last two years. Brousell: How is it going?Sade: We’re about 80% into it, and we’ve seen quite a good result within the market-place and picking up some market share. We’ve seen it in the bottom line, in profi tabil-ity, too, so the business plan defi nitely was a step in the right direction.Brousell: One of our most recent polls showed that our community is moving very, very strongly to on-demand produc-tion models. The old build-to-stock model is now [maybe] a fi fth of the readership base, and the rest of the base is rapidly em-bracing different models, whether it’s engi-neer-to-order, assemble-to-order, or some variation thereof. Do you feel underlying business trends such as this are compelling the need for greater adaptability?

Jacko: We have an engineered solutions business as well as a standards business. I would say that as we look ahead, more of our customers are

moving toward an engineered solution versus a standard. Now, that’s something that we are constantly working on. How do we have one of our businesses maybe be a little bit more adaptable than the oth-er side of our business?Brousell: How do you factor in adapt-ability criteria when you’re looking at suppliers, when you’re deciding whom to go with, structuring agreements, etc.? Is there some formula you use for that?

Gagel: I think everybody that has dealt with suppliers knows that there are so many things that go into picking a supplier: ability to deliver, cost, and via-

bility of that supplier. I think what we might be faced with in our industry is the supplier’s


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people have

been here 30

and 40 years.

So, getting them

to look at the

[markets] in

terms of speed

and service has

been the

adaptability

that we’ve

focused on.

—RICHARD SADE

VICE PRESIDENT, S&S HINGE



@RB03_Roundtable_v5a.indd 4 2/14/12 9:11 AM

Roundtable /A Passion for Agility/4/6

ability to adapt on the fly. Would [the suppli-er] be able to do more than one, two, three, or four models for us? It’s definitely some-thing you’ve got to consider, but it’s just a piece of the larger pie when you look at your relationships with your suppliers.

Dean: In a lot of the work we’re doing around opera-tional risk management, we’re seeing adaptive organizations starting to look at how they re-

spond to changes in the marketplace, both positively and negatively. With wars, natu-ral disasters of flooding in Thailand, all that stuff, as well as getting into new mar-kets and launching new products, the com-plexity of your supply chains is starting to increase as well. Operational risk manage-ment is also something that we’re seeing as really rising in terms of focus around an adaptive organization.Brousell: Is simplification a core compo-nent of adaptability? Do we have to push simplification of processes, of ideas, the way we build things, the way we go to mar-ket, in order to be adaptive?

Gercak: I think it’s twofold. We are seeing that the complexity is going to continue, certainly from a customer-facing per-spective. I think from the per-

spective of the execution in meeting those customer requirements, we definitely have an approach of simplification and stan-dardization through our Eaton Business System, etc. So, it’s not easy, but I think it is twofold. I think on the front end, the cus-tomer-facing side, it is certainly going to get more complex. We’ve got multiple types of orders and engineer-to-order, make-to-stock, assembly, etc., depending on the cus-tomer. But certainly our approach is to try to simplify and standardize from an execu-tion standpoint.

Symonds: The routine pro-cesses, there’s always an effort underway to streamline, to Lean out not only the manu-facturing processes but the cus-

tomer-facing processes. But I think product complexity, complexity of the offerings is not going to abate. We’re seeing micro-seg-mentation in a lot of different industries. The cycle times for products are shrinking. Product complexity, manufacturing com-plexity will increase, but I think the process-es will continue to be Leaned out.Brousell: How do you do strategic plan-ning when you’re trying to consider adapt-ability so strongly as part of your way of operating? Is it possible actually to do a five-year plan, or is there some way to make the planning much more responsive, much more flexible going forward? Is there such a thing as a long-term plan anymore?

Serpico: You have to have a long-term plan in general. The danger is getting too spe-cific. I think you have to keep it in a general sense and keep

it at a macro level. Otherwise it gets a little bit cumbersome and not very fruitful.

Part of our strategic discussion is al-ways what our Plan B is. You always need a secondary plan to address the needs—

Our CEO asks us, “We have to get this to market by X. What can you do to trim the timeline, make it faster, or get it into the hands of the consumer faster?”

—Vince Serpico

Senior Vice PreSident, oPerationS north america, L’oréaL

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capacity concerns, market concerns. So, yes, that’s more and more part of our dia-logue and a necessary one to handle the uncertainties of the future.Gercak: From a project planning process, our horizons have gotten shorter. We do identify—and they get pretty specifi c—what we call key strategic issues, or KSIs, and develop some actions around them. Those actions have varying contingencies as well as the Plan A, B, and C on the ex-ecution over the next year. So, we do both, but I think in general it has gotten a little less specifi c, a little bit more macro. Cer-tainly, the time horizon has changed.

Davis: When we get into this discussion of agility, we fi nd ourselves looking pretty heavily at that layer of deci-sion in the operations that

has to do with tradeoffs and risk. The no-tion there is to ask, “How do we actually plan and move our organizations toward thinking about how to deal with those tradeoffs?” This gets back into the com-plexity question because we fi nd our-selves saying, “Let’s simplify around spe-cifi c kinds of data, perhaps even simpler models.” But how do you move an organi-zation toward a systems engineering way of thinking, especially around the trad-eoffs? What information do you select? What standards do you use? How do you move your workforce? And how you do all of these things all together?

Brousell: Rich Sade was say-ing that the adaptability formu-la is one part concept, one part planning, one part process, and at least two parts of culture.

What cultural changes are required?

Singh: The point around culture was very important. We have used a three-pronged approach internally to create agility. One is that we have moved away from a com-mand-and-control structure to an enabled structure where management is now col-laborating to enable the innovation and the agility that is required for the customer.

The second is meant to ensure that the employees and workers within our orga-nization are passionate about what they do. If they are, the outcomes are much better. So, we have tried something we call the employee passion index, and it’s published to all management. It indicates how passionate their team workers are about their roles and responsibilities. If they are not passionate, [we ask] what can we do to make sure we can unlock the pas-sion that results in outcomes that enhance the value chain within manufacturing?

Third, we have made the system com-pletely automated, with very simple approv-als, very simple workfl ows for everything. Brousell: I’m particularly intrigued by this idea of trying to measure passion. How do you go about measuring passion?

Singh: We have a tool that is deployed on the Internet por-tal. It’s customized to an em-ployee’s goals and ambitions that are captured when he

joins the company or when his review is go-ing on. It is used for personal development under the overall performance manage-ment framework. We can tell what’s very important for them and what it is that they would like to see from their managers. Brousell: You brought up a very impor-tant point, Sanjay: this whole notion of collaborative organizational structures and the fact that you’re moving away from command-and-control structures. That fi ts almost perfectly with a recent poll we

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We have tried

something we

call the em-

ployee passion

index, and it’s

published to all

management.

It indicates how

passionate their

team workers

are about their

roles and re-

sponsibilities.

—SANJAY SINGH

HEAD OF GLOBAL STRATEGY,

MANUFACTUR-ING, HCL

TECHNOLOGIES


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published in the January issue of the Man-ufacturing Executive Leadership Journal; the poll shows that only about 18% of our readership is still holding on to command-and-control structures. Most in the next few years see collaborative organizational structures emerging. Do others see this?Dean: Our company, a long time ago, went to a council orientation that is very open, very collaborative. It’s about as far away from command-and-control as you can get. The global reorganization we had this past year was a recognition that we went way, way, way too far to the other side of open-ended collaboration in how we structure and how we run the business on a global basis.

Yes, I would agree that there’s a move-ment away from command-and-control, but there are also pitfalls in going way too far to the open collaboration side as well, so there’s got to be a happy medium. Gercak: I agree with that. We see that par-ticularly in the functional areas here. I think you can go too far down the road of hav-ing too many councils and not enough ac-countability and ownership. It’s a balance.

Moad: What are the leader-ship qualities that are needed to promote adaptability, and how do you go about bring-ing people into your organi-

zations who can improve adaptability? Jacko: One of the takeaways that we have come to is that a lot of it is a lead-ership issue. We profile our people who go through leadership programs here at Kennametal, and we use the two As—adaptable and agile. We’ve got to start thinking more of how we bring people in who are a little more adaptable and who can allow us to get into new spaces maybe that we haven’t been in before.

We haven’t gone down four or five levels in the organization, but at the top couple

of layers we’re having a lot of discussions around being adaptable. We announced an acquisition today. I would say to you that a lot of our people might have had trouble adapting to that in the past, and we’re try-ing to make sure they’re getting ready for our business as it grows and changes and as we come out of the recession.

Nickel: You were asking San-jay about how to do the met-rics on some of this. We are just implementing a pilot right now where we’re looking for

what we call promoters. [These are people who do things] in a way that [makes] peo-ple want to promote them, not just up the ladder, so to speak, but promote them as people for other people to engage with in our highly decentralized environments.

The goal there is to understand who is best at enabling collaboration, who is best at pro-mulgating collaboration between disparate points of view, understanding how points of difference and diversity can actually strengthen what we do. We want to recognize that and somehow incent it, reward it. Brousell: What does the ideal leader in an adaptable organization need to be able to do? Gercak: Learn on the fly, David. M

Roundtable /A Passion for Agility/6/6

When we get into this discussion of agility, we find ourselves looking pretty heav-ily at that layer of decision in the operations that has to do with tradeoffs and risk.

—Jim Davis

Vice ProVost, information technology, and chief academic technology officer, Ucla

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Resistance

@RB03_Plex_v4.indd 2 2/9/12 2:48 PM

There’s no escaping the fact that the pace of change is accelerating. pace of change is accelerating.

Here’s a look at some of the changes Here’s a look at some of the changes that may be headed your way, andthat may be headed your way, and

fi ve ways that manufacturers fi ve ways that manufacturers can prepare themselves can prepare themselves

to survive the onslaught.

Is Futile

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B y M a r k S y m o n d s



@RB03_Plex_v4.indd 3 2/9/12 2:49 PM

hange is a constant in today’s manufacturing world, and that has been true for quite some time. Technology, of course, is constantly changing the

products that we make and the manufactur-ing tools and processes that we use to make them. But there are also signifi cant outside forces and conditions that are having a pro-found effect on markets, customer expecta-tions, and the very basis of competition. The bad news is that the pace of change is likely to continue to accelerate. The good news: Companies that understand and adapt to change have nearly unlimited opportunities to defi ne themselves as leaders and to domi-nate evolving markets.

Dealing with predictable change is rela-tively straightforward—not necessarily easy, but certainly manageable. It’s pretty simple, for example, to project current and recent patterns into the future. But patterns do not always persist, and there is always the possibility—indeed, the likelihood—that something new will emerge that disrupts the evolutionary cycle and drives the world in a totally new direction. In How to Get to the Future Before It Gets to You, Shepherd Mead gives this illustration of why basing predic-

tions about the future on current patterns doesn’t always make sense: In the mid-19th century, horse manure averaged 1 inch in the middle of New York City roads. Ten years earlier, it was half an inch. Based on that growth rate, one could forecast about 170 feet of manure in the streets by 1970.

