Book summary “World class manufacturing”: summary

Introduction

Western manufacturers faced a twenty-five-year decline as traditional mass production methods proved slow and unresponsive to global competition. You struggle with top-down financial edicts, swollen inventories, and rigid department silos that damage your plant performance.

World-class manufacturing requires replacing top-down financial edicts with customer-focused principles, cellular workflows, and real-time process data.

Richard Schonberger maps the operational transformation that reversed this wide-V decline through lean practices and inventory discipline. The book explains how to rebuild plant design, human resources, and supply chains around sixteen core principles. You will learn how to measure true value, eliminate batch queues, and integrate production with distribution.

• How do you shift from management by edicts to management by principles?
• What steps eliminate long conveyors and unlock hidden plant capacity?
• How do you restructure compensation and job classifications for continuous improvement?

1. Industrial Decline and Ascendancy

Global manufacturing performance over the latter half of the twentieth century followed a wide-V trajectory, declining for twenty-five years before rebounding through continuous improvement. Standard financial metrics like return on investment or sales are easily skewed by economic cycles and manipulation. Inventory turnover serves as a much more reliable indicator of industrial health and waste accumulation.

Global manufacturing performance followed a wide-V trajectory, declining for twenty-five years before rebounding through lean production and inventory turnover discipline.

H. Thomas Johnson noted that the machine-tool maker Burgmaster experienced twenty years of growth under its founder followed by twenty years of bankruptcy under finance-driven managers after a leveraged buyout. IBM inventory turnover plunged from the twenties in 1958-1961 to a miserable 2.1 turns twenty-one years later.

Numerous leading Western manufacturers achieved sustained double-digit or high single-digit annual improvements in inventory turnover by adopting lean production principles. Companies across the United States and France significantly accelerated their waste-reduction efforts after the mid-1980s by implementing cellular manufacturing and autonomous production zones.

Valve converted its LaSuze plant into autonomous production zones called zones autonome de production, achieving an average annual improvement of 4.6 percent over fifteen years. Ford achieved 3.6 percent annual improvement and Eaton reached 3.3 percent.

Industrial management evolved through distinct historical eras driven by shifting market conditions, moving from production and marketing to finance, quality, and global partnerships. As war scarcities gave way to overcapacity, management priorities shifted from maximizing sheer output to aggressive selling, financial manipulation through mergers, internal total quality commitments, and finally external supply chain partnerships.

• 1940-1950 production era driven by shortages
• 1950-1965 marketing era driven by national excess capacity
• 1965-1980 finance era driven by concentrated earnings
• 1980-1990 quality era driven by intercontinental competition
• 1990- onward partnership era driven by global excess capacity

Management innovations originated in distinct regional waves before converging into a global decade of shared practices and tools. Japan pioneered methods like total quality control and just-in-time production during the 1970s. Western nations contributed numerous design, costing, and benchmarking innovations during the subsequent decade, leading into a globalized era of shared manufacturing excellence.

World-class manufacturers utilize systematic, frequent customer feedback mechanisms to grade service criteria and trigger immediate corrective actions. Instead of relying on reactive hand-holding, modern companies gather broad-based customer data weekly or monthly, evaluating multiple performance dimensions and establishing cross-functional teams to resolve shortcomings.

Solectron administers a customer satisfaction index through salespeople to grade performance weekly on five service criteria, targeting an overall score of 95 percent. The Malcolm Baldrige Quality Award designates 250 out of 1,000 possible points for customer focus, while the American Customer Satisfaction Index initially sampled 50,000 U.S. households.

• Grade performance on five service criteria for every customer every week.
• Trigger corrective action and customer response if any criterion receives a low grade.
• Form project-planning teams and total-quality-control teams to monitor production and specifications.

2. Customer-Focused Principles

You can evaluate any valid management concept using three rigorous criteria. The approach must serve customer interests, secure enterprise-wide commitment, and rely strictly on facts.

Management by principles replaces arbitrary edicts and rigid procedures with sixteen non-ethical operational guidelines that build organizational unity.

Management has evolved through four distinct modes. Management by edict relies on arbitrary orders, wasting talent and ignoring customers. Management by procedures brings consistency but lacks case-by-case judgment and creates force-fit gaps. Management by policies reflects high-level wisdom but restricts empowerment and slows organizational learning. Management by principles relies on fundamental truths that procure commitment and enable all employees to make correct decisions without manuals.

The sixteen customer-focused principles provide specific guidelines spanning operations, design, human resources, quality, capacity, and promotion. You must organize workflows by families of customers or products rather than traditional functional walls.

