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To Compete, We Must Rebuild Our Factories From Scratch

By Chris Stergiou

Tinkering won’t do. A complete rebuild is required for North America. This may sound simplistic but the second oldest manufacturing infrastructure needs to be scrapped and rebuilt. 

We don’t just need a subtle retooling or reshaping of corporate thinking — we’ve been through all that. Deming, MBO, TQM, Six Sigma, and now lean manufacturing are all productive initiatives yielding savings and productivity improvements. Yet we’re still losing market share. So what’s wrong?

Optimization techniques are bandages that can’t help a man with a shovel dig a trench faster than a man with a backhoe, no matter how efficient his technique or how shiny his shovel. The “faster” is important because velocity is the key metric.

This may appear counter-intuitive since we know that the world has extreme levels of excess capacity. But by looking closer, we’ll notice that the majority of this capacity is very inefficient on a normalized scale.

Most manufacturers know their processes well enough that if they started from a blank slate, they could design systems to produce twice the product with half the input costs and meet lot size of one requirements at higher quality. These are benefits to be had “out of the box” with a new, engineered, physical plant and before any lean implementation. This new plant will incorporate all the principles that define lean manufacturing.

Engineering in Value Streams
Value streams will be engineered in. The “old” plant has those value streams tethered to unproductive activities or cost centers and breaking those ties is impossible either because of “real” or “sentimental” constraints. 

This is similar to product development. We design and simulate on the computer, we breadboard to test functionality, we prototype to test feasibility, and then we release the product to manufacturing. In this case, the existing plant is the prototype and it’s time to release it to manufacturing. We have to build the plant the way we would have if only we knew then what we know now.

We now understand the true value streams, we won’t “rigidly mount” our process to the floor, and we won’t assume that product mix will remain constant. Our new plant will be significantly beyond the present human intervention level and short of “lights out,” since we are in the mass customization business. Most of all, our new plant will be designed to be readily reconfigured for new requirements which our customers will demand.

I don’t consider lean manufacturing to be doing nothing, but that’s just a rear guard action, postponing the inevitable. Lean manufacturing’s objective is the identification of value streams which will be used to make the “future state” plant. Lean manufacturing can’t create new value streams, nor can it recapture value streams which have been lost to the competition.

A New Look at Production
Manufacturing has a simple equation: Labour + Raw Material + Capital = Production. The combination of these inputs is different for each economy. Raw material is a constant everywhere in the world. The only variables available are labour and capital. 

More capital means new plants. New plants mean more efficient labour and higher productivity. Higher productivity means reduced costs. Lower costs mean greater market share and markets — markets closed to North American products today — like China and India.

Plants and equipment in North America are fully depreciated several hundred times already. No other economy can follow this strategy since their plants are locked into their depreciation cycle.

This surge of new plant and equipment could create a temporary boom to employ our skilled workers and create the jobs we need. Beyond, the manufacturing competitiveness will continue the job creation.

The World is Awash in Capital
Who will fund this? The capital markets. The world is awash in capital waiting for a safe investment. What’s safer than investing in the world’s greatest manufacturing base, with its access to world markets and its access to intellectual capital from everywhere?

This isn’t centralized industrial policy, but an initiative by North American manufacturers who are committed to manufacturing because they have the know-how and the impetus to do this — because manufacturing is the only wealth creation mechanism.

Otherwise we’ll join the world’s oldest manufacturing infrastructure.  

Chris Stergiou ([email protected]) is a manufacturing consultant with 22 years of experience. He has held positions in quality engineering, manufacturing engineering, and factory automation. For 14 years he provided custom electro-mechanical systems engineering, design, and build services to Fortune 500 manufacturing clients in the medical disposables, electronics, general assembly, and test industries.

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