Copying is not enough. Own industrial strategy and a tailor-made operating model are indispensable

The Lean Manufacturing model was developed by Japanese automotive companies in response to the scarcity of capital and resources following the Second World War. At the time, Japan was facing significant challenges on the military and economic fronts. The Americans, guided by their typical business acumen, positioned the product as a solution to a range of issues and marketed it for sale and distribution in the West. The principles of Lean Manufacturing are logical and consistent. However, an operating model for a specific company cannot simply be copied and adopted from elsewhere without modification. The success of a strategy and the resulting operational model of implementation is contingent upon the degree of customization and the speed with which it is disseminated and implemented.

It is no longer the case that any typical contents or tools of a production system can be considered 'inimitable' or 'rare'. In order to gain and retain a competitive advantage in the current market, it is essential to implement and roll out the production system in each plant as quickly as possible and in a way that aligns with the specific industry's key success factors.

To illustrate this point, we can look at the spread of the World Class Manufacturing (WCM) model in Italy. From 2005 to 2010, FCA developed its manufacturing strategy and subsequent operating model based on the application of the aforementioned model. This was done with consideration of the company's industrial structure, the competitive landscape at the time, and, most importantly, the strong leadership of the late Dr. Marchionne, who was then the CEO of the FCA group. The success of the WCM model in the Italian market prompted the Turin-based group to establish a dedicated consulting and training service to meet the high demand in the Italian market. The numerous delegations of car and industrial companies eager to visit the FCA plants, considered an absolute benchmark of quality, to learn their secrets and draw inspiration for their own, even prompted the group to structure a real WCM consulting and training services group to serve the great demand of the Italian market.

However, 10-15 years later, what impact has this had? I will not be considering the evolution (or potential decline) of the WCM model within the FCA group, as this could have implications for my professional relationships. These considerations would require a significant amount of detail, which I will address in a future publication. I would like to concentrate on the impact that the implementation of the WCM model has had on companies manufacturing a wide range of industrial products, from coffee machines to aircraft to household appliances. It is evident that these extremes have markedly different plant and work organization characteristics. However, in all the cases I have analyzed in depth, I have identified a certain degree of methodological standardization that is inherent to the WCM method. The maturity rating scales of the various 'WCM pillars' describe concrete, defined states. In the WCM audits (which are, in fact, a fully-fledged business system with procedures, checklists and certified auditors), if a methodology is not implemented in a given state, even if only in a model area, the transition to the next level cannot be completed.

This approach assumes that the application of a defined methodology will guarantee the desired result. It follows that a factory which has obtained WCM certification (at any level from Bronze to Gold) will undoubtedly be efficient. Unfortunately, the reality of the situation often proves otherwise. Beko Europe's recent announcement regarding the reduction of personnel at its Cassinetta (VA) refrigerator factory is a case in point, demonstrating the inaccuracy of the aforementioned axiom. Despite recently attaining the Silver level, the Cassinetta refrigerator factory is reportedly losing millions of euros a year, according to the data made public.

What lessons can be learned from these examples? It is evident that the overall performance of a manufacturing factory cannot be attributed to industrial cost alone. It is also important to consider and align other factors in a coherent industrial and commercial strategy. It is an error to focus on the manufacturing aspect in isolation. Typically, 80% of the industrial cost of a product is determined during the conceptualization and development phase. Commercial success is contingent upon a multitude of factors, including the selling price, distribution channels, market needs, and end customer perception, particularly with regard to product and production process sustainability.

However, if we wish to remain within the production and factory portion of the value chain, it is imperative that we customize the operating model. The principles of WCM and lean production are universal, but their application must be tailored to align with the specific characteristics of one's own production system.

A further crucial point is the discipline and robustness with which management applies the relevant logic and methodologies. A reward system based on WCM scores is open to abuse. It could lead to the presentation of operational results as if they were already financial effects. The pillar of Cost Deployment provides the link between operational results and financial results. However, without closing the loop with the P&L, the numbers may conceal significant opportunity costs and losses. The current situation provides clear evidence of this.

How can this be guaranteed? There is no single, universal solution, but it is certain that effective work efficiency management is a fundamental prerequisite. The standard costs of material procurement, processing and distribution must be managed in a scientific and robust manner. With solid standards, efficiency can be measured against point values and aligned to absolute benchmarks. Internal benchmarks are not a reliable indicator of process efficiencies and do not provide a realistic picture of potential for improvement. Over time, this can lead to severe competitive losses.

Gabriele Caragnano - Kearney Senior Director and Founder of Fondazione Ergo