• Cross-functional project teams
• Customer/client representatives on project teams
• Focused work-flow teams (cells) for key product/ customer families
• Entire enterprise reengineered by customer/product families

Microsoft established a co-located team of buyers, receiving associates, and accounts payable clerks just for computers and workstations to buy units at a rate over one thousand units per month. Harley-Davidson eliminated functional shop structures in its Milwaukee engine and transmission factory, creating layers of product-oriented units. Magma International Incorporated operates eighty-six product-focused plants.

Firms must systematically capture external information from customer satisfaction, competitive analysis, and best practices outside their industry. Xerox went to mail-order company L.L. Bean to learn improved methods of running a shipping warehouse. Product and service designs must be cut to the few best components, operations, and suppliers using design for manufacture and assembly concepts.

• Average reductions of 80% for all products and services

Hallmark Cards moved its Shoebox greeting card division team into a single building. This reduced greeting card stock numbers from thirteen entries down to one, documents from sixteen to five, and time-to-market to about three months.

Principles 6 and 7 require cutting flow time, distance, and changeover times, and operating close to customers' actual rate of use or demand.

• Cross-functional teams achieve 90% average reductions
• 50% of flow path synchronized to rate of use/demands

General Motors slashed press changeover time at its McKeesport stamping plant from about twenty-three hours down to nine minutes and forty-one seconds, winning the Die Change Challenge. Bernard Manufacturing achieved a reduced setup time of five seconds. Principle 8 mandates continuous human resource enhancement.

• 40 hours of just-in-time (train-do, train-do, etc.) training for all associates

Principles 10 and 11 require continually reducing variation using statistics and ensuring frontline teams record and own process data at the workplace.

• 1.33 Cpk, defects below 100 PPM, rework & lateness cut 95%
• 25 + mostly team suggestions per associate, mostly implemented by associates

Nypro claimed a Cpk index of 2.0 on all new designs, equating to 3.4 parts per million defective. Milliken and Company and Wainwright Industries achieved fifty-two and sixty-five suggestions per employee respectively in 1991 and 1994. Principles 12, 14, and 15 dictate controlling root causes to eliminate internal transactions, prioritizing human work and maintenance before new equipment, and using simple, flexible facilities.

• Work-flow, quality, internal-scheduling, and labor transactions cut 25%
• Experts teach operators to do repairs; downtime cut 50%
• 60% of equipment owned by focused teams/cells or is highly flexible/ movable

Applicon removed its CAD/CAM equipment from general product muddles, causing computer transactions to drop from thirty thousand to eight hundred per month. MK Electric reduced scheduling transactions from sixteen hundred to one per week. Research scoring 130 manufacturing organizations against the sixteen principles revealed that the vast majority sit in early learning stages, with U.S., large, and multinational units scoring higher.

3. Improvement Pathways

Operational excellence requires extending quality standards to staff departments, establishing direct call-offs, and eliminating batch production queues.

To achieve true operational excellence, quality standards must be extended beyond the factory floor to all support and staff departments.

Gates Rubber employed 14000 people across 33 state-of-the-art plants. This privately held manufacturer of V-belts and hoses generated 1.5 billion in revenue. All plants and distribution centers achieved 95 percent ratings on A-1 criteria. Despite high plant quality ratings, the company suffered from scrap and delivery delays. Support departments needed to upgrade their processes using the Gates Quality Commitment and ISO-9000 criteria translated into train-do language for staff groups.

Eliminating central stockrooms and manual invoicing streamlines replenishment through operator-driven direct ordering.

Fixing cycle times rigidly across all processes ensures consistent throughput and predictable manufacturing flow.

Baldor Electric operated 13 plants. The headquarters and largest plant in Fort Smith employed 900 people. This facility converted its operations to flex flow, fixing specialty motor cycle times strictly at 5 days by maintaining strict queue limits.

At Honeywell's Scottish operations with 850 employees, cell operators triggered direct call-offs for parts. Suppliers delivered straight to the cell using direct line feed methods. Self-billing replaced manual invoicing and purchasing department intermediaries.

Relying solely on lab tests and incomplete marketing data leads to product failures because real-world customer usage patterns are often abusive or unexpected. Davey Products employed 230 people and experienced a 70 to 80 percent per year employee turnover rate during the mid-1980s, which dropped to 8 employee departures in 1994 after communication improvements. A fully sealed pump failed because moisture entered the electronic sensor. Customers used the pumps in pebble-finished swimming pools, salt water for live fish, dog spas, and intermittent desalination setups.

