Critical Success Factors for the Make-to-order Enterprise

With manufacturing demand at a lull, smart companies are making the most of this opportunity to position themselves to take full advantage of the eventual economic upturn. Here's how.

With manufacturing demand at a lull, smart companies are making the most of this opportunity to position themselves to take full advantage of the eventual economic upturn. Here's how.

Manufacturing dynamics have changed considerably over the years. Today a vast majority of manufacturers operate on a make-to-order manufacturing paradigm, where the goal is to produce customized products with the same timeliness and profitability metrics historically associated with standard high-volume manufacturers. With manufacturing demand at a lull, smart companies are making the most of this opportunity to position themselves to take full advantage of the eventual economic upturn.

To a certain extent, when it comes to manufacturing strategy, make-to-order enterprises have been doing what they know best: Making it up as they go along. Up until fairly recently, mass production manufacturing was the dominant paradigm. To this end, much of the manufacturing management software deployed over the years has been based on a mass production model, where efficiencies stem from economies of scale from high-volume, long-term production runs. As a result, much of these management tools are at odds with the requirements of the made-to-order lean enterprise.

There are significant differences between the philosophies of mass production and make-to-order manufacturers (please see the sidebar "Key Characteristics&" at the end of this article), although both have had similar objectives of shortening lead times, improving quality, reducing costs and responding to rapidly changing market dynamics.

There have been two events over the past few decades that have greatly influenced the make-to-order enterprise: lean manufacturing concepts adopted from the Japanese, and the advent of the Internet and its subsequent use to support the manufacturing and distribution supply chain.

Learning Lean From the Japanese

Intense competition amongst U.S. and Japanese automakers over the last 25 years has led to the adoption of lean manufacturing principles within all U.S. manufacturing businesses. Early Japanese leaders, such as the Toyota Motor Co.'s Eiji Toyoda, Taiichi Ohno and Shingeo Shingo, are widely credited with the development of new, lower-cost manufacturing practices, specifically, a disciplined, process-focused production system known as the "Toyota Production System," or "lean production." The objective of this system was to minimize the consumption of resources that added no value to a product.

The "lean manufacturing"concept, which focuses on manufacturing involving less human effort, capital investment, floor space, materials and time across operations, has been widely adopted by make-to-order manufacturers in North America.

The "Dell Weather:" Harnessing the Power of the Internet

One of the most successful applications of Internet technology to emerge from the dot-com era was the Dell Direct sales model. Beginning in 1984, Dell Computer began offering access to consumers to leverage the Web to browse and order computers online. By offering a choice of options spanning from peripherals to upgraded components, consumers could design a computer that met their specific needs and wants. At its high point, the site was registering an astounding $5 million in revenue per day — or nearly $2 billion a year.

While the majority of make-to-order manufacturers are business-to-business (B2B) as opposed to business-to-consumer (B2C), the Dell model is significant in that it demonstrates the power of the Internet. Manufacturers today are making the Internet a core part of their business. Not only are they using the Internet to provide quick and easy access to customers, they are also using the Web to reduce the cost of doing business with manufacturers and to enhance customer relationships.

Making it as a Make-to-order Manufacturer

We've discussed the various characteristics that define make-to-order manufacturers. Now, let's look at a number of best practices make-to-order manufacturers are employing to master this dynamic production environment.

Eyes on the floor, eyes on the future
Operational visibility is necessary for make-to-order manufacturers to respond to rapidly changing market conditions. It's not enough to know that you sold 10,000 personal computers; you need to understand the various product attributes. For example, what kind of memory, what kind of keyboard and which peripherals are being sold with each PC?

Business analytics, reporting and monitoring are helping provide key operational visibility. "Software applications complement lean manufacturing with improved data visibility, speeding information flow for problem resolution, design changes, quality issues and changing customer demand." (AMR Report, January 2002, "Enhancing Lean Manufacturing with Software Applications" by Michael Burkett) Through real-time visibility of key metrics on how the business is performing — important for both business agility and continuous process improvement — businesses can track, monitor, measure and optimize processes in real-time to quickly identify operational bottlenecks and fine-tune processes "on the fly" for optimal results. This capability also helps manufacturers identify which products or processes are most profitable.

Integration from the shop floor to the top floor and beyond
As the manufacturing industry has become more global in scope, the make-to-order enterprise has, too, and today often extends beyond geographic boundaries. Tightly integrated systems across the enterprise, which are required to support these widespread operations and localization features, including local character and currency support and fluid exchange rate support, are becoming more important than ever before. Integration and collaboration capabilities enable companies to synch their manufacturing operations globally to deploy parts and communicate with customers and suppliers across the enterprise. It is vital in the make-to-order market to capture the right information, as even the smallest mistakes can be costly downstream.

IT systems that fit the task at hand
Make-to-order enterprises require flexible, real-time information technology systems that can plan and control all resources needed to process customer orders in a just-in-time environment without the need for overnight processing. These include a strong planning and scheduling engine to ensure the correct amounts of human, machine and material resources are being estimated and allocated to optimize throughput. Also required is a comprehensive cost accounting package that supports unique inventory management and costing requirements. Additionally, the system should support so-called "hybrid" requirements for make-to-stock products, such as spares and ongoing service.