Similarly, what if you had started build-ing a new music CD factory in the 1990s based on extrapolating the growth of CD sales at the time? Or what if you made a large investment in fl oppy disk production capabilities at about the same time? Either way, statistical forecasting would not have foreseen the disruption brought about by music downloads, inexpensive thumb drives, and cloud storage.

Sales and marketing types have fi gured out how to forecast change, to a point. Their forecasts typically start out as pro-jections of past sales patterns but are im-mediately modifi ed to refl ect the product’s position in the lifecycle—introduction, acceptance and growth, maturity, and, fi -nally, decline and obsolescence. Then, ex-ternal factors (forecasters call these “ex-trinsic)” like demographics, competitors’ actions, economic cycles, and the like are applied to further modify the basic projec-tion. The changes recognized by this kind of forecasting are pretty well understood, but they do not and cannot refl ect disrup-tive change.

Here are just a few of the forces driving disruptive change today:


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Mark Symonds is president and CEO of Plex Systems. He holds an M.B.A. in fi nance and accounting from Cornell University’s Johnson Graduate School of Manage-ment. Symonds is also a Manufactur-ing Leadership Council member.

C

It’s pretty simple to project current and recent patterns into the future. But patterns do not always persist.

CREDITS OK



@RB03_Plex_v4.indd 4 2/9/12 2:49 PM

Microsegmentation and Soaring Customer Expectations

In our own lifetimes, we have seen a shift from high-volume, field-of-dreams (if you build it, they will come)

production models to those that can better respond to highly segmented, ever-more-demanding customer expectations. Henry Ford is reputed to have said about his Mod-el T, “You can have it in any color as long as it’s black.” But that operating philosophy doesn’t work today. It is far more likely that the customer will say, “I want it tomorrow, in chartreuse, and if you can’t give it to me at my price, I’ll go on the Internet and find someone who can.” In many markets, price has traditionally been the predominant competitive differentiator leading to a fo-cus on mass production and operational ef-ficiency. But with changes in demand and widespread outsourcing to low-cost pro-ducers, it is more likely that the company with the most cost-effective and efficient supply chain will win because it can deliver the right product and the best customer ser-vice at the right market-dictated price.

Globalization

Strategic decisions about the best lo-cation for production facilities can dramatically change the profile of

a manufacturing enterprise. The traditional focus was on centralizing production in one or a few directly managed facilities where ma-terials, skilled people, and proper equipment were brought together and closely managed throughout the product lifecycle. Today, the trend is toward locating manufacturing closer to customers. (Notice how many Japanese, Korean, and European automotive compa-nies now make vehicles in the United States.) This trend has required even midsize manu-facturers to establish operations in China, Eu-rope, Brazil, and elsewhere.

As a result, management must turn its focus to supply chain considerations to optimize production locations; the best source of sup-ply (in-house, intra-enterprise between the various facilities, and/or external/outsourced supply); and how to effectively ship, store, and schedule the movement of goods into and around the enterprise and out to customers.

Manufacturing Process Changes

There have also been and will continue to be dramatic changes in processes and equipment that alter the very na-

ture of manufacturing. Much manual labor has been replaced by automation, particu-larly for repetitive manual tasks. But robotic equipment continues to become capable of more complex tasks and enables more flexible scheduling and production, supporting the move toward smaller batches of more custom-ized goods. Lately, companies have employed some very clever and effective strategies in cus-tomization. One example is late-stage person-alization in the distribution chain, where cus-tomer packaging or final configuration takes place in the distribution warehouse. This fur-ther enables firms to respond to the demand for unique products quickly.

Social Media

The full effects of social media in the plant and the supply chain are yet to be recognized, but it is already

having an impact on marketing and cus-tomer service. New versions and releases of manufacturing software (ERP and supply chain) are starting to incorporate social in-teraction into the way people communicate and interact inside and outside the enter-prise. It wasn’t that long ago that business applications transitioned from traditional data processing-style interaction—based on data-entry forms and pre-defined re-ports and inquiries—to the Windows mod-Pr

evio

us sp

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............................................................................................................................................

The full ef-fects of social media in the plant and the supply chain are yet to be recognized, but it is al-

ready having an impact on

marketing and customer

service.

Feature/ Resistance Is Futile /4/7

37W W W. M A N U FAC T U R I N g - E x E C U T I v E . C O M


@RB03_Plex_v4.indd 5 2/9/12 2:49 PM

el of graphical screens, pull-down menus, ad hoc access to data, and built-in inte-gration with Word and Excel. That whole paradigm is shifting once again, this time to an even less-structured interaction between users and data based on the look and feel of applications like Facebook and Twitter.

Getting to Adaptive

Given enough advance notice and access to the necessary resources, an organization can adapt to just

about anything, including dramatic and rapid changes in demand; introduction of new technologies, techniques, or product requirements; or changes that result from disasters and other disruptions. The prob-lem is that there is often neither the time nor the resources to respond immediately.

So, what can a company do to minimize the impact of change and help the organiza-tion transition to the new reality? Here are fi ve key strategies that should be a part of your company’s culture and strategic plan:

1: Adopt a change-friendly mind-set.

It sounds trite, but it’s actually true: Most people have a natural aversion to change. It’s part of the human psyche to be some-what wary when facing the unknown. That’s why it takes awareness, planning, and focused attention to overcome this nat-ural antipathy and embrace change as an opportunity as well as a challenge.

This attitude adjustment applies to the en-tire organization, not just individuals. Com-panies have cultures and personalities that mimic the attitudes and values of their lead-ers, past and present. If the leaders are afraid

of change or simply uninterested, the rest of the organization will take their cues from that tendency. Management—from the executive suite to the line supervisors—must be condi-tioned to expect change and view it as a good thing, a necessary competitive weapon in a constantly changing world.

Continuous-improvement programs are a good way to instill the culture of constant change into an organization. This kind of change tends to be relatively non-threatening and incremental, so it offers a good opportu-nity to teach the “change is good” lesson.

At a higher level, there are many re-sources for learning about change man-agement and improving the skills of the management team in change management techniques and practices. One good start-ing point is the short book Who Moved My Cheese? by Spencer Johnson.

2: Look for signs of change.

Be alert for the possibility of impending change. When change is approaching from the outside, there’s nothing more important than recognizing that impending force at the earliest possible opportunity. Informa-tion systems are designed to provide visibil-ity into all operational areas of the company and throughout the supply chain. Be sure that your systems are truly “tied in” to the world in which your company operates and to all areas of operation.

Customer relationship management sys-tems, for example, are capable of capturing a wealth of information about customers, preferences, trends, and attitudes. Most companies don’t take full advantage of the market intelligence available there. Self-ser-vice and knowledge management systems can and should track customer activity and provide analysis of customers’ interactions with your company as an indication of what their interests are and where they might be


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If the leaders of a company

are afraid of change or simply

uninterested, the rest of the organization will take their cues from that

tendency.



@RB03_Plex_v4.indd 6 2/9/12 2:49 PM

Many of the most suc-cessful companies are, in fact, driving change that

imposes challenges on their competitors.

having difficulties. Also, understand exactly who your customers and prospects are, and use outside data sources—marketing re-search, demographic analysis, industry ex-perts in the specific markets of interest—to foresee changes.

Another useful activity is an “environ-ment scan,” typically performed twice a year by the entire management team. It involves looking at trends and expectations in several domains, including macro-economic con-ditions, regulatory changes, competitor ac-tions, and customer preferences and needs.

There is a psychological element involved in recognizing and acting on signs of change. We tend to put some ego and pride of author-ship behind our forecasts and general view of the world. When change first becomes vis-ible, there is often a tendency not to believe it or simply not notice it since the data doesn’t fit in with our view of what should be tak-ing place. That can lead to disastrous con-sequences when the change is given time to take root before we even begin to marshal our resources to respond and adapt. Force your-self to question any data that does not fit the expected pattern. Is it randomness, or could it be the early sign of an oncoming change?

3: Build a flexible and agile organization.

Success in responding to change is directly related to the level of agility that is built into your organization and your supply chain. When you make the decision to change, how

long does it take to make the change, and how much change can you accomplish in a given time? One standard measure of agility is how long it takes to implement a perma-nent 20% change in throughput, either up or down. A variation on that is how much permanent change in output can be accom-plished in a fixed amount of time, say, 30 days. Notice that both measures emphasize a permanent change. Most companies can accomplish great feats for short periods of time, but if the change is not sustainable, it is only a Band-Aid and not a cure.

These measures are only looking at out-put, however. Other useful metrics include time-to-market for new products or re-engineered products, the ability to accom-plish and time required to overcome supply chain failures or disruptions, and the abil-ity to react to competitive moves. Agility comes in many flavors, but the more flexible you are and the more options you have, the better your chances of maintaining a viable business when faced with the need to adapt.

.4: Develop contingency plans and resources.

There has been a lot of discussion in the Manufacturing Executive community about supply chain risk, brought on by many com-panies’ recent difficulties stemming from the Japanese earthquake and tsunami, flooding in Thailand, disrupted transportation due to volcanic eruptions, and other headline events in 2011. Risk of disruption exists, and compa-

Related Articles: Manufacturing in 2012: Complexity and Its Consequenceswww.manufacturing-executive.com/ complexity

Decoupling Supply And Demandwww.manufacturing-executive.com/ decoupling

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M E g l o b a l L e a d e r s h i p c o m mu n i t y

@RB03_Plex_v4.indd 7 2/9/12 2:49 PM

nies would be well advised to make risk man-agement a key part of all supply chain design and management processes. In most cases, this means the supply chain team should brainstorm all of the possible calamities that may befall them, and speculate about the im-pact and possible remediation strategies.

It’s not possible to prepare for every kind of disaster, and it wouldn’t be affordable to do so even if it were possible. Nevertheless, think-ing about the possibilities and considering the alternative solutions and strategies will have two major benefi ts. First, when the disaster does strike, you will already be partway to the solution. You will have already thought through the alternatives and considered the risk-reward balance for each. You will there-fore be prepared to execute the proper re-sponse right away. Secondly, you will have a chance to prepare by, for example, identifying and perhaps negotiating with alternate sup-pliers or carriers, having a generator available or knowing where you can get one on short notice, and having a hot site for data process-ing backup and alternative communications links that you can activate as needed.

5: Encourage agility in your supply chain.

In these days of horizontal organizations, the supply chain is critically important to a manu-facturer’s ability to produce product and sat-

isfy customers under any conditions. As you focus on agility and contingency planning, it is critical to involve your supply chain part-ners in the process. Ultimately, your own agili-ty is dependent on the agility of your suppliers and service providers.