Shifting from seasonal batch production to net-based just-in-time processing drastically reduces cycle times and eliminates massive paper file storage. Jostens Diplomas replaced bulk advance purchasing and manual paperwork networks with digital ordering. In the old system, the plant bought 90 percent of its annual paper needs at one time. Cycle times dropped from four to five weeks down to 24 hours. The plant originally owned 3 personal computers, but now connects 65 people on PC networks.

Creating a sense of constructive panic regarding cycle times acts as a catalyst for breaking status quo habits and accelerating setup reduction. AlliedSignal's Aerospace Sector included 60 plants. The Tempe plant employed 1670 people and used constructive panic through Total Quality Leadership. Leadership assigned manufacturing and industrial engineers as roving quick-setup experts to drive total quality speed.

Pledging not to eliminate jobs due to productivity gains alleviates workforce resistance and channels freed-up labor into continuous improvement. Dover Elevators employed 1260 people across its plants. The company achieved 16 inventory turns per year and reached 1 1/2 days of inventory stock level at the Horn Lake facility. Leadership instituted a no-layoff pledge, designating extra time freed up as pro-action time to engage workers in Quick Response Manufacturing initiatives.

Visual indicators and documented work stoppages provide frontline employee teams with direct data to drive continuous problem-solving. At the Rosemount Pressure plant with 1000 employees and a typical 10 percent annual profit sharing amount, process improvement teams used red-light logs. These logs detailed work stoppages and their causes to launch new failure analysis projects.

Transitioning preventive maintenance responsibilities to machine operators increases short-term costs before yielding long-term reliability benefits. Johnson Controls employed 180 people at the Humboldt Avenue plant within the Controls Group of 10 plants. Adoption of total preventive maintenance was initially slow because managers recognized that operator-led maintenance actually costs more in the first year.

4. Value and Valuation

Traditional executives rely on aging financial metrics. Continuous improvement requires focusing on root causes and operational processes rather than reacting to monthly aggregated financial numbers.

Top-down numeric goal setting and financial metrics are ineffective for daily operational decision-making, which should instead focus on managing processes.

A Fortune 100 multinational experienced a clash between a Deming-fan division chief focused on processes and a traditionalist successor focused solely on the numbers. Engineers formed a pact to do what was right regardless of career impact.

Outdated costing practices can severely misrepresent inventory costs and operational efficiency. Accounting systems often treat stored inventory as free due to progress-payments arguments, while complex job-order tracking forces excessive overhead and administrative personnel.

At McDonnell Douglas Helicopters in Mesa, Arizona, a massive warehouse stored defense materials in an automated system because progress payments made accounting treat the inventory as free. Strict tracking requirements caused administrative and engineering staff to outnumber direct laborers.

Activity-based costing and management often introduce redundant administrative waste. You face the ABC paradox when trying to prioritize shop-floor projects.

Hewlett-Packard's Andover plant found that continued use of ABC did not radically change the engineers' design process. Engineers had to balance other requirements like time-to-market and functionality.

Target costing acts as a strict budget for product development by determining market-driven pricing and profit margins before full development proceeds. Over 80 percent of Japan's largest assembly-oriented businesses use target costing based on a 1991 survey, alongside 100 percent usage in the Japanese transportation equipment industry.

General Electric used target costing in its aircraft-engine business with airline customers like American Airlines and the U.S. Postal Service. You can apply these exact steps:

• Find out the size of the market at certain price levels through market research and profit estimation.
• Judge whether the product is worth pursuing based on market data.
• Subtract a profit margin from the target price to determine the target cost budget for developers.
• Kill the project or strip out costly features if the target cost cannot be met.

General Electric discovered that customers for its CF6-80C2 engine did not need a specific $10,000 airflow-regulating valve.

Over 95 percent of industry allocates overhead by direct-labor hours. Harbor Metal Stamping Company overcosted high-volume parts on large presses and undercosted low-volume parts that consumed excessive production and inventory control support. You can solve similar costing and pricing problems using specific methods:

• Implement formal kanban using labeled containers rather than detachable cards.
• Establish temporary work cells for medium-volume work and more permanent cells for higher-volume star products.
• Institute regularized, daily-rate schedules for star products and components.
• Close down stockrooms and keep work-in-process stock directly on the factory floor.
• Tear out on-line reporting stations like MAPICS.
• Split factory overhead into technical support and production and inventory control support.
• Split computer information systems into administrative support and factory support.

