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Strategic planning, company beliefs and applied IE.


What role does industrial engineering play within a company's strategic planning and beliefs and what level of decision-making does the industrial engineering group have in your company? IEs must consider the significance of these issues to ensure that applied industrial engineering occurs at all levels of the company.

Frequently, IEs undermine their value in the company by assuming their technical significance and by not attempting to influence the major strategic direction of the company. Examples of this can be found in companies considering alternative manufacturing processes.

In applying these processes, IEs are likely to begin designing alternative layouts, quality control measures, or combining dissimilar technologies. However, before diving into the technical process design, the IE needs to understand the strategic planning process which he/she is influencing.

What the company needs

To understand this, the IE must consider higher level issues by asking, "What does this company need?" The company most likely needs a lot of things but fundamentally it needs to have a positive image of its future. In management terms this is more commonly stated as a turned-on workforce. Without a positive image of the future a company does not know where it is going, how it is going to get there, or even who it really is. This is a very challenging issue for a company to address. An individual can have a positive image of his/her future, but that is not enough for a company. A company must have an integrated positive image of its future, which means that the IE's image is the same or at least very similar to the next person's image of the future. Obviously this is a challenge but it must be addressed and is fundamental to the company's long-term success. In effect this is a new paradigm for IEs to work with. Typically, the hard elements of answering, "What does this company need?" from an IE perspective would not include the soft elements of addressing the human spirit as a large part of the equation. However the value of combining the hard and soft elements are evident from the successes of excellent companies in Japan and the U.S., and must be considered at all levels of planning for applied industrial engineering.

Once this is understood the next question is...How can the organization create a positive image of its future? This is also a very difficult question. However, one major element involves developing and maintaining a competitive posture. A competitive posture will provide long-term stability, growth, employment and higher worker morale. It will also go a long way toward shaping the vision of the company's future.

The next question to ask is then: How can a company develop and maintain a competitive posture? This issue, more simply put, is "how is a successful business operated." What level of information is obtained to base the company's decisions on? How can one tell from the information available, exactly what a good decision may be? What are the measurements of the company?

The measurements of the company, good or bad, are the critical success factors of the company. For example, what are the critical success factors for driving a car out of town. In this case dashboard level information that tells the traveling speed, the quantity of gas available, the oil pressure and some other critical information is necessary. This information governs the success of the trip.

So what are the critical success factors in a manufacturing operation? This question really begins to address what business the company is in and how the decision-making process is limited by the information available.

A manufacturing operation must first have the capability to produce goods. The operation also needs to have the appropriate quality levels in order to meet the customer requirements. This must be done while maintaining a competitive cost of the product. The decision-making process should have visibility to these three critical success factors: capability, quality and cost. Knowing these three elements, the critical success factors may then be further defined.

What about quality?

Quality is defined by the materials, equipment/tools, processes and operator. Indeed, every nonconformance report written will address one of these elements as the source of the nonconformance. Here again a lot of time is spent focusing on product quality, but the information is often not used in a manner to direct the critical success factors (i.e. effective management decision-making). Does the information point to any trends of quality with respect to materials, equipment, processes, or operators. If it does, then the particular quality issues may be addressed to enhance the competitive posture of the company. It's all a question of how the information is gathered, how it is grouped, how it can be interpreted, and how it is/can be used as a managerial tool.

What about cost?

At this level cost is shown to be the labor rate charged to cost the product and the cycle time of the product. The labor rate is made up of various parts that are all usually well quantified. Labor rate is usually a build-up of direct labor, overhead cost, fixed cost, headquarters' cost and material. There are functional groups that concentrate all their efforts to measure and track these elements.

In Figure 1, the cost elements are a little more finite. Cycle time is broken down into value added and non-value added time. The value added time, the time an operator or machine works on the product, is continually measured at various levels in the company. Entire branches are solely dedicated to providing process and performance standards. The so-called efficiency or performance of the shops is the subject of a great deal of concern in staff meetings.