Adapt and Thrive

The Greek philosopher Heraclitus (c. 535 B.C.-475 B.C.) said, “Change is central to the universe,” some-

times translated as “the only constant is change.” But even he might be surprised at how rapidly the rate of change is accelerating in our modern age. Product cycles are shorter than ever. Technologies emerge, dominate, and disappear with bewildering speed. Po-litical upheaval and natural disasters change the physical and geopolitical landscapes be-fore our very eyes and seem to be doing so at a much faster rate than in times past.

People, organizations, nations, and enter-prises have always had to deal with change. The successful ones, the ones that have demonstrat-ed staying power, are those that are best able to recognize and accommodate change most quickly and effectively. Many of the most suc-cessful companies are, in fact, driving change that imposes challenges on their competitors.

Don’t fear change. Embrace it. Change offers nearly unlimited opportunities for the prepared and the agile to make dramatic moves in their marketplace. Adaptive leaders thrive while those that resist change struggle and are at a distinct disadvantage. M


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Feature/ Resistance Is Futile //

Ultimately, your ownagility is dependenton the agility ofyour suppliers andservice providers.



@RB03_Plex_v4.indd 8 2/9/12 2:49 PM



tion and better outcomes for companies, sig-nifi cantly reducing process cycle times. It’s probably the most important capability that organizations need to build for sustained success in today’s turbulent world.

Like many companies across multiple in-dustrial sectors, HCL has used technology to enable greater adaptability, agility, and in-novation. But what really makes adaptabil-ity come to life is a focus on building a more

adaptive culture. We believe that ulti-mately, it’s the people who execute the everyday transactions who can create the most value for customers. If there ways we can ignite their po-tential, creativity, and willingness

to go the extra mile, it will help our organiza-tion adapt faster to change, and enable us to succeed in the midst of constant market un-certainty and disruption.

To transform the culture at HCL, we have experimented with fi ve strategies for building an adaptive, innovative, and value-focused or-ganization. Manufacturers can also follow this model to foster change within their companies.

1. Enable and Enthuse

HCL has moved away from the traditional command-and-control structure toward a management model designed to “enable and enthuse” our employees. We believe that the

Adaptability is probably the most important capability that organiza-tions need to build for sustained success in today’s turbulent world,

ncertainty across the global business environment is here to stay. Organi-

zations hoping to succeed by capitalizing on today’s fast-changing macro

trends will need to develop and practice a vitally important skill—the ability

to adapt swiftly and effectively. To foster a more adaptive culture within an or-

ganization, business leaders must take responsibility for driving this change.

Implemented correctly, adaptability results in competitive differentia-

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Strategies for an Adaptive Culture

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India’s HCL Technologies has deployed a five-point strategy to build a more adaptive global organization—and this model can help manufacturers as well.

Case Study / Sanjay Singh

W W W. M A N U FAC T U R I N G - E X E C U T I V E . C O MM E G

ity come to life is a focus on building a more adaptive culture. We believe that ulti-

mately, it’s the people who execute the everyday transactions who can create the most value for customers. If there ways we can ignite their po-tential, creativity, and willingness

Adaptability is probably important capability that organiza-tions need to build success in today’s turbulent world,

......................................................................................................................................................................................................................................................................................................................................................................................................................

@RB03_Singh_v3.indd 41 2/10/12 2:09 PM

real “value zone” in modern business is the in-terface between the employee and the custom-er; hence, the company has made signifi cant efforts to make management more account-able to employees and help them excel in this new value zone. This management philosophy of “employee fi rst,” introduced by our CEO, Vineet Nayar, pushes the envelope of trust and transparency to the limit. It is also extensive-ly enabled by IT tools we have developed in-house, including 360-degree feedback systems, MAD JAM internal idea-generation portals, a Value portal for customer engagement in-novations, and an Employee Passion index.

This approach has resulted in a great deal more trust at all levels, more open communi-cation among our workforce, and more en-gaged employees. This has had a highly posi-tive impact across factories, supply chains, IT, and engineering, creating an organiza-tion that can adapt swiftly and address new opportunities as they emerge.

This type of interactive employee culture, if embraced by traditional manufacturers, may not only help attract the new Gen Y work force, but also reignite the passion of existing employees.

2. The Employee Passion Index

Employee passion, in our defi nition, is the collective energy of both the organization’s and the individual’s passion for working to-gether, with the goal of bringing out the best in both. We believe that by tapping into the passion of individuals, we can create a great organization capable of adapting swiftly to business changes.

We enable this through our own passion in-dex, called the Employee Passion Indicative

Count, or EPIC. This starts with an assess-ment of each individual, and aims to identify all factors that drive an employee to excel at work. We refer to these as the Passion Indica-tors. This is followed by a facilitated program to help employees with their individual EPIC reports to help them showcase their top fi ve passion indicators, dominant passion themes, and level of passion. Also included is an ex-tensive action plan to help them leverage these attributes in their daily activities.

EPIC team reports are also generated to help managers understand the DNA of their teams. Workshops on the theme of “Creating Passionate Teams” are also held for managers and the HR team; both parties are given the techniques and know-how to help increase individual productivity through various team interventions and action planning skills.

This strategy is enabled through an in-house tool deployed on the corporate in-tranet (see below). The tool allows all em-ployees globally to explore a series of virtual rooms covering key elements such as report-ing, interventions, and interactive forums.

The passion-index concept is equally ap-plicable to a manufacturing organization. It could enable companies to drive productiv-ity, identify human capacities and capabili-ties that are not being effectively utilized, and give the roles that require the most agility to the people with the most passion.

3. Innovation Energy: Value, Not Volume

We cannot expect different results if we do the same things over and over again. With a focus on value creation at every touchpoint, HCL has launched an internal program to give our employees the ability to challenge traditional methods, suggest new ideas, and innovate ways to improve the business and capitalize on new opportunities.


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@RB03_Singh_v3.indd 42 2/10/12 2:09 PM

The program, called MAD JAM (Make a Difference in Just a Minute), allows all em-ployees to put forward business ideas, pro-cess improvements, and new methods via a dedicated online portal. More than 20,000 employees participated, generating a short-list of 500-plus ideas. This program has now helped the company launch new service lines, reduce redundancy in a number of processes, and improve agility and responsiveness.

The energy unleashed from this program allows innovation “owners” to drive the con-cept to launch, and provides a new way to fos-ter agile innovation. HCL used the same tools to start an open-innovation program that runs across all major universities in India.

4. High-Tech and Low-Touch

With more than 80,000 employees worldwide and multiple delivery centers, HCL needed to ensure that we are able to react swiftly to both customer requests and employee needs. The response was a complete virtual office for all employees. Now, almost anything we need to handle is automated and available online 24/7—including travel requests, equipment provision-ing, training, performance management, prob-lem handling, knowledge management, social collaboration and peer-group networking, idea generation, and value portals. This has elimi-nated the need for costly and time-consuming interventions, and has reduced cycle times for any process execution, enabling a great deal of agility in our internal and external transactions.

5. SLAs for Every Internal Transaction

Just as we use Service Level Agreements for most aspects of IT, we have also instituted an SLA system for process execution. For exam-ple, if someone has to obtain approval for a CAPEX purchase, it gets entered into the cor-porate intranet and is assigned service levels at every stage of the approval. If the SLA is vio-

lated, a trigger alerts the person responsible and all such outages are reported to the opera-tions head. A structured governance model has helped HCL execute its business transac-tions with great agility and predictability.

All of the above tools and techniques have helped create a culture at HCL that is always looking for better ways of doing things. It ac-tively promotes and supports self-sufficiency and consistency across the organization. Here’s proof that this is working: HCL has one of the highest employee retention rates in our indus-try; our customer satisfaction index has jumped by more than 50%; HCL is ranked as one of the fastest-growing IT and technology-services companies globally in the last few years; and we have successfully launched many new services into the global marketplace. So, I believe very strongly that our answer to today’s business un-certainty is to adapt swiftly and build resilience into our culture and our corporate DNA.

Similar approaches are equally applicable in a manufacturing context. HCL has worked with more than 150 large manufacturing com-panies around the world, and has demonstrated significant progress in a number of areas. These include new product introductions, by tapping into the innovation energy of employees and customers using systems similar to the MAD JAM program; improving supply chain efficien-cies through greater collaboration and visibility with suppliers by harnessing new social tools; automating manufacturing core processes and decision-making using the concept of SLA-based internal process delivery; and in aftermar-ket services, by using the idea of a passion index to help put the right person into the right role to maximize the opportunities of market change.

Leveraging technology and processes to enable collaboration, innovation, and auto-mation has helped HCL become a more pre-dictable, flexible, and agile organization. We believe that many other companies can create a distinct edge in their industry sectors, too. M

Case Study / Singh / Strategies for an Adaptive Culture

W W W. M A N u FAC T u r I N g - E X E C u T I v E . C o M


.....................................................................................................................................By tapping

into the pas-sion of indi-viduals, we can create a

great organi-zation capa-ble of adapt-ing swiftly to business changes.

Sanjay Singh is Head of Global Strategy, Manu-facturing, at HCL Technologies, a $4 billion technology and IT services company. He is also a Manufac-turing Leadership Council member.

@RB03_Singh_v3.indd 43 2/10/12 2:09 PM



@RB03_Cisco_v7a.indd 1 2/9/12 2:52 PM

CREATING AGILITY, RESILIENCY, AND INNOVATION THROUGH RIGHT-TIME BUSINESS INTELLIGENCEIn a world where millions of connected devices are now creating vast amounts of data, manufacturers need to develop strategies that can turn this data into meaningful information to help drive faster decision-making and create sustainable competitive differentiation. ............................................................................................................................................................

By Craig Hartman and Michael Ki l l ian



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n infl ux of innovative new networked devices, including smartphones, tablets, and the like, along with assets such as robots and other connected

machinery on the line as well as more sophis-ticated sensors, has begun to dominate mod-ern manufacturing. With this abundance of connected devices comes a deluge of data. The information inherent in this data is signifi cant and can hold great value to an organization, but it can also bring substantial challenges. Now that manufacturing companies have this data, what can be done with it, and how do they ensure that this knowledge gets to the right people at the right time in a secure manner?

Deriving insights from multiple data sets will provide various areas across the value chain—from research and development, to sales and marketing and remote fi eld operations—with the ability to feed product and service innova-tion, enhance customer relationships, reduce risk, increase profi t, and improve transparency across the enterprise as well as with partners, suppliers, and others stakeholders. Harnessing the power of information is especially critical to creating shifts in speed, scale, and productiv-ity, and will deliver a positive impact on share-holder value and clearly differentiate manufac-turers from their competitors.

Explosion of Connected Devices

Without a doubt, one constant stands out about today’s technological-savvy world—everything is connected. As the number of connected devices grows exponentially (see chart) and social media continue to fl ourish, so, too, will the trillions of data points that become available.