Communication is king
Supplier and customer relationships reign supreme in the make-to-order manufacturing environment. Dynamic sourcing capabilities are necessary to deliver specifications to suppliers, and to receive and respond to requests for proposals (RFPs). Because customer satisfaction and service is key to the success of the small to midsize manufacturer, strong cusomer relationship management (CRM) capabilities are a must. Sharing customer communication with the entire organization ensures the personalized attention and timely responsiveness to customer inquiries, ultimately resulting in more satisfied customers. Moreover, communication is also key to building an empowered workforce, where information is shared and decision-making is pushed down to the "lowest levels."

Many make-to-order manufacturers, including TEAM Industries, Aar-Kel Moulds, Ltd., and Standex Corp., are seeing that these best practices are key to delivering a real-world return on investment (ROI).

Driving New Sales Opportunities

TEAM Industries is a make-to-order manufacturer that is really on a "roll." In its postition as designer, developer and manufacturer of power-train and drive-line components for vehicles in the light utility, agricultural, automotive, lawn and turf care, and snowmobile and all-terrain-vehicle (ATV) markets, TEAM produces millions of assemblies and components to exact blueprint specifications every year.

The company's customers include Polaris, Honda, John Deere, Kawasaki and Yamaha, among others. In business since 1967, TEAM Industries today employs more than 1,100 highly skilled employees in its six manufacturing facilities throughout rural Minnesota.

The company is currently tapping Internet-based technology to expand the reach of its products to address and service new markets. Introduced just last year, the company's retail division targets ATV and snowmobile enthusiasts who desire top-of-the-line custom components that far exceed the durability and strength of mass-produced factory components.

The basis of TEAM's retail division is a Web site that offers distributors and dealers the ability to view product catalogs, place orders and check the status of orders online. Additionally, customers can also locate authorized TEAM Industries dealers throughout the United States, Canada, Finland, Italy and Sweden for service and support.

While the project is still in its initial roll out stage, TEAM believes the initiative will go a long way toward streamlining processes, lowering overall transaction costs and expanding its network of dealers.

Innovate to Differentiate or Die

Now in its 25th year of operation, Aar-Kel Moulds Ltd. is a producer of high-quality plastic injection moulds and die casting dies, mainly for the automotive sector. The company's tooling is used by the major auto manufacturers and has been instrumental in the development of new models such as the Chevy Avalanche, Buick Rendezvous and Chrysler PT Cruiser.

Aggressive schedule requests and costing demands are the norm in the mould supply business. To continue to compete and respond to increasing demands, Aar-Kel needed to fight back with information — real-time data that could deliver true product costing and enable the company to accurately forecast demand, manage work flow and allocate resources to meet critical delivery dates.

Recently, the company implemented an integrated e-manufacturing system that provides the tools and data access to accurately determine engineering time and plant capacity availability. Aside from providing the necessary visibility for efficient project costing, the system also provides visibility to view and track customer change requests — ensuring the information is conveyed throughout the enterprise and at every crucial step in the manufacturing process.

This enhanced operational visibility has enabled Aar-Kel to improve customer response times and satisfaction in responding to status inquiries. Additionally, it has given Aar-Kel a significant leg up on the competition; by providing the company with the tools to ensure tracking and auditing of processes, Aar-Kel is now able to meet key contract requirements that are increasingly becoming mandated by a growing number of companies.

Tapping Into Business Intelligence

Headquartered in Salem, N.H., Standex Corp. is a multi-national mixed-mode manufacturer with 90 plants and 48,000 products that span the range from custom hydraulic cylinders and missile nose cones, to fine china and religious literature. The company has a long and successful record of buying well-run businesses, capitalizing on the strengths of the businesses they acquire and integrating them into the corporate family for maximum synergy.

Key to achieving this synergy is the company's use of technology to integrate newly acquired companies quickly into the fold. For example, to improve management reporting, Standex is using a business intelligence (BI) application to aggregate and analyze operational data. Through visibility of financial results and other key performance indicators, Standex can determine how each business segment is performing and make changes as needed to produce optimal results.

In addition to manufacturing sites all over North America, Standex has operations in Europe and Asia, so its manufacturing software must "go the distance," with comprehensive multi-national capabilities. For Standex, success means its management software must be properly "localized," so it contains the functionality needed to address local customs, process, regulations and ways of doing business, before it is rolled out in each country.

Technology Takes a Stand

Change is the hallmark of the make-to-order manufacturing industry, driven by the increasing need to respond to customer pressures for shorter lead times, greater customization and enhanced supplier performance. Fortunately, technology — as never before — is coming to the aid as a key enabler of increased agility, giving rise to best practices that are leading the way to increased profitability and reduced cycle times.

Make-to-order manufacturers employing these best practices are seeing improved business results characterized by leaner, more efficient operations, cost savings and increased revenue opportunities, maximized competitive edge and differentiation and enhanced operational visibility critical for business agility.

Sidebar: Key Characteristics of the Made-to-order, Build-to-order Production Environment
* Make-to-order custom goods, as opposed to build-to-stock
* Customer order-driven
* Ever changing/evolving: many changes in schedule, specifications, quantity, etc.
* Shorter runs, including lots of one, are the norm
* Erratic customer forecasts
* No finished goods inventories
* Wide mix of products
* Estimating is critical
* Custom product sourcing from suppliers
* Iterative direct collaboration with customers and suppliers