Overall Equipment Effectiveness. Robert Hansen C.
with the best product may not stay in business if its expense for getting the product to the customer is excessive. Fierce competition usually exists. Companies with the most effective factories will have the staying power to be the long-term survivors, assuming that the need for the product is continuous. This “staying power” provides a significant advantage over time. For example, in the paper clip industry, one of three U.S. manufacturers has equipment over 50 years old, still producing high quality clips2. Sound investments over half a century ago, and on-going maintenance, has provided a long-term business advantage to the company.
In short, factories are at the core of any manufacturing company. Staying in business requires building and maintaining effective factories.
1.2 Factory Dynamics
At any given factory, a vast number of events occur simultaneously every workday. The tasks of producing goods and maintaining equipment usually hold the central focus. However, take a moment to think about all the activities that go on and how and when they impact the manufacturing process.
Decisions made in purchasing today set in motion a timeline for each item ordered and used. How well a piece of equipment is repaired today will influence some future runtime. In the spare parts warehouse, if a bearing is accidentally dropped on the floor today, and re-shelved for later use, the piece of equipment that eventually uses it may have a shortened life. Approval or rejection of various projects can affect overall operations for years to come. Hiring and training decisions by human resources set the stage for subsequent events.
In short, all the pieces of a factory interlock. One event eventually affects all. Left on their own, all these elements can create a chaotic, reactive environment full of surprises, a home for “Murphy,” the demon that brings bad luck. Actually, with all that can potentially go wrong in a factory, it is amazing that factories do as well as they do.
And yet, what makes the difference between world-class manufacturers and the rest of the pack? World-class organizations have evolved from a factory of individuals to a factory of coordinated teams working together with a common purpose. All areas have win-win relationships with their interdependent areas. They make certain that decisions are made correctly the first time. They balance production and production capability appropriately. They are in control of “the big picture;” they have engaged everyone’s support in working toward a high level of excellence and sustaining that position. The bottom line: they know where they are and where they are going.
World-class companies do not create their environment overnight. They may need three to five years to achieve most of their gains. They then start a long journey of continuous improvement. Much of the work is educating all employees about doing their business with others in mind. People may still work independently, but they also understand their relationship with the whole. All employees understand the objectives and strategies of the company. I would rank ‘can do’ people as the most important element of the factory.
At one plant where I worked, every department had submitted its minimum operating budget for the following year. Our corporate headquarters did not accept our proposed budget. We were challenged with a goal of reducing our plant costs by an additional $12 million from the submitted budget. We held many meetings to develop a plan that could produce the results or, as an alternative, plan for inevitable downsizing. Our management team for the plant did not see how we could possibly meet the challenge. We were prepared for the worst.
Finally, one manager suggested that we turn the problem over to the plant community, offering a reward or gain-sharing plan if the plant were to meet or exceed the budget challenge. This strategy was approved and communicated to all the workers. Almost immediately, everyone in every area of the plant began to do all the little things that contributed to our beating the goal. The result was an outstanding performance for the year, surpassing the once-impossible goal by a significant amount. Everyone was amazed at how powerful this dedicated and engaged community was in making the right things happen, once a common cause was accepted.
1.3 Balancing the Business
The last section considered the big picture within the factory, the interdependence of areas and people within a plant. Similarly, the factory is one component within the overall business. It is not enough for you to understand the dynamics within your factory. You must also develop an appreciation for the importance of productivity throughout all parts of the company.
Many different components are needed to make a business successful. The dynamics of these components are often even more dramatic than the dynamics within the factory. In smaller companies, managers must often juggle many different facets of their business at once. Not only do they oversee factory operations, they are also concerned with sales and marketing, accounting and finance, and human resources for the company. Because large organizations are often organized functionally, managers often focus only on their aspect of the business. Yet within that area of focus, they are also often concerned with other areas. In all cases, you should understand how your area of responsibility fits into the larger picture.
You can develop skills and a sense of understanding about managing the overall business in many ways. Traditional academic courses in business, whether at undergraduate, graduate, or vocational schools, are a common approach. At some companies, you may be given a series of three-to-six month assignments that take you from one functional area to another. These assignments help you develop an overall understanding for the company. I encourage you to proactively seek various positions in different departments and areas your factory or different factories. Do this with the intent to learn new processes and perspectives each time too gain experience and skills. Cooperative diversity is a strength in factory teams.
Sometimes a faster way of getting exposure to a company’s complex dynamics is to participate in a simulation. Many business simulations are available. Sometimes you attend a seminar away from the company. These seminars may involve groups of employees from your company or employees from many different companies. In other cases, the person running the simulation may set up an in-house program.
Decide II: A Simulation Experience
A few years ago, I participated in a helpful simulation exercise run over four days. The seminar, Decide II, was developed by Dr. Thomas Pray, Professor of Decision Science at Rochester Institute of Technology, Rochester, NY. The seminar consisted of several simulation exercises, alternating with short lectures and workshop activities. The class provided an excellent framework for cross-functional thinking and team building with several of my company associates. Among the results was a better understanding of many business reports and marketing approaches.
Within the simulation, a class of up to two dozen participants is divided into three- or four-person teams. Each team forms a company and starts with the same information and resources. All the companies make an imaginary common product and compete for the same general market. Teams must set company objectives, implement strategies, and compete against each other.
Teams select their own strategies. For example, one team may decide that its company will produce high volume/low price and pursue a large share of the market. Another team may decide to develop specialty items at high prices, securing a profitable market niche. The teams develop strategies for how their companies will manufacture and sell their products.
Decide II uses a menu-driven Visual Basic decision-support software package. Teams enter their decisions into the Decide II software. Each team then receives immediate feedback on profits, cash flow, quality, and other measures of the effectiveness of their decisions. This feedback is based not only on the decisions made by the team itself, but also on the other teams’ decisions.
Over the course of the simulation, teams enter a series of eight sets of decisions, with ongoing results provided each time. Thus, the second set of decisions is based on the results and new market environment from the first set of decisions. The team’s overall score is provided by the stock price, which varies relative to each company’s overall health. According to Decide II, your company is rewarded for “creating economic value by implementing a solid and ‘balanced’ business