A 2011 report by McKinsey Global In-stitute speaks to the growing prevalence of connected devices in manufacturing: “More than 30 million networked sensor nodes are now present in the transportation, automo-tive, industrial, utilities, and retail sectors. The number of these sensors is increasing at a rate of more than 30% a year.”1 For those who ag-gressively leverage this increased visibility, benefi ts could include improved energy opti-mization, quality, and production output.

The Global, Mobile Workforce

As manufacturing companies increase the number of connection points they have to the outside world, and therefore the amount of data they can capture, they increase their need to become more agile and transparent across the entire value chain. Bypassing big data is not an option; it’s the frontier of being com-petitive. Everyone has access to more data, but it’s the organizations that are able to turn the data into actionable information faster and in more detail that will win. In fact, the manufac-turing sector is in the “top quintile” of overall ease of capturing the value potential index, Pr

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The organiza-tions that are able to turn the data into actionable

information faster and in more detail

will win.

“What we call industrializa-tion of the Internet, theInternet of Things, will bea market that by far willoutpace the currentnetworking industry.”—Wim Elfrink, Cisco EVP and CEO

Big data: The next frontier for innova-tion, competition, and productivity, McKinsey Global Institute Ibid. Ibid.Ibid.

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Feature / Creating Agility, Resiliency, and Innovation /4/4

which according to McKinsey consists of five metrics that gauge data usage and analysis.2

While the data and analytics are present, the true challenge is finding people to under-stand what to do with them. Organizations must unearth the skill sets within their teams and enable a global, virtual, mobile workforce that can collaborate to provide the right infor-mation at the right time so that the best, most-strategic decisions can be made more quickly.

Sense, Decide, and Respond

The ability to sense issues and problems im-mediately translates into informed choices when that information reaches the right indi-viduals. Instead of simply filling a dashboard with the data, two-way communication needs to be initiated so that collaboration can take place, and actions can be taken and closed out quicker. When the right process is in place, manufacturers have seen up to a 50% decrease in product development assembly costs and up to a 7% reduction in working capital.3

Timing is of the essence to leverage big data-type solutions. As a series of technol-ogy trends accelerate and converge,4 the scale and scope of changes that big data are bringing about are at an inflection point, and set to expand greatly. It is critical for manufacturers to leverage platforms for aggregation and analytics requirements, along with solutions that enable communi-cation of key information to the right peo-ple for action, not just alerting.

True Business Intelligence

Today’s consumers are empowered to share information about their experiences with prod-ucts across many social media platforms. This gives manufacturers unprecedented buying behavior data and the ability to make informed decisions about developing new products, or enhancing existing ones. And the data can be used for more than just research and develop-

ment. Manufacturers can also leverage it for insights into sales and marketing, product life-cycle management and design, supply chain, plants and facilities, remote field operations, and post-sales support and services.

With regard to service, most major con-sumer product manufacturers embed sensors inside their products to detect issues before consumers complain to the manufacturer’s customer service team. Having sensors in the product will help, but without rapid data anal-ysis and insights delivered to the right people at the right time, the consumer may still experi-ence disruption with the brand. These smart products will be driving significantly more data into organizations in the future, creating new customer service experiences with related revenue and profitability benefits.

By itself and without context, data is sim-ply a collection of numbers and facts. When looked at individually, it provides no real meaning. However, these same numbers and facts become actual business intelligence when they are delivered to decision-makers who can synthesize the information, discover insights from it, and pinpoint pertinent trends in a time-ly manner. That why it is imperative for orga-nizations to develop adaptive strategies to se-curely and intelligently manage data from the millions of devices now coming online.

Capitalizing on all of today’s big data ensures a level of differentiation that all manufacturers desire. With a direct tie to an organization’s bottom line, manufacturers must make sense of the massive amounts of data and act quickly.

Today’s technological advancements have made increased agility not just a possibility, but a priority. Now is the time for manufactur-ers to formulate strategies that can harness all the data that exists and leverage it to gain and maintain a competitive advantage—not just to deal with what’s happening in the industry today, but also to prepare for tomorrow. M

Craig Hartman is Senior Executive Director, Americas Business Trans-formation, Cisco Systems, and Di-versified Products, Process, and Tech-nology Sector Lead. He is also a member of the Manufactur-ing Leadership Council. Hartman holds a bachelor’s degree in industrial engineering from Purdue University, and an M.B.A. from Washington Uni-versity in St. Louis with a focus on strategy.

Michael Killian is Senior Business Advisor, Americas Business Trans-formation, Cisco Systems Manufac-turing Industry Ver-tical. Killian holds a bachelor’s degree in computer science from Eastern Michi-gan University.

7W W W. M A N u fAC T u r I N g - e x e C u T I v e . C O M



@03_Rockwell_v13.indd 1 2/15/12 11:18 AM

The Multiplier Eff ect:

There Are More Manufacturing-

Related Jobs Than You Think

The embrace of smart manufacturing techniques will

turn conventional wisdom about indirect jobs creation on its head

and change the image of the industry itself.

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B y K e i t h D . N o s b u s c h a n d J o h n A . B e r n a d e n

The Multiplier Multiplier Multiplier

@03_Rockwell_v13.indd 2 2/15/12 11:18 AM


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of products, and deliver additional benefi ts such as better product quality and increased worker safety.

However, one important benefi t from smarter manufacturing has tremendous potential to improve the image of manufac-turing as it answers the top economic ques-tion on most people’s minds today: How do we create more jobs?

The answer is smart manufacturing. That might sound surprising, since the industrial automation revolution has been a lead-ing contributor to major declines in direct manufacturing employment during the past decade. 2 However, new studies discussed in this article show that as smart manufactur-ing advances, the employment multiplier sig-nifi cantly increases. Thus, the next genera-tion of smart manufacturing will generate a dramatic ripple effect through the indirect creation of jobs in the industries that supply, support, and service smart manufacturers. These are well-paid, skilled labor or profes-sional jobs created outside manufactur-ing but totally dependent on it. This smart

manufacturing ripple effect can put millions of unemployed people back to work and im-prove the economic vitality of nations that act now to seize its promise.

The ripple effect runs counter to public perceptions of manufacturing. Until 1980, there was a strong correlation between manufacturing output and jobs, accord-ing to a recent study by Wells Fargo econo-mists. 3 As manufacturing output increased from World War II until about 1980, there was a corresponding increase in direct manufacturing employment. That’s why most people still measure the health of the manufacturing sector today from the sole perspective of direct manufacturing jobs. Since 1980, however, the correlation be-tween production and direct manufactur-ing jobs has been inverted, according to the Wells Fargo report.

A three-decade-long, steady decline in manufacturing jobs in regions like the U.S. (see Chart 1) leads most people to believe—incorrectly—that manufacturing is dead or

S mart manufacturing is rapidly transforming the global competitive land-scape by marrying industrial automation with information technology (IT) to optimize the effi ciency, productivity, and output of plants and supply networks.1 This trend will continue to increase the fl exibility of plants, re-duce the use of energy, improve environmental sustainability, lower the cost

The smart manufacturing ripple eff ect can put millions of unemployed people back to work and improve the economic vitality of nations that act now to seize its promise.

..........................................................................................................................................................................................................................................................................................................................................................................................

Keith D. Nosbusch ischairman andCEO of Rockwell Automation.

John A. Bernaden is director of corpo-rate communica-tions at Rockwell Automation.

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dying. To try to change this in-accurate, negative public per-ception, some industry leaders point to the three decades of relatively strong long-term increases in manufacturing output. But those efforts have failed to explain the value of a less labor-intensive manu-facturing sector to the general public and many politicians. Even after President Obama recently called for insourcing more manufacturing back into the U.S., numerous lead-ing economists rebutted in na-tional media that it wouldn’t fi x the unemployment problem because re-turning factories will be highly automated.

“Manufacturing jobs are never coming back. Thus, it doesn’t make sense for Amer-ica to try to enlarge manufacturing as a por-tion of the economy,” argued Robert Reich, former Secretary of Labor under President Clinton, in a 2009 Forbes magazine opinion piece.4

That’s why it’s time to show a new line on Chart 1, called “indirect jobs.”

21st Century Manufacturing Ecosystems

Many 20th century business man-agers tried to minimize indirect jobs by vertically integrating

their operations and supply chains. Indus-trial giants acquired or developed as much of their supply chain as possible, sometimes including even tangential service suppliers such as consumer fi nance companies, on-site health care for employees, or corporate-owned real estate fi rms. Even amid that vertical integration, manufacturing has al-ways had a higher employment multiplier than any other economic sector. Now, this

already high employment multiplier is start-ing to rise. Outsourcing or TQM effi ciencies may be part of the reason for the multiplier starting to rise, but the technology trends toward more advanced and smart manufac-turing amount to a much greater driver.

The vertically integrated business model is evolving toward smart manufacturing hubs surrounded by layers of dynamic supplier networks, external support fi rms, and out-side service organizations. Even though direct manufacturing jobs may continue to decline in increasingly productive smart factories, they provide the essential nucleus driving this ripple effect, creating waves of indirect jobs necessary to supply, support, and serve them.

Statistically, a large percentage of these indirect jobs are classifi ed as non-manufac-turing jobs, but they are wholly dependent on a healthy, competitive manufacturing sector. Understanding these new manu-facturing ecosystems will enable industry leaders to illustrate once again the pivotal role of manufacturing in creating jobs— not just direct jobs for the few, but indirect jobs for the many. Making this point is es-sential in our efforts to garner both public

U.S. Manufacturing: Output vs. JobsJanuary 1972 to November 2009

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Manufacturing Ex-ecutive Leadership Jour-nal. “The ‘Smart’ Manu-facturing Revolution.” Sujeet Chand and Jim Davis. November . A detailed discussion of smart manufacturing and its benefi ts can also be found at http://www.rockwellautoma-tion.com/news/get/TIMEMagazineSPM-coverstory.pdf. “What is Smart Manufacturing?” TIME magazine cover wrap. Sujeet Chand and Jim Davis. July .

(For further informa-tion, see http://smart-manufacturing.com/)

Heritage Foundation Backgrounder Report No. .”Technology Explains Drop in Manu-facturing Jobs.” James Sherk. Oct. , .

Wells Fargo Securities Economics Group. “Is U.S. Manufacturing In Decline?” Scott Ander-son, Michael A. Brown, and Kaylyn Swankoski. Nov. , .

Forbes magazine. “Manufacturing Jobs Are Never Coming Back.” Opinion piece by Robert B. Reich. May �, .

Council on Compe-tiveness. “Make: An American Manufactur-ing Movement.” Decem-ber .

Manufacturing Output Value (right scale)

Manufacturing Jobs (left scale)

CHART 1:

1975 1980 1985 1990 1995 2000 2005 2010Source:BLS and Fed Reserve


and political support for strategies to cre-ate globally competitive business climates required to attract major, long-term invest-ments in the next generation of smart man-ufacturing technology.5

Job Creation as Job #1

Indirect manufacturing jobs are part of the narrative for the U.S. jobs czar.6 As chair of the President’s Council on

Jobs and Competitiveness, Jeffrey Immelt, chairman and CEO of General Electric, talked about increased factory automation and manufacturing employment multipli-ers during an Oct. 9, 2011, interview with Lesley Stahl on 60 Minutes.