Consider this example: A customer takes his/her car into the shop and asks how long it will take to work on the car. The customer is told it will take two hours to work the car. At this time the customer believes he/she can return in two hours but is told to come back in a week because the mechanic will not get to it until then. Obviously the customer is more concerned with the entire time his/her car was in the shop and not just the time the mechanic worked on it. It is insignificant to show the customer an efficiency report that shows the mechanic worked at a 95 percent efficiency for the few hours in which work was performed. The point is that cycle time will drive a lot of other issues within the manufacturing environment, not just the time that value is added to the product. Other issues this example addresses include the mechanic's storage space requirements, the material handling risk of carrying inventory and the scheduling complexities of a high work-in-process. Therefore, a short cycle time does not just support the customer better, it also reduces the cost of doing business.

So what about the non-value added time; the time the product is in transportation, storage, inspection, or the time delayed due to awaiting transportation, processing, material or actually performing rework? Are these times measured? Usually, no they are not, and here is the irony: Manufacturing studies have shown that up to 95 percent of the cycle time of a product is non-value added time (see Suzaki). This means that any capital investment made can only affect 5 percent of the cycle time for a product. So the company needs to work smarter before making expensive capital investment decisions.

Therefore the IE must have a clear understanding of the critical success factors and the information that needs to be considered before applied industrial engineering takes place.

The IE's role

It is at this point where the alternative manufacturing methods proposed by the IE may begin to affect the competitive posture of the company. The critical success factors indicate that IEs can optimally affect the competitive posture of the company by eliminating waste (non-value added time) from the product cycle time. However, the IEs must consider the availability of capital and the enhancement of productivity in proposing an alternative manufacturing method. Therefore, the IE must increase productivity with limited use of funds by eliminating waste from the product cycle time to optimally affect the competitive posture of the company.

Increasing productivity with minimal capital investment demands that the company work in a more intelligent fashion. The company must reduce any waste associated with the product cost.

An alternative manufacturing strategy that IEs must consider is work simplification. Work simplification allows for each process, whether it is transportation, inspection or actual operation time to be understood, analyzed and then optimized. This means that all capital expenditures, whether they are facilities, equipment or information related must first be evaluated based on whether they support a simplified process. If a capital expenditure takes place that does not support a simplified process, then the expense only further supports a process rooted in waste. For this reason, automating production and inventory control and production processes should occur only after work simplification is applied. Work simplification may involve various approaches depending on the nature of the business.

For example, one alternative manufacturing method that supports work simplification is cellular manufacturing. Understanding cellular manufacturing and its overall application would require an extensive discussion beyond the scope of this article. Conceptually it can be understood as follows: cellular manufacturing groups the process required to produce a part in a single cell while also taking into account other attributes such as material, size and weight of the part and/or assembly. Traditionally this would be economy of scale nonsense. However, if parts are grouped into families defined by the processes they require for completion, then the economics of grouping dissimilar technologies into one cell is obtained through eliminating the non-value added elements of routing, induction delays and inspections. The process is further aided by giving higher visibility to the elements of built-in quality and production control.

In this scenario however, the transportation, quality inspection points, scheduling system, information system, skill requirements, safety parameters, inventory levels and labor skills are all different and require a significant amount of change. Similarly the same can be said for other alternative manufacturing processes such as production automation, alternative layouts, more responsive scheduling systems, or statistical quality control. Regardless of what alternative manufacturing process the IE designs, it will most likely involve a large amount of change.

This amount of change will likely be approached with hesitation if not resentment. Therefore, the principles that formulate the IE's design must be clearly understood, valued and supported with appropriate resources and management backing in order to succeed. It is imperative within the organization that all personnel be in tune to the "way we should do business." The industrial engineering principle (that by no means is significant only to IE) of eliminating waste in the product cycle time (thereby continually adding value) must be a valued part of the company beliefs. This principle must be understood and then supported at all levels of the company. Therefore, after understanding the manner in which IEs may optimally affect the competitive posture of the company, the IE organization must then ask itself: can this alternative manufacturing method actually work in the company? Do company beliefs value the principle of eliminating waste so as to support the necessary changes?