Information about improvement activities must be communicated at different frequencies depending on whether they track immediate processes or bottom-line outcomes. Displaying second-order and bottom-line results continuously on walls creates false signals and short-termitis. Primary problem-solving data should be displayed in real time in the workplace.

Zytec Corporation used cycle-time-based costing which caused confusion because monthly cost reports bounced around based on sales fluctuations rather than reflecting genuine process improvements.

Frequent financial reporting works well in small, self-contained business units where cause and effect are visible. Four thousand employees work in Du Pont's multiplant nylon carpet business. Over seven hundred employees work at Springfield Remanufacturing Company, structured as eight separate companies.

Jack Stack's Springfield Remanufacturing Company operates as eight separate small companies where employees receive weekly financial reports. This approach avoids allocated corporate overhead confusion and builds economic literacy.

Forward-thinking stock analysts evaluate manufacturing enterprises based on operational principles and inventory reductions rather than traditional quarterly reports. Alexander Blanton of Ingalls & Snyder recommended buying Timken in 1991 after analyzing its world-class manufacturing initiatives, cell installations, and inventory reductions. Timken common stock traded above 45 in August 1995 after being bought at 23 in early 1992. Ingersoll-Rand borrowed $700 or $800 million to acquire Clark Equipment, funded by cash flow from inventory reductions.

5. Strategic Linkages

Overcoming the two-castle rift between production and distribution requires mass customization, quick response programs, and multifunctional product strategy teams.

Manufacturing companies suffer from a two-castle problem characterized by a deep functional rift between the production department and the distribution department. The production castle focuses internally on meeting its own schedules and maximizing resource utilization, while the distribution castle focuses on sales and promotions without regard to plant capacities.

At Quaker Oats' Shiremanstown plant, production kept machines running full tilt in massive batches while sales offered deep discounts to meet quarter-end targets, resulting in massive inventories and channel stuffing.

Industrial transformation evolves through three distinct phases moving from operational changes to back-office support and finally to strategic supply-chain collaboration. Quick response programs use point-of-sale data from retailers to synchronize the entire supply chain and eliminate long delivery lead times. Milliken worked with apparel houses and department stores to establish quick response programs, cutting lead times from fabric ordering to department store receipt down to three weeks.

To execute quick response operations, you can follow specific supply chain rules:

• receive point-of-sale data from selected stores to act as the production schedule;
• share advance shipping notices with freight haulers;
• use satellite-navigated trucks to hit loading docks within a strict time window;
• execute cross-docking at retailer distribution centers to speed goods onward without stopping for storage.

Companies can bridge internal divides by establishing multifunctional product strategy teams that jointly manage capacity, pricing, and order fulfillment. When business exceeds capacity or demand fluctuates, these teams decompose the order book to prioritize high-profit key accounts over irregular, low-profit customers instead of pursuing blind sales volume.

To manage capacity crunches effectively, you can apply structured customer management practices:

• form a cross-functional team with members from sales, marketing, finance, production, and other relevant departments;
• meet regularly to decompose the order book and categorize customers or products by profitability and volume;
• identify underused and overheated processes during capacity crunches;
• refuse, divert, or extend delivery times for low-tier customers when demand exceeds capacity.

6. Plant Design and Capacity

Eliminating long conveyors, reducing station cycle times, and avoiding over-automation unleash unconstrained capacity through continuous setup reduction.

Fill-and-pack industries often rely on excessively long conveyors and buffer stocks to mask unreliable equipment. At a Swanson frozen-dinner plant in Salisbury, Maryland, in 1985, conveyor-driven lines were 600 to 850 feet long, moving 270 trays per minute, resulting in spectacular jam-ups with average downtime of three hours per shift until Campbell Soup shuttered the plant in 1993.

You can improve productivity by replacing long conveyors with modular assembly cells. At Plamex, a maquiladora plant in Tijuana, Mexico, manager Alejandro Busamante removed long conveyors in 1994 and replaced them with thirty-foot by five-foot assembly-bench modules. An automated module required 8 operators, while a nonautomated module with only 6 operators produced more components per day.

Short station cycle times force workers to repeat tasks thousands of times a day while wasting time passing parts. You can eliminate these losses by extending cycle times and combining work elements.

• Outlaw accepted lower limits of station cycle time such as 10 seconds.
• Turn tasks into stand-up, walk-around assembly to reduce pass-offs.
• Give workers time to think, record data, study, and improve.

The Toyota Sewing System eliminates inventory islands through modular cells and multi-machine tending.

• Get rid of the chairs.
• Elevate the sewing machines for stand-up, walk-around sewing.
• Have each associate in a module tend more than one machine so adjacent sewers cover more machines if one is temporarily slowed down.

