Continuous Improvement Strategies and Production ...

Proceedings of The 4th Annual International Conference on Industrial Engineering Theory, Applications and Practice November, 17-20, 1999, San Antonio, Texas, USA 1

Continuous Improvement Strategies and Production Competitive Criteria: Some Findings in Brazilian Industries L.C.R.Carpinetti1 and R. A. Martins 2 1 Department of Mechanical Engineering - School of Engineering of São Carlos P.O. Box 359 - 13560-970 - São Carlos - SP - Brazil 2 Department of Production Engineering - Federal University of São Carlos P.O. Box 676 – 13565-905 – São Carlos – SP – Brazil Abstract This paper presents the results of a study conducted in a number of manufacturing industries located in Brazil, aiming at identifying the relationship between manufacturing strategy and continuous improvement efforts. The results of the study indicate that although competitive priorities are drawn from customer and market demands, there is no clear indication of alignment between competitive priorities and deployment of improvement actions. Key Words: continuous improvement, manufacturing strategy, performance measurement, benchmarking.

1. Introduction Aiming at improving organisational performance through the effective use of production capability and technology, operations strategy such as TQM, BPR, JIT, Benchmarking, Performance Measurement and many others are commonly used [1]. Standing out in the literature are Total Quality Management and Business Process Reengineering approaches. TQM is based on the principle of continuous improvement of products and processes aimed at continually satisfying customer expectations regarding quality, cost, delivery and service [2]. BPR also aims at satisfying customer expectations regarding quality, cost, delivery and service, however its approach to improvements is more radical. In the words of Hammer and Champy [3] “Reengineering is the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements...”. Despite this subtle difference, continuous improvement is also made of high steps breakthrough improvements as proposed by reengineering so practical application and results of TQM and BPR may in some circumstances be confounded [4]. Following the international economic order, the Brazilian economy has been substantially deregulated over the past ten years, which has dramatically exposed previously protected industry sectors to global competition. This new environment has led managers to rapidly adopt world class management practices such as TQM, BPR, Benchmarking, Performance Measurement and many others acronyms with little or no attention on their impact on strategic objectives. Therefore, this paper attempts to analyse the consistency of improvement efforts of some Brazilian companies selected as case studies for its outstanding position in the Brazilian manufacturing sector. To accomplish that, a questionnaire was applied to company top managers based on some hypothesis regarding the congruence of improvement efforts with strategic objectives drawn from a conceptual model for continuous improvement strategy deployment,. In the following sections, the methodology, results and analysis of study are presented.

2. Methodology and Researched Companies To carry out the study in the companies, staffs belonging to high and medium management levels were asked to respond a questionnaire comprising 30 questions in three sections covering: general characteristics of the company or business unit; manufacturing and continuous improvement strategies [5]; performance measurement [6, 7] and benchmarking [8]. For the main product line, questions were formulated asking respondents to indicate: competitive priorities and criteria for prioritisation; reasons for continuous improvement project implementation; continuous improvement

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strategies in use; performance indicators in use and factors intervening in assessing the need of performance indicators; benchmarking studies and factors intervening in assessing the need of benchmarking studies. The companies considered in this research can be generically characterised as described in Table I. The companies were chosen based on the following criteria: leading companies in their markets and which are facing moderate to high-level competition; implemented a system of performance measurement indicators; implemented benchmarking studies; ISO 9000 awarded companies; geographical location. A five-point rating scale was used to indicate the degree of priority (1 - not important, 5 - extremely important) of competitive criteria and criteria for prioritisation, reasons for continuous improvement project implementations and factors intervening in assessing the need of performance indicators and benchmarking. A fivepoint rating scale was also used to indicate the degree of utilisation (1 - not utilised, 5 - very utilised) of continuous improvement strategies, performance indicators in different key manufacturing dimensions and types of benchmarking studies. The results are presented in the next section. Table I

Characterisation of the researched companies Company Industry Sector Employees A B C D E F G

food commodity capital goods capital goods car components consumer durable food

950 3,000 650 300 1,200 1,400 800

Annual Incomes, 1998 (103 US$) 144,000 140,000 85,000 50,000 150,000 not inform. not informed