Touring a new factory in Batesville, MS, where GE is building jet engines for the Boeing 787 Dreamliner, Immelt acknowl-edged Stahl’s observation that the highly automated plant requires fewer direct em-ployees than factories of old.

“You’re going to have fewer people that do any task,” Immelt said. “In the end, it makes the system more productive and more competitive. But when you walk through Mississippi, for every person that

was in that plant, there are probably seven or eight jobs in the supply chain.”

Immelt’s reference to supply chain jobs highlights a critical element of the indirect jobs story. Both professionals and skilled-trades people are employed in the supply chain. When an enterprise purchases goods and services from other businesses, it gener-ates an indirect jobs impact, or multiplier effect. That is distinct from what econo-mists call induced or consumer-driven economic effects—jobs at restaurants, dry cleaners, entertainment venues, and the like that have little to no multiplier effect. Un-like those consumption-based service sec-tor jobs, these indirect jobs are part of in-dustry’s production-based wealth-building machine with the same economic benefi ts as direct manufacturing employment.

A jetliner, for instance, may have as many as three million discrete components while an automobile might be comprised of 10,000 parts—from a vast array of suppliers. Some of those suppliers, in turn, receive compo-nents from other sources and assemble them into parts that are then sent on to the fi nal assembly process for the plane, car, or other end-product. The fi nal products, in turn, are shipped and sold around the world. That supply chain requires a host of skilled para-professional and professional employees in indirect non-manufacturing jobs: logistics and transportation workers, customer service and technical support specialists, regulatory affairs and safety professionals, and distribu-tion or warehouse employees trained in the use of information technology-driven tools for receiving, storing, and picking—more of-ten using outside fi rms with jobs classifi ed as non-manufacturing.

Indirect skilled and professional positions vary by industry, but range from technicians who keep the highly automated and IT-driven manufacturing processes humming to high-


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The Math: A Higher Multiplier With Smart ManufacturingSmart manufacturing requires at least three to four times the number of

indirect jobs for outside support compared with direct jobs—versus the

much lower employment multiplier of traditional factories today, which is

only about one-half of a non-manufacturing support job for every job in a

factory. That’s because smart factories typically use more non-manufac-

tured supplies, high-tech services, IT support, transportation, and logistics

companies to accommodate their signifi cantly increased productivity and

higher output, often exported globally due to its cost-competitiveness.

.....................................................................................................................................

Manufac-turing has always had

a higher employment multiplier

than any oth-er economic sector. Now, this already high employ-ment multi-plier is start-

ing to rise.


Every 10 jobs at Intel support another 31 jobs in other sectors of

the Oregon economy—at above-average wages.

..........................................................................................................................................................................................................................................................................................................................................................................................

wage consulting roles in fi elds such as data analysis and financial planning. Equally important are the ties between industry and researchers. Partnerships with university re-searchers and private prototyping companies not only foster high-skill, high-wage jobs, but they also can ignite innovation in production processes to drive profi tability and spur even greater investments and jobs growth. These relationships also promise to create new fi elds of smart manufacturing support jobs such as modeling and simulation experts who use high-performance computing to optimize factories of the future. Comprehensive stud-ies show that the growth of these indirect manufacturing jobs is already beginning.

Consider Intel Corp., whose operations in Washington County, OR, directly em-ploy 16,250 people in the design, manu-facture, and marketing of microproces-sors. A recent study conducted for Intel by ECONorthwest7 pegged the fi rm’s jobs multiplier in the state of Oregon alone at 4.1 for 2009, the most recent year for which data is available. That means every 10 jobs at Intel support another 31 jobs in other sectors of the Oregon economy—at above-average wages, according to the study. In to-tal, more than 50,000 indirect jobs exist in non-manufacturing companies and fi rms to supply, support, and service Intel’s op-erations at that one location.

The bulk of Intel’s $5.4 billion non-payroll expenses in Oregon went toward the purchase of goods and services including utilities;

wholesale and retail trade; business, profes-sional, management, and employment servic-es; and manufactured materials, according to the study, which was developed with access to detailed, proprietary Intel fi nancial data.

“The average annual income for employ-ees indirectly affected by Intel’s non-payroll operational spending in 2009 is $77,200 in Washington County, $68,560 in Portland Metro, and $66,900 in Oregon,” the study states. The statewide average income was $40,740 in 2009, according to state fi gures.8

Driving High Levels Of Indirect Employment

Supply-network jobs associated with GE and Intel refl ect the high level of indirect employment that more

automated manufacturing generates. On

20

18

16

14

12

10

8

6

4

2

0

Direct + Indirect Jobs Direct Jobs

Multiplier=F O R M U L A :

Direct Jobs in Factories Indirect Mfg.-Dependent Jobs

Calculating Employment Multipliers

CBS News Minutes. “The Jobs Czar: General Electric’s Je� rey Im-melt.” Interview with Lesley Stahl. Aired Oct. , .

ECONorthwest. Eco-nomic Impacts of Intel’s Oregon Operations, . Alec Josephson. October .

� Oregon Blue Book. O� cial Directory and Fact Book of the State of Oregon. Compiled by the Oregon State Archives. .

The Manufacturing Institute. Facts About Modern Manufactur-ing, �th Edition. .

2000 2005 2010 2015 2020 2025

Source: National Association of Manufacturers

CHART 2:


average, the manufacturing multiplier is 1.58, according to National Association of Manufacturers fi gures that place direct manufacturing employment at 11.8 million and indirect employment at 6.8 million. 9

That means a typical manufacturing facility that employs 100 people actually supports 158 jobs, 100 directly and 58 through employment at suppliers. As fac-tories get “smarter” and more advanced, the multiplier increases signifi cantly. In some advanced manufacturing sectors, such as electronic computer manufactur-ing, the multiplier effect can be as high as 16 to 1, or 16x, meaning that every manu-facturing job supports 15 other jobs.10 Highly automated, high-tech manufac-turing regions already have employment multipliers closer to 3.5, according to the Milken Institute’s Manufacturing 2.0 re-search study.11

Expanding the current employment multiplier from the 1.58 level today to 2x, 3x, or higher multipliers in the next decade equates to millions of new indirect jobs necessary to support the next generation of smart manufacturing (see Chart 2). This is the new line that we need to add to Chart 1 to show manufacturing output growth versus direct jobs decline—to illustrate the full scope of manufacturing’s effect on total employment.

Innovative Support Services Spur Indirect Jobs

To illustrate the link between tech-nology, production, and direct and indirect employment, con-

sider what happened as the agriculture sector became increasingly automated. In 1950, one farmer produced enough food in a year to feed 27 people. Today, one U.S. farmer produces food for 154 people per year.12 Milk-per-cow production increased 242% from 1950 to 2000, while corn yields per acre grew 292%, due primarily to new technologies.13

Most Americans still regard the nation as the world’s breadbasket, thanks to an abundance of food and agricultural prod-ucts, while few decry the dramatic decline in direct farm employment in the past half-century. More important, the indirect jobs growth in agriculture has affected sectors the 1950s farmer could not have imagined: from people who build and repair GPS-guided seed drills and computerized com-bine harvesters, to university-based soil and seed researchers, bioplastics innova-tors, grain-mill executives and operators, producers of processed food and beverag-es, leather tanners and textile manufactur-ers, ethanol extractors, local fi nance fi rms for multi-million-dollar machines, and crop insurance agents. This new array of agricultural support services created mil-lions of jobs statistically counted as non-farm employment.


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More productive and globally competi-tive smart manufacturing will, in turn, present new opportunities for exports to serve the world’s emerging markets.

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Milken Institute. Manufacturing .: A More Prosperous Cali-fornia. Ross C. DeVol, Perry Wong, Armen Bedroussian, Candice Flor Hynek, and David Rice. June .

Ibid.

American Farm Bureau Federation, via U.S. Department of Labor.

U.S. Department of Agriculture, Economic Research Service. Pro-ductivity Growth in U.S. Agriculture. Keith O. Fuglie, James M. Mac-Donald, and Eldon Ball. September .

MIT Roundtable. The Future of Manufac-turing Innovation—Advanced Technologies. Held in cooperation with the Council on Competitiveness. March , .

Economist Intel-ligence Unit, com-missioned by KPMG International. Global Manufacturing Out-look: Relationships, Risk, and Reach. .

National Associa-tion of Manufacturers. U.S. Lags as an Exporter of Manufactured Goods. February .


Now imagine a similar trajectory of indi-rect employment as manufacturers expand relationships with their support services to kindle opportunities for growth through smart manufacturing processes. Many of these support services are the small to midsize enterprises (SMEs) often heralded for their jobs creation and innovation ca-pabilities. Too few statistics measure this symbiotic relationship between SMEs and the manufacturing sector, unless these en-terprises are themselves manufacturers. For example, the growing number of comput-ers in smarter factories creates the need for more IT support services.

Supply chains and support services will also adapt as smart manufacturing spurs innovation such as mass customization, as well as new fabrication materials including those being developed for lighter-weight, more-energy-efficient vehicles, said MIT researchers at a March 2010 innovation discussion.14 That creative process is al-ready underway in some sectors. A recent study commissioned by professional-services giant KPMG, examining how manufacturers are adapting to the global recession, found an increased drive toward close partnerships with suppliers well be-yond material and component supply or finished-goods delivery.

“More than half of respondents expect to collaborate more closely with suppliers on, or give responsibility to them for, prod-uct innovation, product development, and research and development,” KPMG re-ports. “That figure rises to more than 60% for cost reduction and supply chain agility. Furthermore, one-third of respondents re-port that their companies are increasingly becoming assemblers of parts from top-tier suppliers that in effect are managing what once would have been the lead manufactur-er’s supply chain.”15

Greater Global Competitiveness Adds More Indirect Jobs

More productive and globally competitive smart manufactur-ing will, in turn, present new op-

portunities for exports to serve the world’s emerging markets. Exports are critical to both direct and indirect jobs growth and economic recovery, a February 2011 Na-tional Association of Manufacturers anal-ysis noted.16

“The mature domestic market for manu-factured goods is unlikely to grow rapidly enough to outpace productivity increases and create jobs,” NAM stated. “Job cre-ation is going to depend on faster export growth—with the United States joining the major league of ‘power exporters,’ and the time to start achieving that goal is now.”

While the United States produces 20% of the world’s manufactured goods and re-mains the world’s largest manufacturer, it ranks only 13th among the top 15 manu-facturing economies in the proportion of goods it exports, NAM noted. That puts the nation at 45% of the average export in-tensity among manufacturing nations.