Truly assessing this question implies a broader level concern for IEs and the role of the IE within the company.

Before addressing this question, it may be useful to first define industrial engineering and some considerations for applied industrial engineering.

What is an IE?

Engineers design. All engineers design something. Civils may design roads, electricals may design circuitry, metallurgists may design the materials to use. So what do industrials design? Industrial engineers design the processes by which something is built. The catch is that other engineering disciplines will design to a drawing with minimal allowances for variances in the design. An IE must usually design his/her process in an existing system, and this design may involve changing every functional department and measurement within the organization. Can the IE be successful just by drawing the design on paper with some allowable substitutions? Of course not. The IE must consider the strategic planning process, company beliefs, organizational behavior issues, the effect of change and the technical IE design. In fact, the IE's design may become trivialized by the steamroll effect that company beliefs and organizational issues can create. To support this perspective, consider the previous planning scenario.

In the previous scenario cycle time was shown to be a contributor to product cost. Yet cost accounting systems do not figure in such a cost so as to measure, track, or control it. In Peter Drucker's article, "The Emerging Theory of Manufacturing" (May-June 1990 Harvard Business Review), Drucker states that "Labor costs are clearly the wrong unit of measurement. But - and this is a new insight - so are all the other elements of production. The new measurement unit has to be time... Cost accounting is based on the realities of the 1920's, when direct, blue-collar labor accounted for 80 percent of all manufacturing costs other than raw materials... These days, however, a plant in which direct labor costs run as high as 25 percent is a rare exception... It (cost accounting) ignores the costs of nonproducing, whether they result from machine downtime or from quality defects that require scrapping or reworking a product or part... In effect, traditional cost accounting can hardly justify a product improvement, let alone a product or process innovation."

Therefore, given that cost accounting measurements do not represent the true elements of product cost it is likely that upper management may not accept all the elements of cycle time, as a significant measurement of product cost and competitive posture. This being the case, it may be futile to consider alternative manufacturing methods involving a significant amount of change to this company belief. Experience with this issue suggests it is more likely that upper management will view manhours applied per product as the determining factor for the product cost. It is this type of company belief that can limit applied industrial engineering.

Is there an answer to this dilemma? There is but it must come from IEs..

IEs should:

* Question their assumptions (What are the company's beliefs; company beliefs being defined by the company's de facto strategic planning, measurements, and leadership values and actions.

* Understand the boundaries (What company beliefs are on upper management's agenda?)

* Intelligently challenge company beliefs and boundaries (How can I educate the group to expand the boundaries to include IE concepts in the company beliefs?)

* And deliver the technical competence that will breed a world class organization (Deliver the applied IE "goods" to make IE invaluable to the organization's strategic direction.).

This sets up what may be the most significant issues for IEs in industry today. Educate the decision-makers and influence the company beliefs, and structure the IE group with the proper skill level professions to allow for applied industrial engineering to take place at all levels of decision-making in a company.

Industrial engineering for the sake of industrial engineering is of little use in the business world. However, applied industrial engineering, in the business world, is invaluable. Industrial engineers must continually remind themselves of this to keep the considerations of applied industrial engineering permanently on their own agenda.

Louis Villareal, P.E., received his bachelor's degree in industrial engineering from the University of Texas, El Paso, and his MBA from Pepperdine, Malibu, Calif. He is currently an industrial engineer with the Corpus Christi Army Depot.

PHOTO : Critical Success Factors
COPYRIGHT 1991 Institute of Industrial Engineers, Inc. (IIE)
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Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Title Annotation:industrial engineering
Author:Villareal, Louis
Publication:Industrial Management
Date:Nov 1, 1991
Previous Article:Customer retention: keeping the stream of revenues and profits.
Next Article:We're lost, but we're making great time.

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