Country of Origin Switzerland Germany Brazil USA USA Sweden Germany

3. Analysis of Results and Discussion In terms of generic competitive strategic positioning [9], most of the companies can be characterised as adopting a differentiation strategy, whereas companies B and F adopted a cost leadership strategy. The level of competition in their market segments is regarded to be moderate to intense. The companies operate in market segments with a generally expanding trend although present Brazilian economic circumstances has led to stagnated markets for companies B, D and F. Companies A, B, E and F produce to stock (MTS) and companies C, D and G produce to order (MTO). Table II presents the dimensions of manufacturing performance indicated as priority and the criteria for prioritisation of those dimensions. All of the researched companies pointed quality of conformity as a competitive priority. Companies B e D also consider product performance as a competitive criteria. Companies A and B also prioritise delivery speed and reliability and finally, companies B and G regard cost a competitive priority. When asked to indicate the factors in the prioritisation of manufacturing performance dimensions, all except one (company C) pointed customers requirements as a dominant factor. Companies A, B, E and G take a broad view of customer requirements by including prospective customer as well. Companies B, D and G also pointed competitors performance analysis as a dominant factor in defining manufacturing priorities. Company C ranked marketing strategy as the dominant factor. The main reasons for continuous improvement of operations as elected by the managers as well as top priority improvement programs are presented in Table III. Comparison of main reasons for continuous improvement (Table III) with competitive priorities (table II) reveals product quality improvement as a main reason for CI’s programs for all companies, which makes sense in view of the unanimous indication of quality as a competitive priority. Although only companies B and E mentioned cost as a competitive priority, it was listed as main reason for CI’s by all except company D which reveals a first non alignment between stated competitive priorities and main reasons for CI’s programs. Companies A and B indicated delivery speed and reliability as competitive priorities, and yet they did not point delivery speed and reliability as main reasons for continuous improvement. On the other hand, company C, D, E and F pointed delivery speed (companies C and F) or reliability (companies D and F) as main reasons for CI’s programs even though none of them stated delivery as a competitive priority. Again one can see a contradiction between stated competitive priorities and main reasons for CI’s programs.

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Table II Prior dimensions of manufacturing performance and criteria for prioritisation. Company Competitive Priorities Criteria for Prioritisation A Quality (conformity) customer (present and prospective) requirements Delivery (speed and reliability) B Quality (conformity and product customer (present and prospective) requirements performance) competitors performance analysis Delivery (speed and reliability) Cost C Quality (conformity) marketing strategy D Quality (conformity and product present customer requirements performance) competitors performance analysis E Quality (conformity) customer (present and prospective) requirements F Quality (conformity) present customer requirements G Quality (conformity) customer (present and prospective) requirements Cost competitors performance analysis Table III Main reason for continuous improvement and top priority improvement programs. Company Main Reasons for Continuous Improvement of Top Priority Improvement Programs Operations A improve product quality (conformity) Quality Assurance System reduce costs improve productivity B improve product quality (conformity) ERP system implementation reduce costs Product development methodologies C improve product quality (conformity) Involvement of suppliers in product reduce costs development improve productivity Quality Assurance System improve employees skills and involvement Production logistics reduce delivery lead time Team work and collaborative management improve qualification of suppliers D improve product quality (conformity) Production logistics improve delivery reliability Team work and collaborative management improve qualification of suppliers ERP system implementation E improve product quality (conformity) Qualification of suppliers reduce costs Quality assurance system improve employees skills and involvement Production logistics improve responsiveness to increases in customer Team work and collaborative management orders Training ERP system implementation Benchmarking Maintenance programs F improve product quality (conformity) Quality assurance system reduce costs Production logistics improve productivity Team work and collaborative management improve delivery reliability Benchmarking improve order lead time improve employees skills and involvement G improve product quality Involving customers in product development reduce costs Quality assurance system improve productivity Production logistics Benchmarking Maintenance programs Distribution logistics

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Other main reasons for CI’s programs such as improvements on qualification of suppliers (companies C and D), employees skills and involvement (companies C, E and F) and productivity (companies A, C, F and G) are based on operational efficiency and sought to generally contribute to manufacturing dimensions. Finally, improvements on responsiveness to increases in customer orders was pointed by company E as a main reason, although flexibility didn’t appear as a competitive priority for this company. Top priority improvement programs include quality assurance system (all except B and D), production logistics (companies C, D, E, F and G), product development (company B), team work (companies C, D and F), ERP system implementation (companies B, D and E ), benchmarking (companies E, F and G), training (company E), involving customers in product development (company G), qualification of suppliers (company D), distribution logistics (company G) and maintenance (companies E and G). Companies B and D didn’t point quality assurance system as top priority which is not necessarily in contradiction with quality as a priority since they have already gone through several auditing processes. Programs for production and distribution logistics are strongly positively related to performance on delivery and flexibility and still related to cost. Indeed, companies C, D, E and F all mentioned delivery as a main reason for CI (despite the fact that it didn’t appear as competitive priority in Table II). On the other hand company G didn’t mentioned delivery as prior improvement dimension nevertheless production and distribution logistics were listed as top priority programs. Company E didn’t give priority to qualification of suppliers in spite of it was pointed as a priority program. On the contrary, company D gives priority to improve qualification of suppliers although it does not appear as a priority program. Involving customers in product development as a top priority program for company G aligns with its indication of product quality as a main reason for improvement. The same is true for company C prioritisation of involvement of suppliers in product development. Also, improvement program focused on product development was pointed by company B which contributes to stated priority on product performance. Affirmation of maintenance as priority program by companies E and G was not sustained by indication of main reason for improvement or competitive priorities on delivery or cost. Benchmarking was listed as a priority program by companies E, F and G. Note however that all except company C stated that performs some form of benchmarking (see Table V). Finally, priority on ERP system implementation (companies B, D and E) and training (company E) are generally aligned with indicated priorities. Moving to Table IV, it presents categories of non-financial performance indicators mostly used by the companies and top priority criteria adopted to identify the need for performance measurement. Categories of non financial measures most used by the companies are conformity to specifications (except company G) and cost (except company D). Except for company G, there is alignment of these measures with competitive priorities and main reasons for improvements, stated in Tables II and III. Note that company D didn’t mention cost as a priority, which is still in agreement with its option for not prioritising cost measurement. Measures for customer satisfaction are used by companies A, B, E, F and G as expected by their indication of customer requirements as a criteria for prioritisation. Company C and D, as capital good producers, rely mostly on qualitative assessment of customer satisfaction, which may explain not using indicators for customer satisfaction. It should be noted that Flexibility measures are used by companies B, E and G. However, only company E said volume flexibility be a main reason for improvement. Companies C and E stated performance indicators for delivery as mostly used, although none of them quoted delivery performance as a prioritised dimension or main for companies C and E. Finally, measures of productivity and efficiency, as indicated by companies A, B, C and E, generically seeks operational efficiency thus in line with priorities. Table V presents the main criteria adopted by the companies for electing processes for benchmarking studies. Company C declared not using benchmarking and pointed difficulty in finding partners as a reason for that. For the other companies process benchmarking was pointed as the main concern, which again denotes focus on internal operations. When asked to indicate the main reason for benchmarking, companies pointed innovation and introduction of new practices (companies A, E, D and F), improvement actions selection (companies B and F) and target definition (companies A and F). The main criteria for electing benchmarking studies pointed by respondents were marketing and business strategy (companies B, D F and G), followed by assessment of importance to customers (B and E), performance against competition (companies E and G) and assessment of work teams (companies A and E).