Feature/ The Multiplier Effect /8/9

55W W W. M A N U FAc T U r I N G - E x E c U T I v E . c o M

M E G l o b a l L e a d e r s h i p c o m mu n i t y

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China, Too, Has Seen the BenefitEven nations with traditionally lower labor costs like China seem to under-

stand the bigger long-term indirect jobs benefits of smart manufacturing

compared to the short-term direct jobs impact. For example, when the

2008 Olympic Committee required the mammoth old Capital Steel plant

to be moved out of Beijing, which cut 18,000 tons of pollution per year

before the Summer Games held there, China’s vice premier announced

that two-thirds of the 65,000 workers would not be needed to operate

the new highly automated, higher-output steel plant located in the new

Caofeidian eco-city. A similar announcement came last summer when

FoxConn decided to buy one million robots in the next three years to re-

place many of the nearly one million Chinese workers who currently make

Apple’s iPads, iIPods, and iPhones.

“You’re go-ing to have

fewer people that do any task,” said

GE’s Jeffrey Immelt on

60 Minutes, “but for every

person that was in that

plant in Mis-sissippi, there

are prob-ably seven

or eight jobs in the supply

chain.”

....................................................................................................................................................................................................


At the same time, shifts in emerging-economy production expenses may also result in some “insourcing” or relocations into mature markets using smart manufac-turing to better control costs, according to a new study by Boston Consulting Group.17 For example, wages in China are rising faster than productivity gains, making U.S. production more viable for some sectors when shipping costs and “hidden” supply chain costs are factored in, the study states.

The Boston Consulting study shows that almost every company relocating production back to the United States or constructing a new factory here does it with a comparatively higher percentage of industrial automation and informa-tion technology. As a result, these new factories will have higher employment multipliers. Boston Consulting expects up to 800,000 manufacturing jobs to be added in the U.S. by mid-decade. More importantly, they estimate that a 4x em-ployment multiplier will create about 2.4 million indirect jobs.

“The job gains, equating to a drop of up to 2 percentage points in the U.S. unem-ployment rate compared with today’s fi g-ures—to around 7%—would come directly through added factory work as well as indi-rectly through support services,” the study’s authors state.

Let the Facts Speak

Indirect jobs associated with smart manufacturing can help put unem-ployed workers back to work and re-

vitalize manufacturing’s central role in our economy. We must do a better job of telling that story. In June 2009, we participated in one of the fi rst National Summits on Man-ufacturing, hosted by the Detroit Econom-ic Club, which was co-chaired by Bill Ford of Ford Motor Co. and Andrew Liveris of Dow Chemical.

As the heads of manufacturing power-houses examined the strong productiv-ity and output gains that the industry has made, along with the hundreds of thou-sands of very good direct job opportunities available, everyone analyzed why manufac-turing has such a black eye in America.

What we have, the leaders agreed, is not a manufacturing problem; it’s a public re-lations problem. And that presents an op-portunity, because image problems can be solved more readily than fundamental manufacturing problems.

We need to inspire policymakers and oth-ers to appreciate the benefi ts of smarter manufacturing. Historically speaking, a smaller percentage of people working in agriculture and in manufacturing can drive competitive exports for a healthy balance of trade, create wealth to meet fi scal needs, and provide an economic nucleus for the rest of the economy—through millions of new indirect jobs. M


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What we have is not a manufacturing problem; it’s a public relations problem. And image problemscan be solved more readily thanfundamental manufacturing problems.

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Boston Consulting Group. “BCG Perspec-tives,” commentary on the BCG study Made in America, Again: Why Manufacturing Will Re-turn to the U.S. Harold L. Sirkin, Michael Zinser, and Douglas Hohner. August .


Andy Chatha President and Founder, ARC Advisory Group

Chatha has more than 30 years’ experi-ence in enterprise ap-plications and auto-mation as an

exec utive adviser, market analyst, project manager, and software en-gineer. He provides leadership to the ARC organization and guides its research and client activities. For the past 20 years, Chatha has provided advice and consulting to many leading companies around the world. He served as a speaker at Manufacturing Executive/Man-aging Automation’s 2010 Manu-facturing Leadership Summit.

Paul Christodoulou Principal Industrial Fellow, Institute for Manufacturing, Cambridge University

Christodoulou joined the IfM at Cambridge in 2002 after 20 years in senior management roles in multi-national

manufacturing companies. His cur-rent role is “helping to put the out-puts of research into practice,” an ef-fort that involves major projects with companies including Bombar-dier, Caterpillar, Grundfos, Hunts-man, Schneider Electric, and Sealed Air. Christodoulou has a fi rst-class engineering degree from Durham

University in the U.K. and an M.B.A. from INSEAD in Paris.

Jim DavisVice Provost, Information Technology, and Chief Academic Technology Officer, UCLA

In a new executive leadership role as Vice Provost of IT and Chief Academic Technology Offi cer at

UCLA, Davis is responsible for the Institute for Digital Research and Education (IDRE), the Institute for Informatics (I2), and UCLA’s institutional educational technolo-gy initiatives. He has broad ac-countability for university-wide IT planning, strategic investment, and the deployment of academic and administrative operations and services. He is also a professor of chemical and biomolecular engi-neering, focusing on data analysis, decision support, and intelligent systems. Davis is now a leading fi g-ure in a U.S. national initiative on smart manufacturing and manu-facturing competitiveness.

Adriana Karaboutis Vice President and CIO, Dell

Karaboutis was named CIO of Dell in November 2011; prior to that, she was VP of IT at the com-

pany. Previously, she was General Motors’ global manufacturing

and labor information offi cer, re-sponsible for all vehicle assembly, power train, stamping plant sys-tems, and manufacturing engi-neering systems around the world. Karaboutis also spent 15 years at Ford Motor Co., and served in engineering roles at Me-dar Inc., Volks wagen of America, and GM’s Fisher Body Division. Karaboutis has a B.Sc. in com-puter science from Wayne State University in Detroit, and she completed the Fuqua School of Business Marketing Strategy Program at Duke University. She was a speaker at the 2010 Manu-facturing Leadership Summit.

Larry Lapide Research Affiliate, MIT Center for Transportation & Logistics

Lapide has over 30 years’ experience in industry, consulting, research, and aca-demia. He recently

worked in MIT’s Center for Transportation & Logistics, where he managed the launch of MIT’s Supply Chain 2020 Project and oversaw its Demand Man-agement research. He has also worked at AMR Research, Ac-centure, and Data General, and is a part-time lecturer at the Uni-versity of Massachusetts. Lapide has served as a panel speaker and a judge in Manufacturing Execu-tive/Managing Automation’s


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Manufacturing Leadership Sum-mit and Awards program. He holds a master’s of science degree in electrical engineering from MIT and a Ph.D. in operational research from the Wharton School of Business.

Jay LeeProfessor of Advanced Manufacturing, Ohio Eminent Scholar & L.W. Scott Alter Chair Professor, University of Cincinnati

Lee is the founding director of the Na-tional Science Foun-dation Industry/Uni-versity Cooperative

Research Center on Intelligent Maintenance Systems, which is supported by more than 40 com-panies. He is also an adviser to the Industrial Technology Research Institute in Taiwan, the Japan Productivity Center, and the Academy of Machinery Science and Technology in China. Previ-ously, he held the position of Wis-consin Distinguished Professor and Rockwell Automation Pro-fessor at the University of Wis-consin-Milwaukee.

Pierfrancesco ManentiHead, Europe, Middle East & Africa, IDC Manufacturing Insights

Manenti leads the IDC Manufacturing Insights research practice across Eu-rope, the Middle

East, and Africa from his offi ces in Milan. He is also the global lead for the Operations Technology Strategies advisory service, with a strong focus on the business value

of technology in manufacturing. Manenti has 20 years’ senior exec-utive industry experience in man-ufacturing operations and supply chain strategy consulting and IT solutions, as well as product man-agement, marketing, and business development. Manenti has a de-gree in computer science from Pisa University (Italy).

Angel L. MendezSenior Vice President, Cisco Transformation, Cisco Systems

Appointed to his new role in September 2011, Mendez leads the Accelerated Cisco Transformation Pro-

gram (ACT), a multi-year initiative aimed at delivering increased pro-ductivity, agility, and growth by transforming Cisco’s product and services portfolio, operational ca-pabilities, and go-to-market pro-cesses. He previously led Cisco’s Customer Value Chain Manage-ment organization. Mendez brings almost 30 years of management ex-perience to Cisco, along with prov-en expertise in developing and im-plementing strategies to improve operations and supply chain per-formance. A native of Cuba, Men-dez holds a B.Sc. in electrical engi-neering from Lafayette College and an M.B.A. from the Crummer School at Rollins College.

George NickelDirector, Global Process Architecture, Johnson & Johnson

With over 35 years’ ex-perience in manufac-turing and distribution systems, Nickel leads

Johnson & Johnson’s Global Process Architecture team to

align, synchronize, and imple-ment process capabilities, invest-ment strategies, and governance across the consumer sector. He is also a member of J& J’s Stan-dards & Strategies Board, which ensures cross-functional IT/busi-ness collaboration and value real-ization. Nickel is a graduate of Washington College and has done graduate work at the Uni-versity of Pennsylvania’s Whar-ton School. Nickel has served on the judging panel for Manufac-turing Executive/Managing Auto-mation’s Progressive Manufac-turing Awards program.

Kevin O’MarahSenior Research Fellow, Global Supply Chain Management Forum, Stanford University

O’Marah was recently appointed a senior re-search fellow at the Stanford Global Sup-ply Chain Manage-

ment Forum. Before that, he spent more than a decade at AMR Re-search, working with companies on manufacturing, product lifecy-cle management, and supply chain strategies. He was also a vice presi-dent at Oracle, focusing on supply chain and product data manage-ment strat egy, and worked at Gemini Consulting, now part of Ernst & Young (GCE&Y); Mer-cer Consulting in London; and Company Assistance Ltd. in War-saw. O’Marah is a graduate of Boston College, Oxford Universi-ty, and Stanford Business School.


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Michael PackerVice President, Manufacturing Strategy and Processes, Lockheed Martin Aeronautics

Packer is responsible for Lockheed Mar-tin’s manufacturing concepts, moderniza-tion initiatives, pro-

duction engineering and technol-ogy, industrial engineering, production planning and control, and workforce development. His previous roles at the company in-clude director of production plans, director of F-22 produc-tion, site director of Marietta, GA, production operations, and director of Joint Strike Fighter manufacturing. Packer has aB.Sc. in industrial technology from Eastern Michigan Universi-ty and an M.B.A. from Washing-ton University at St. Louis.

Scott ParkVice President of Global Manufacturing Strategy and TQM, Doosan Infracore Construction Equipment

Park took up his new role at Doosan In-fracore Construc-tion Equipment, based in Seoul,

South Korea, earlier this year af-ter working as CIO and CTO at Volvo Construction Equipment in Brussels since 2005. Part of the $21 billion Doosan Group, Doosan Infracore represents a range of global brands including Bobcat, Montabert, Geith, and Tramac. Park has a B.S. degree in engineering from Harvey Mudd College in Claremont, CA, and a master’s degree in in-ternational management from

the University of California, San Diego.