Avoid over-automating your facility with excessive flexibility. Nissan's Kyushu Dream Factory cost 100 billion yen ($803.9 million), nearly twice the cost of a conventional assembly plant, and faced severe financial problems when model options proliferated while Nissan accumulated $37 billion in debt.

You can plan efficient layouts using low-tech physical tools. Improvement teams can utilize flat cardboard cutouts to design cells before moving heavy machinery.

• Use flat cardboard cutouts with the same footprints as the machines going into the cell.
• Move the cutouts around in an empty building for the best flow and fit within marked-off cell dimensions.

You can expand plant capacity without capital expansion by eliminating wastes and reducing setup times. R.A. Jones operated at about 140 percent of its rated capacity through continuous waste reduction.

• Train all operators in simple guidelines for cutting setup times.
• Make copies of Shigeo Shingo's SMED book widely available.
• Give operators access to videotape cameras and turn them loose.
• Convert internal setup elements to external elements done while the machine is still producing.

7. Remaking Human Resources

Management by principles requires extensive and simultaneous changes in human resource management that must occur in concert with other improvement principles rather than preceding or following them. Traditional HR practices are at odds with customer-focused principles.

Customer-focused principles require collapsing job classifications, replacing traditional titles, using peer appraisals, and offering a broad basket of values.

Process improvement must be part of everyone's job, organized around multi-functional work-flow teams rather than single-function groups or isolated suggestion programs. At a wholesale food distributor, senior drivers met for a Saturday grievance session about bad dispatching and loading, but without dispatchers, pickers, fork-truck drivers, or store representatives present, turning it into an ineffective single-function gripe session.

Progressive customer-focused companies replace divisive traditional titles like worker and employee with terms like associates and convert bosses into facilitators practicing teamsmanship. At Electronic Controls Company in Boise, Idaho, uttering the word employee incurs a one dollar fine, and everyone is considered a team member including managers.

Frontline teams must own and immediately track their process results visually in the workplace rather than relying on remote clerks and delayed periodic management reports. At Motorola, twenty-odd teams selected from thousands worldwide present their projects using statistics and comedy at a Chicago-area hotel competition judged by top management. Under the policy at General Motors Antilock Brake Systems division in Toledo, 95 percent of savings from suggestions go to teams and 5 percent to individuals.

• Document 100 mishaps before the next trainer visit
• Tackle those 100 mishaps
• Go for 100 more mishaps

Conclusion

World-class manufacturing requires replacing top-down financial edicts with customer-focused principles, cellular workflows, and real-time process data. These elements interlock to form a holistic enterprise where every operational change reinforces cultural transformation and market responsiveness. You must view plant redesign, human resources, and supply chain linkages not as isolated projects but as a single continuous system.

To implement this transformation, you can follow these practical rules:

1. Replace rigid bureaucratic procedures with sixteen customer-focused operating principles.
2. Reorganize functional departments into multi-skilled manufacturing cells with straight-line flows.
3. Link production directly to customer demand through visual controls and point-of-use storage.
4. Abandon top-down financial variances and measure performance by inventory turnover and quality.
5. Collapse job classifications and tie compensation to skill acquisition and peer appraisals.
6. Partner with suppliers and distributors through open-book communication and rapid replenishment programs.

10 Key Ideas

1. Global manufacturing performance followed a wide-V trajectory, declining for twenty-five years before rebounding through lean production and inventory turnover discipline.
2. Management by principles replaces arbitrary edicts and rigid procedures with sixteen non-ethical operational guidelines that build organizational unity.
3. To achieve true operational excellence, quality standards must be extended beyond the factory floor to all support and staff departments.
4. Top-down numeric goal setting and financial metrics are ineffective for daily operational decision-making, which should instead focus on managing processes.
5. Overcoming the two-castle rift between production and distribution requires mass customization, quick response programs, and multifunctional product strategy teams.
6. Eliminating long conveyors, reducing station cycle times, and avoiding over-automation unleash unconstrained capacity through continuous setup reduction.
7. Customer-focused principles require collapsing job classifications, replacing traditional titles, using peer appraisals, and offering a broad basket of values.
8. Frontline teams must own and immediately track their process results visually in the workplace rather than relying on remote clerks and delayed periodic management reports.
9. Forward-thinking stock analysts evaluate manufacturing enterprises based on operational principles and inventory reductions rather than traditional quarterly reports.
10. World-class manufacturing requires replacing top-down financial edicts with customer-focused principles, cellular workflows, and real-time process data.