FASTER BUT NOT BETTER

HEADNOTE

Improved manufacturing times don't always result in comparable cost reductions.

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THE PAST THREE YEARS HAVE

BEEN TRYING TIMES FOR the U.S. economy and its manufacturers. Nonetheless, many plants cite improved operations metrics over the past three years in spite of the economy and, in some instances, in spite of themselves. As IW/MPI Census data shows, however, not all performance measures have been moving up en masse, particularly some that matter most. One area of notable improvement is operations speed. Approximately 73% of Census plants reduced manufacturing cycle times (start of production to completion of product), and 71.6% reduced customer lead time (order entry to shipment) over the last three years. Yet with all the emphasis on speed, less than half of the Census plants (49.5%) increased total inventory turn rates. Manufacturers may indeed be satisfying customers quicker, but they may be doing so with the added expense of more inventory. Additionally, barely a majority of plants (50.7%) report that their per-unit manufacturing costs (excluding purchased materials) have decreased in the last three years, inferring that faster is not always more cost-efficient. The inability to decrease costs may have been affected by declines in proauction output over the last three years (i.e., overheads remain the same while production volume falls), but 44.2% of plants report output increasing, and 43.4% of plants report output decreasing-essentially an output wash. Labor costs, too, factor into the manufacturing-cost equation. Labor accounts for a median 20% of plants' cost of goods sold. About 61% of plants with labor costs of lower than the Census median were able to decrease overall manufacturing costs over the past three years, while only 42.9% of plants with labor costs of 20% or more managed to decrease manufacturing costs. Escalating labor costs may have negated some cost reductions. But labor costs vary by industry, and those variations don't always jibe with manufacturing-cost reductions by industry, indicating other, systemic plant factors likely are at work.