Vince SerpicoSenior Vice President, Operations North America, L’Oréal

Serpico oversees the entire L’Oréal USA supply chain, focus-ing on the manage-ment of product,

from conception to the custom-er. He has been with L’Oréal USA for 25 years. During that time, he spent 10 years as plant manager at the Franklin, NJ, manufacturing plant and later led the company’s manufactur-ing, fi nance, and IT teams to drive the integration of the Matrix, Redken, Kiehl’s, and SoftSheen-Carson brands into L’Oréal USA. Serpico is a grad-uate of the Cornell School of Engineering and has an M.B.A. in fi nance.

Vikram SinhaVice President and Head of Passenger Car Production,Tata Motors

Sinha has 34 years’ experience in the manufacturing in-dustry. Before taking over as head of man-

ufacturing operations at Tata Motors’ main Pune, India, car plant in April 2010, he worked as head of customer support for the company’s passenger car business. In this role, he helped transform customer support by ushering in process orientation, and was instrumental in bring-ing signifi cant improvement to Tata’s Customer Satisfaction In-dex by improving its J.D. Power CSI Score. Sinha has also

worked in various other areas of Tata, including corporate plan-ning, strategic planning, and major projects. He has a B.Tech. degree from the Institute of Technology at Banaras Hindu University, and completed a post-graduate program in man-agement from the XLRI Jam-shedpur School of Business and Human Resources.

Mark WilsonDirector, Collaboration Management, Pharmaceutical Development division, GlaxoSmithKline

Wilson helps lead the development of in-novative new prod-ucts and processes for GlaxoSmith-

Kline’s 80 manufacturing sites around the world. He has global experience of primary and sec-ondary pharmaceutical manu-facturing, including both fer-mented bio-products and synthetic chemicals; manufac-turing strategy; and technology development. He has worked for GSK in manufacturing and R&D in several locations, devel-oping, licensing, and imple-menting new technologies. Wil-son holds a master’s degree and a doctorate in chemical engineer-ing from the University of Leeds, and an M.B.A. from Co-lumbia University and London Business School. He is also pres-ident of the Licensing Execu-tives Society of the United King-dom and Ireland. M



@03_Board_v1.indd 3 2/9/12 2:00 PM

has been a dramatic increase in IT complex-ity in their organizations in the last few years, and this is becoming an increasingly daunt-ing problem to solve. What’s emerging is that current IT architectures are becoming the single most critical barrier hampering the ability of manufactures to master both mar-ket and operational complexity.

Nevertheless, manufacturing organiza-tions around the globe are also begin-

ning to understand the importance of modernizing their IT architec-tures, leveraging what IDC calls the “four IT forces”: mobility, cloud computing, big-data ana-lytics, and social business.

More than 90% of manufacturers respond-ing to our global surveys believe that these four IT forces will change the way their businesses are managed in the near future. More than 35% expect these changes to completely trans-form their organizations within three years. In particular, survey results show that manufac-turers believe the four IT forces can signifi cant-ly increase collaboration levels and open lines of communications, enabling fi rms to improve decision-making, speed up business processes, and rapidly adapt processes to market change.

The most advanced manufacturers will be able to take advantage in a number of ways:

Mobility. Smart hand-held devices are

Manufacturers believe the four IT forces can increase collaboration and open lines of com-munications, letting fi rms improve decision-

making and speed up business processes.

N CONVERSATIONS WITH LEADING MANUFACTURING executives around the world, one overriding theme is that current manufacturing IT systems are ineffective or inadequate to support the rapid decision-making ca-pability needed in today’s fast-paced business environment. While manufacturers recognize the critical role of information technology in supporting their businesses, they are not entirely happy with what they have. The main reason is a lack of timely information they need to make important business decisions. Firms also feel there

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Four IT Forces That Will Change The Way Manufacturers WorkCan a power ful combination of mobility, cloud computing, data analytics, and social business technologies create more collaborative, responsive, and adaptable manufacturing companies?

Opinion / Pierfrancesco Manenti

I

making and speed up business processes.

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used extensively in manufacturing, but in most cases they cover very simple processes: e-mail, sales KPIs, or as travel-expense tools. Over the last couple of years, CIOs have been under pressure from line-of-business execu-tives eager to enable more mobile business processes. One emerging area of investment is the adoption of consumer hand-held devic-es—particularly tablets—on the plant floor. Companies are developing process-specific device policies to take full advantage of in-creasing comfort levels with these devices.

Cloud computing. The manufacturing in-dustry has been skeptical about adopting cloud computing so far. Many manufactur-ers still fear security threats and disruptions in data availability. Over the last 12 months, however, we have seen a significant change in this approach, mostly led by midsize orga-nizations that are now adopting cloud com-puting as a viable deployment strategy. Go-ing forward, manufacturers will realize that cloud architectures can provide a powerful integration backbone to create a higher level of collaboration among trading partners operating along the same value chain.

Big-data analytics. One of the big issues for manufacturers today is that they simply have too much information available at their fingertips. In fact, they are overwhelmed by data and often struggle to understand what that data represents. This issue is evident in all of the three most critical process do-mains in the industry: manufacturing oper-ations management, supply chain manage-ment, and product lifecycle management. Big-data analytics technologies improve the ability to analyze huge volumes of disparate data types swiftly. This is the least developed technology among the four IT forces, but probably has the highest potential for creat-ing new business advantages.

Social business. These technologies are already proven and extremely successful in

consumer IT. Their major strength is their ability to create “unstructured” collabora-tive networks. A rapidly increasing number of manufacturers are now considering using social business technologies to create a higher degree of business collaboration, both within the organization and outside it, with partners and customers. In 2012, manufacturers will sort out what social business means for them in the short term. Their focus will depend on how close they are to the end-consumer.

New opportunities also exist in the overlap of these new technologies, such as cloud-en-abled mobile application stores or rapid analy-sis of large volumes of social media content.

At IDC, we believe the four IT forces will play an increasingly essential role in manu-facturing, creating real-time decision-mak-ing environments, engaging the workforce, fostering collaboration along an intelligent value chain, and creating an efficient con-sumption-based IT environment. Indeed, delivering IT productivity and business value at the same time is the real strength of these four IT forces. M

Pierfrancesco Manenti is head of Europe, Middle East, and Africa for IDC Manufacturing Insights (www.idc.com). Manenti is a Manufacturing Leadership Board member.

Related Articles: Rethinking the Factory of the Futurewww.manufacturing-executive.com/ rethinking

People Make the Difference: Optimize Your Workforcewww.manufacturing-executive.com/optimize

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Big-data analytics improve the ability to analyze huge volumes of data swiftly.

This is the least developed technology among the four IT forces, but

it has the highest potential.................................................................................................................................................................................................................................................................................................................................................................................................................................................................................

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@RB03_Manenti_v4.indd 2 2/9/12 2:50 PM

D I S C U S S I O N

What Skills Shortage?

Marie GervaisDirector, Global Leadership Associates

Most manufacturing managers who are try-ing to keep up their production, quotas, and effi ciencies are not

in the mode of listening to and valuing worker’s voices. If they are, there is often no mechanism to capture that feedback so that people know they have been heard. What can further hinder managers in their capacity to hear younger workers is: a) their ten-dency to project their own (old) experience onto young workers; combined with b) resistance to the infuriating sense of entitlement young people frequently have. What I think is required as a work-place skill to begin addressing these confl icts—and create a new workplace environment model—is an active and conscious thrust to develop people’s capacity to work toward a common goal with a diversity of approaches. If we can create a manufacturing cul-ture where people learn to work together toward common goals,

and that the motivation to do this diffi cult work is that they believe they have ownership through an active voice, a capacity to benefi t from the company changes, and a diversity of approaches, the inter-nal pull will be a stronger force for fi nding qualifi ed employees than any marketing campaign could produce. Join the discussion: http://www.manufacturing-executive.com/message/#

D I S C U S S I O N

Should Lead Time Improvement Be Your Primary Goal?

Val ZanchukPresident, Graphicast

Prof. Rajan Suri’sthesis [see article, “It’s About Time,” in thisissue.—Ed.] looks like a restatement of Gold-

ratt’s Theory of Constraints (TOC), as presented more than 25 years ago in Eliyahu Goldratt’s book The Goal. The goal is not lead-time improvement per se; the goal is maximizing “throughput.” Having capacity fl exibility to meet surges and quick turnaround is one means to reaching the goal. Using TOC to focus efforts to re-

duce or eliminate bottlenecks to achieving this fl exibility (bottle-necks can be due to procedures and policies as well as production equipment) keeps the operation moving toward the goal. I don’t think TOC is limited to high-mix, low-volume operations. Too of-ten, Lean and cost-based “im-provements” do not lead to maxi-mizing throughput, and therefore frequently fail to deliver the fi nan-cial rewards promised at the start of these efforts. Making a process more “effi cient” without increas-ing throughput will not improve the bottom line if it just shifts costs around the operation, i.e., direct labor now becomes indi-rect labor. Unless labor or some other cost is reduced, the bottom line doesn’t change. Applying TOC and throughput accounting principles works in any produc-tion environment.

John BowlerAdjunct Professor, Franklin University

I, too, fi rst thought QRM was another continuous-improve-ment “fl avor of the month.” I agree at

fi rst blush that Suri’s method


JOURNAL

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Community VoicesThe following extracts are taken from some of the hottest discussions

on the global Manufacturing Executive Community Website at www.manufacturing-executive.com.

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@RB03_CommVoices_v3.indd 62 2/13/12 4:15 PM

may seem to look and walk like a TOC. That said, after a year of pondering it, I assure you that QRM is not a TOC. In my mind, TOC is straightforward logic; QRM is counter-intui-tive, and by all rights, at least ac-cording to in-the-box thinking, QRM shouldn’t work—over-heads up, variances up, efficien-cies down, idle machines, an operations manager and control-ler’s worst nightmare. But it works in the arena for which it has been designed, and at the end of the day, achieves results that walk the talk. Suri does not present QRM as “the” best solu-tion. Instead, he is quick to point out that QRM and existing strategies complement each other, and from my point of view, Suri’s method is about much more than just slaying the bottleneck.

Donna LasherVice President, OKAY Industries

Although there is some wisdom in what Suri says, one activity can lead to the other. In other words, if

strong production practices are in place, lead times will be driv-en downward. Not all the tools in the toolbox, so to speak, are appropriate for short-run or higher specialized manufactur-ing, but there are enough prin-ciples involved that do make sense and can be applied. At the end of the day, it is dangerous to simply write off a practice as

not applicable before first seek-ing to see that some synergy can be beneficial to different situations.Join the discussion: http://www.manufacturing-executive.com/message/2953#2953

D I S C U S S I O N

What Will Make a U.S. Manufacturing Renaissance Happen?

