Evidence for the Focused Factory

Here we present the results of five quantitative studies of how focused factory  concepts affect operating performance. One might conceivably argue with the conclusions. For example:

• The studies show correlation, not causality. Are there other explanations?

• Why is there so much scatter in the data?

• Does this really hold for other industries?

These points are valid, to a degree. Manufacturing Strategy, like any strategy is complex, ephemeral, vague and subject to the whims and chance of nature. It does not lend itself to the kind of rigorous analysis used for the stress in a wing spar. Nevertheless, this is some of the best quantitative evidence we have.

The Focused Factory is not a "Magic Bullet". It is, rather, one piece of a Lean Manufacturing Strategy, appropriate for many firms, when combined with other complementary elements of Lean.

Then, there is the question of implementation. No strategy is effective if the implementation is ineffective.

Nor can Focused Factories or  Manufacturing Strategy compensate for unsound corporate or marketing strategies.

For example, some years ago we worked with a computer firm that dominated an important market niche. They developed and executed a highly successful Lean Manufacturing Strategy. Unfortunately, their new products did not materialize, technologies  changed and the company has disappeared.

The resources necessary to cope with the complexity of many products, processes or customers generally involve overhead rather than direct labor and materials.

This chart shows the number of overhead employees at each of eight plants owned by a manufacturer of circuit breakers. The number of product families ranged from 4-55.

The correlation is clear: the more product families in a plant, the greater the overhead cost for a given sales volume.

This particular firm had adopted a marketing strategy of offering a complete line of circuit breakers from smallest to largest. They competed against many smaller firms that offered much more focused product lines, generally, an untenable position.

This example also illustrates the complex interplay between marketing and manufacturing strategies.

Adapted from: Stalk, George & Hout, Thomas M., Competing Against Time, The Free Press, New York, 1990.

The company illustrated here had seven regional factories. They had organized into divisions and each division served a different end-customer group. The plant's product lines, however, did not correspond to the marketing divisions. Each plant served more than one division. The divisions were, effectively, the plant's customers.

The charts show operating margin as a function of focus. On the left, focus is gauged by the number of divisions served. On the right, focus is measured by the number of product lines at a particular plant.

By either measure, increased focus correlates to increased profitability.

One major product was common to all plants, "Product X". The margins for Product X do not decline as steeply with decreasing focus as the overall margins, but they still follow the same pattern.

The conclusion: adding low-volume products to a high volume factory will lower the high-volume product margins.

Adapted from: Hayes, Robert H., & Wheelwright, Steven C., Restoring Our Competitive Edge, Wiley, 1984

A steel foundry in this study manufactured wheels for trains. Prior to 1971 the foundry had two main products which accounted for 99% of their production.

When expansion left the firm with excess capacity, they engineered and sold additional products to fill the excess capacity. This went on until 1984 when quality and profitability had declined so much that the firm was in danger. The chart shows casting yield, an indicator of quality, during this period.

The company's accounting system had not reflected the true cost of the new products and they were under-priced. The company actually lost money on most of this new production.

They decided to re-focus their foundry. The approach was to drastically increase prices on the new products and reduce prices on the original standard products. This insured a profit on the new products and increased volume on the original products.

As a result the proportion of production devoted to the original products grew.

The purple line represents the portion of total production represented by the original two products. Between 1964 and 1971 this was essentially constant at 98%. As products proliferated, the proportion represented by the original two lines declined.

The black line represents labor productivity in man-hours per ton of good casting. From 1964 until 1972, shortly after the new products started coming on-stream, man-hr./ton declined as productivity increased.

With increased variety, man-hours/ton increased starting in 1973 until 1981. This trend did not reverse until 1981.

Adapted from: Stalk, George & Hout, Thomas M., Competing Against Time, The Free Press, New York, 1990.

In the study  results below, eight companies that produce a certain basic metal were studied by the Boston Consulting Group. Their operating margin was compared to their size (as measured in sales) and focus (as measured by the number of product lines).

This chart indicates that the number of product lines has a more direct influence. The slope of the linear regression line is slightly steeper than the line for size and there is less scatter in the data.

Adapted from: Hayes, Robert H., & Wheelwright, Steven C., Restoring Our Competitive Edge, Wiley, 1984

At lower levels of focus such as workcells or lines, increased focus generally brings greater utilization. The chart above shows this. It comes from a study of similar packaging lines in various German companies. As the number of package sizes increase from 1 to 7, utilization drops from 90% to 30%.

This effect is counter-intuitive. One might imagine that if all lines could produce all products, the variability in customer demand for each product would be better accommodated and overall utilization increased.

However, the intangible problems of changeovers, learning curves and broader process knowledge required by all workers counteracts the effects of spreading the variability.

This study supplements the experience and literature of Cellular Manufacturing. Focus at this level simplifies the process and allows workers and mangers to apply their skills to a narrower set of problems.

Adapted from: Hayes, Robert H., & Wheelwright, Steven C., Restoring Our Competitive Edge, Wiley, 1984