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Table IV Categories of non-financial performance indicators mostly used and top priority criteria adopted to identify the need of measuring performance. Company A

B

C

D E

F

G

Categories of Non-financial Performance Indicators Mostly Used Customer satisfaction Conformity to specification Cost Productivity/ efficiency Customer satisfaction Conformity to specification Cost Flexibility Productivity/ efficiency Conformity to specification Delivery performance Cost Productivity/ efficiency Conformity to specification Customer satisfaction Conformity to specification Delivery performance Cost Flexibility Productivity/ efficiency Customer satisfaction Conformity to specification Cost Customer satisfaction Cost Flexibility

Top Priority Criteria to Identify the Need of Measuring Performance Monitoring performance of operations

Performance against competitors

Importance to customers Monitoring performance of operations

Monitoring performance of operations Importance to customers Monitoring performance of operations Monitoring quality system

monitoring business strategy performance

and

marketing

Importance to customers

Table V: Main criteria for electing benchmarking studies. Company Main criteria for electing benchmarking studies A Assessment of work teams or individuals B Assessment of customer satisfaction Business and marketing strategy C Not applied D Business and marketing strategy E Assessment of customer satisfaction Performance against competition Business and marketing strategy Assessment of work teams or individuals Improvement need of business and production processes F Business and marketing strategy G Performance against competition Business and marketing strategy

4. Conclusions and Final Remarks Although the findings of this study do not allow generalisation to other groups of companies, a few conclusions regarding such partnerships can be made. First, respondents were very much consistent in pointing customer expectations as a criteria for prioritisation of manufacturing dimensions. Thus, the assertion that competitive priorities are chosen based on customer and market expectations holds true for these cases.

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However, the connection between improvement deployment and strategic competitive priorities was not clearly identified. Although companies A and B declared an option to compete on time, their concerns for improvement did not clearly shown that. The same lack of alignment was identified when companies (C, D, E and F) pointed improving performance in delivery or cost (companies A, C, F and G) as of main concerns without mentioning them as strategic competitive priorities. Still, analysis of declared main reasons for improvement and top priority improvement programs does not reveal a clear pattern of decision taken and deployment. Again, a certain lack of coherence between performance measurement and strategic decisions can be identified. For instance, although some companies said to measure flexibility (B and G) or delivery (C and E), none of them quoted these dimensions as chosen competitive criteria. Regarding benchmarking, even though a certain degree of connection between benchmarking and competitive dimensions prioritised for improvement could be perceived through the main criteria adopted by the companies to elect benchmarking studies, it was not so clear the connection with strategic decisions on competitive manufacturing dimensions. In summary, although a consensus do exist that, independently of the manufacturing strategy adopted by a company, managers must be concerned with the overall consistency of the changing process so as to make a better use of the manufacturing function as a levering of competitiveness, the results of this study shows that, at least for the companies under analysis, most of a company effort to improve its operational efficiency has little connection with strategic positioning. Finally, the results of this study points to the need of a more comprehensive quantitative survey focusing on the connection of manufacturing competitive priorities and scope of actions to improve operational efficiency.

Acknowledgement To Fundação de Amparo à Pesquisa do Estado de São Paulo (FAPESP), for supporting this project.

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