Mark Lucci President, Precise Engineering

Change the tax code so that all expenses payable to a non-U.S.-based entity are not tax deductible. After

all, one of the basic justifications for the deduction is that someone else is picking that money up as income and being taxed accord-ingly elsewhere (no double taxa-tion). This is not the case when the expense is payable to an over-seas entity. This would include la-bor, capital expenditures, raw materials, and post-processing. Eliminate (or minimize) the cost advantage of manufacturing the product overseas, and the resur-gence will follow.

Paula WaddellDirector, InSource Solutions

The way I see it, every-one has a responsibili-ty to ensure the resur-gence of American manufacturing. If you

are involved in the industry, if you have a passion for manufac-turing, if you believe that manu-facturing has a direct impact on our nation’s economy, do your

part! Here are some thoughts about how you can personally make a difference:› Take time to speak at career day at a local school. I’ve done this for the past three years and have a firm belief that, if nothing else, I’ve raised the awareness among children getting ready to enter college on the importance of manufacturing, and maybe even had an impact on someone who was considering an engineering major.› Create awareness of how man-ufacturing companies work together. For example, many people don’t know that the spent pickle liquor from steel mills is often used to treat sludge at wastewater treatment plants, and that the sludge, once treated, is often used to make cement, which goes into all kinds of con-struction. Would it make a differ-ence if people knew?› Don’t settle for the “Apple” ex-cuse. As consumers, we can make a difference. Our voices can be heard in what we purchase (or not).› Spread the word. Know of a great manufacturing success? Talk about it. Know of a manu-facturer who is struggling? Make connections. Help turn that busi-ness around.

As some like to say, “If we were serious, we would...” What will you do? MJoin the discussion: http://www.manufacturing-executive.com/message/2927#2927

W W W. M A N U FAC T U R I N g - E x E C U T I v E . C O M


@RB03_CommVoices_v3.indd 63 2/13/12 4:15 PM

Tracy BakerChief Operating Officer, DIRTT Environmental Solutions

Prior to joining DIRTT, Baker spent six years at Pricewa-terhouseCoopers in the small-business

division, in roles that ranged from director of fi nance to compliance administration and senior man-ager. Other previous roles include fi nancial manager and business integration at TSX Venture Ex-change. She served as DIRTT’s chief fi nancial offi cer starting in 2004 before moving into her cur-rent role as DIRTT’s chief oper-ating offi cer in 2008. Baker holds a bachelor’s degree in accounting from the University of Calgary.

James BeilsteinDirector, Manufacturing Technology and Global IT Operations, Owens Corning

Beilstein joined Ow-ens Corning in 1999; in his current role, he has responsibility for global manufactur-

ing technology, global IT project execution, and IT project man-agement. He has extensive global experience with large-scale, multi-year programs driving both manufacturing and corpo-rate productivity, and has led people, project teams, and proj-

ects in South America, Latin America, Europe, and Asia. Pre-vious roles at Owens Corning in-clude director of manufacturing technology and leader of ad-vanced process control systems. Beilstein has a B.S. in chemical engineering from Lehigh Univer-sity, and a Ph.D. in chemical engi-neering from the University of Massachusetts.

Anthony DeliaManager, Global Manufacturing Strategy and Planning, Panduit Corp.

Delia is responsible for Panduit’s global manufacturing strat-egy, planning, and implementation

across 11 global locations includ-ing the U.S., China, Singapore, Romania, the Netherlands, Cos-ta Rica, and Mexico. He is espe-cially focused on the challenges of alignment of global manufac-turing supply to meet emerging demands and growth, the coordi-nation of strategy and tactics among the company’s key manu-facturing leaders, and developing Panduit’s annual strategic plan-ning summit, which helps the company set the right direction for the years ahead. Delia holds a B.S. in industrial technology with a focus on manufacturing from Eastern Illinois University.

Thandankorai Ganapathy DhandapaniGroup CIO and CTO,TVS Motor Co. Ltd.

Dhandapani has worked for the TVS Group for more than 28 years, and has led IT projects across

eight of the group’s manufacturing operations, including TVS Motor and Sundaram Clayton, for the last 10 years. Previous functions in the company include fi nance, opera-tions, and business planning. He has a number of professional certi-fi cations, including TQM from the Union of Japanese Engineers and Scientists, and from the National Quality Program at the U.S. Na-tional Institute of Standards and Technology. Dhandapani holds a bachelor of commerce degree from the University of Madras, India, and is qualifi ed as a chartered ac-countant with the Institute of Chartered Accountants of India.

Rick GarciaDirector of Advisory Services, Cisco Systems

Garcia has special-ized experience in strategic planning, enterprise architec-ture, and process en-

gineering, including responsibili-ty for aligning business needs with


JOURNAL

..................................................................................................................................................................................................................................................................................................................................................................... ..................................................................................................................................................... The CouncilMeet some of your fellow members on the Manufacturing Leadership Council

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@RB03_Council_v2.indd 64 2/15/12 11:34 AM


JOURNAL

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technology innovations within glob-al conglomerates in the manufactur-ing and oil and gas sectors. He has 27 years’ experience as a technology professional, and a track record of rebuilding world-class IT organiza-tions with deep focus on process re-engineering and organizational op-timization. Garcia holds a B.S. degree in telecommunications from DeVry University, an M.B.A. from the University of St. Francis, an M.S. in information systems from Northwestern University, and a doctorate in organizational leader-ship from the University of Phoenix.

Len JenkinsVice President, Technology Strategy, Corporate Technology Division, Crown Cork and Seal

Jenkins’ primary role at Crown is advising senior management on future technology requirements, manu-

facturing processes, and raw ma-terials for metal packaging. He is directly responsible for open inno-vation activities, intellectual prop-erty management, and the fi rm’s business interface directors, who manage the R&D programs for each of Crown’s global manufac-turing businesses. He previously held management positions in R&D with Metal Box and Weirton Steel Corp., and has de-veloped and patented several new surface coating processes, engi-neered steel construction systems, and metal packaging products. Jenkins graduated from the Lon-don College of Printing; he has also studied advanced manufac-turing systems and new product development and marketing strat-egies at INSEAD in Paris, and

corporate core competencies at Dartmouth College’s Tuck School of Business.

Hamid KhorramianVice President of North American Operations and Customer Experience, Steelcase

Appointed to his current role in May 2009, Khorramian is responsible for man-

ufacturing and all manufacturing services at Steelcase North America plants. He also oversees key customer and dealer touch-points, including solutions fulfi ll-ment, specials engineering, phys-ical distribution, and corporate quality. He joined Steelcase in 1994 when the company acquired Anderson Desk, where he was chief operating offi cer. Khor-ramian holds a bachelor’s degree in industrial engineering from California State Polytechnic Uni-versity, Pomona.

Tom MascariVice President, IMT Business Development and Manufacturing Operations, FONA International

Mascari has more than 11 years of lead-ership experience in the food and industrial automation indus-

tries. His specialized knowledge of maximizing existing business strate-gies and creating new, innovative models for core business growth is now being applied to FONA’s newly formed operating unit, Ingredient Manufacturing Technologies (IMT). Mascari holds a B.S. degree in organizational leadership from Purdue University.

Thomas SeibertHead of Manufacturing Development, Nestlé

Seibert was appoint-ed head of manufac-turing development at Nestlé’s head offi ce in Switzerland last

year. His focus is on developing new ideas to drive manufacturing excellence across the company’s global production network. Seib-ert joined Nestlé in 1996 as an in-dustrial performance manager, running national and interna-tional productivity projects to streamline the costs of produc-tion. Seibert holds a degree in food engineering and an M.B.A. from the University of Munich, Germany.

Edward SherronVice President, Manufacturing, HL Technologies LP

Sherron took on the role of VP of manu-facturing at high-speed cable maker HL Technologies last

June. He has more than 30 yearsof manufacturing operations management experience at com-panies including Tyco Electronics, NIBCO, General Cable, and Schindler Elevator. He has a prov-en background in Lean techniques and Six Sigma, and a focus on TQM. Sherron holds a B.S. in manufacturing engineering tech-nology from Western Carolina University, and an M.B.A. from the University of Pittsburgh. M

MELJ / Council / /



@RB03_Council_v2.indd 65 2/15/12 11:43 AM

Company Directory

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PRESIDENTHEATHER L. HOLST-KNUDSEN

212-290-8724 [email protected]

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DESIGN DIRECTIONBEST & CO.

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CROSS-MEDIA PRODUCTION SPECIALIST

PHILLIP GALLOF212-629-1503

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Marketing

DIRECTOR OF EVENTSNICOAL CRAWFORD

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MARKETING OPERATIONS MANAGER

ROBERT REDMOND212-629-1513

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Sales

ACCOUNT EXECUTIVEJESSICA TRUGLIA

212-560-1858 [email protected]

Online

WEB DEVELOPER/PROJECT MGRJOHNSON LAU

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WEB DESIGNERPAUL POLICARPIO

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WEB DEVELOPERGEETHANJALI DUGAPPA

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Contact Information:MANUFACTURING ENTERPRISE

COMMUNICATIONS5 Penn Plaza, 8th Floor

New York, NY 10001Phone 1-212-629-2164

Fax: 1-212-629-1559

THOMAS PUBLISHING CO. LLCthomaspublishing.com

Corporate Officers

CHAIRMAN OF THE BOARD JOSE E. ANDRADE

PRESIDENT, THOMAS PUBLISHING COMPANY LLC

CARL T. HOLST-KNUDSEN

VP OF FINANCE MITCHELL N. PEIPERT

VP OF PLANNING ROBERT J. ANDERSON

VP OF HUMAN RESOURCES IVY J. MOLOFSKY

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MAY ISSUEHot Topic:

THE INNOVATIVEENTERPRISE

JULY ISSUEHot Topic:

THE NEWWORKFORCE

SEPTEMBER ISSUEHot Topic:

GAME-CHANGING TECHNOLOGIES

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EXECUTIVEMANUFACTURINGBOLD IDE AS FOR A BE TTE R FUTURE

LEADERSHIPJOURNAL

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advanced workforce skills

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CHANGE THE RULES,RULE THE FUTURE.

Join more than 150 senior-level manufacturing executives as we gather at the 8th Annual Manufacturing Leadership Summit to network, share ideas, and shape the future of our industry. The Summit is hosted by the Manufacturing Leadership Council, an invitation-only executive network designed to defi ne and shape a better future for manufacturers worldwide.

The Future Manufacturer: Change the Rules, Rule the FutureThe 8th Annual Manufacturing Leadership SummitApril 29 – May 2, 2012 | The Breakers | Palm Beach, FL

To learn more and register online, visit

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Manufacturing Leadership Council, 5 Penn Plaza, 8th Floor, New York, NY 10001• 212-629-2164 or 888-280-6794

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melj march 2012

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