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The High-Performance
Manufacturing
Organization
June
AT A GLANCE
S S
A companys manufacturing strategy must be aligned with and support the overall
corporate strategy. These strategic considerations will drive decisions about how
best to set up manufacturing operations.
C R S
Companies must make design decisions at both the corporate and the plant levels.
Key considerations include whether to centralize control, whether to integrate
related functions, and what the roles and responsibilities of plants should be.
M T
Each organization design choice involves tradeos that can aect cost, product
quality, cycle times, and service levels. Many of these drawbacks can be oset.
T H-P M O
M OST MANUFACTURERS HAVE COME to accept that change is a constant.
Increasingly global operations, evolving production networks, mergers and
acquisitionsall contribute to a growing complexity that can extract a high cost if it
is not actively managed. But improvement eorts tend to focus on the operational
aspects of manufacturing, such as production processes, the shop floor, and logis-
tics. Oen overlooked is the high cost of organizational complexity: the matrix
structures with multiple interfaces, the proliferating roles and responsibilities, the
many management layers that have built up over the years, and an organization
structure that is no longer aligned with a companys manufacturing strategy. These
issues are oen at the root of performance problems. Ignoring them can be a major
obstacle to quality, flexibility, speed, cost eectiveness, and competitive advantage.
This report focuses on organizational best practices and outlines three essential
steps for building a high-performance manufacturing organization: start with
strategy, choose the right structure, and manage the tradeos. It also oers guide-
lines for determining the best choices for a companys manufacturing organization.
At the plant level, critical questions include: What responsibilities should be given
to plant managers? Which plant activities should be centrally coordinated? How
should plants be organized below the plant manager level?
T B C G
THE IMPORTANCE OF PEOPLE AND GOVERNANCE
Economics. How critical are scale, scope, eciency, utilization rates, complexity,
labor, and other cost drivers that aect overall manufacturing economics? The
importance of these factors will vary by industry and company. For instance,
scale is typically integral to companies in the automotive, chemical, metal, and
fast-moving consumer-goods industries. The chemical and metal industries also
T H-P M O
THE IMPORTANCE OF PEOPLE AND GOVERNANCE
CONTINUED
more quickly and easily because there performance, for instance, plant
are fewer layers of management. managers could be rewarded for such
factors as service levels, the health
Finally, the right incentives are and safety of their people, sharing of
important to encourage the right best practices, and compliance with
behavior. In addition to cost or quality production standards.
T B C G
E | Strategic Drivers Aect Organizational Choices
Organizational choices
Degree of Plant roles and
Strategic drivers Organization design
functional integration responsibilities
High economies Global setup Standardized production system Lead plants or centers of
of scale with integrated industrial excellence; if one product
engineering per plant, independent plants
High economies Standardized production system Lead plants or centers of
of scope with integrated industrial excellence
engineering
High significance Global setup Integrated planning and scheduling Lead plants or centers of
of asset utilization to balance demand volatility and excellence
Economics
customer
customers
engineering and
and skills
production
workforce required
High importance Global setup Standardized production Lead plants or centers of
of production system with integrated excellence
know-how industrial engineering
tend to seek economies of scope, so that multiple products can share common
premanufacturing steps. Standardized processes are critical to companies
seeking scale and scope. For companies in asset-intensive industries such as the
automotive, pharmaceutical, and building materials industries, asset utilization
is a key consideration. When high asset utilization and economies of scale are
required, manufacturing is best set up as a centralized corporate function.
T H-P M O
ers is critical. A regional or local manufacturing organization tends to be more
eective than a global one for these types of companies.
Technologies and Skills. How important are specialized engineering skills, technolo-
gies, or production capabilities? Companies that make customized products, such
as those companies noted above, require specialized processes and technologies
that are oen specific to individual plants. As a result, centralized control and
sharing of best practices is less important to their manufacturing operations.
The key strategic drivers that we discussed aboveeconomics, markets and cus-
tomers, and technologies and skillsaect structural choices in three critical areas:
organization design, degree of functional integration, and plant roles and responsi-
bilities. Lets look at each of these areas more closely.
T B C G
and 4.) As a general rule of thumb, a global organization makes sense if scale or
standardization are major cost drivers, specialized production capabilities are
needed, or the manufacturing strategy has a major impact on the overall business
strategy.
Our research shows a trend across industries toward creating a global manufactur-
ing organization with centralized decision making for products, technologies, and
processes. Beyond the potential scale eects, this approach makes it easier to share
best practices and speeds up performance improvementscritical benefits in
todays fast-changing, fiercely competitive global economy. But this solution isnt
always the right choice. For instance, companies that must create dierent products
for dierent markets will usually find that a regional or local organization allows
them to better focus onand respond more quickly tothe needs and require-
ments of local customers.
Degree of
functional
integration Production Maintenance Industrial Asset IT
controlling management engineering management
T H-P M O
E | Two Types of Organizational Decisions Should Be Made at the Plant Level
Mfg. Mfg.
Organization
design WS 1 WS 2 WS 3 WS 4
VS 1
VS 2
Degree of
functional
integration Maintenance Quality IT
Plant Roles and Responsibilities. Decisions about how to set up plants and
allocate production are also critical to overall manufacturing performance. When
cross-plant material flows are absentsuch as when the product portfolio is varied
or highly customized to specific regionsthere will be limited cross-plant synergies.
In these cases, plants can be run independently, steered by centrally defined
performance metrics. But when materials flow across plants and knowledge and
standards are shared, a plant network with dedicated roles for each plant is the
optimal setup. For instance, if specific production skills are critical, make certain
plants lead plants or centers of excellence for particular processes or capabilities in
order to concentrate this knowledge, set standards, and share best practices.
Manufacturers can also get more from their production networks by matching asset
characteristics with the needs of specific products and customers. For instance,
some plants are designed to produce a small number of products at high volume
for greater economies of scale. Others are designed for flexibility, with short change-
over and ramp-up times that are best suited for products with volatile or unpredict-
able demand. By defining plant roles, consolidating products with similar character-
T B C G
istics, and exploring ways to reallocate products across the network, companies can
achieve greater cost savings, flexibility, and eciency.
Each company must decide which tradeos to make based on its individual situation,
markets, competitive environment, and industry benchmarks. Moreover, a companys
organizational choices require the right people and skills to be truly powerful.
T H-P M O
About the Authors
Frank Lesmeister is a principal in the Dsseldorf oce of The Boston Consulting Group and a
topic expert for manufacturing. You may contact him by e-mail at lesmeister.frank@bcg.com.
Daniel Spindelndreier is a partner and managing director in the firms Dsseldorf oce and
coleader of BCGs manufacturing topic. You may contact him by e-mail at spindelndreier.daniel@
bcg.com.
Michael Zinser is a partner and managing director in the firms Chicago oce and coleader of
BCGs manufacturing topic. You may contact him by e-mail at zinser.michael@bcg.com.
Acknowledgments
The authors would like to thank Katherine Andrews, Gary Callahan, Martha Craumer, Angela
DiBattista, and Pamela Gilfond for their contributions to the writing, editing, design, and produc-
tion of this report.
T B C G
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