Agile Manufacturing

         AGILE MANUFACTURING

As an observed "system of doing business:' agile manufacturing emerged after lean production (Historical Note 27.2) yet shares many aspects, as we shall see when we compare the two. in Section 27.3: Agile manufacturing can he defined as (1) an enterprise level manufacturing strategy of introducing new products into rapidly changing markets and (2) anorganizational ability to thrive in a competitive environment characterized by continuous and sometimes unforeseen change.

The 1991 study identified four principles of agility" Manufacturing companies that are agile competitors tend to exhibit these principles or characteristics. The four principles are:

    Organize to Master Change " An agile company is organized in a way that allows it to thrive on change and uncertainty'? In a company that is agile, the human and physical resources can be rapidly reconfigured to adapt to changing environment and market opportunities.

Leverage the Impact of People and Information - In an agile company, knowledge is valued, innovation is rewarded, authority is distributed to the appropriate level of the organization. Management provides the resources that personnel need. The organization is entrepreneurial in spirit. There is a "climate of mutual responsibility for joint success'"

    Cooperate to Enhance Competitiveness - "Cooperation internally and with other companies is an agile competitor's operational strategy of first choice."? The objective is to bring products 10 market as rapidly as possible. The required resources and competencies (Ire found and melt wherever they exist. This may involve partnering with other companies, possibly even competing companies. to form virtual enterprises {Section 27.2.3)

    Enrich the Customer" - An agile company is perceived by its customers as enriching them in a significant way. not only itsclf.'" The products of an agile company are perceived as solutions to customers' problems. Pricing of the product can be based on he value of the solution to the customer rather than on manufacturing cost

A~ our definition and the list of four agility principles indicate, agile manufacturing involves more than Just manufacturing. It involves the firm's organizational structure, it involves the way the firm treats it people. it involves partnerships with other organizations, and it involves relationships with customers. Instead of "agile manufacturing," it might be more appropriate to just call this new system of doing business "agility:"

        Market  Forces and Agility

A number of market forces Can be identified that are driving the evolution of agility and agile manufacturing in business. These forces include:

   Intensifying competition Signs of intensifying competition include (I) global competition, (2) decreasing cost of information, (3) growth in communication technologies.(4'! pressure to reduce time to market, (5) shorter product lives. and (6) increasing pressures on costs and profits

   Fragmentation of mass markets Mass production was justified by the existence of very large markets for mass produced products. The signs of the trend toward fragmented markets include: (1) emergence of niche markets, for example, different sneakers for different sports and non sports applications; (2) high rate of model changes;

           declining barriers to market entry from global competition; and (4) shrinking windows of market opportunity. Producers must develop new product styles in shorter development periods.

   Cooperative business relationships There is mare cooperation occurring among corporations in the United States. The cooperation takes many forms. including'

           increasing inter enterprise cooperation, (2) increased outsourcing, (3) global sourcing. (4) improved labor management relationships. and (5) the formation of virtual

enterprises among  companies.          One might view the increased  rate of corporate  mergers that are occurring at time of writing as an extension of these cooperative relationships.

Changing customer expectations Market demands are changing. Customers are becoming more sophisticated and individualistic in their purchases. Rapid delivery of  the product. support throughout the product life. and high quality are attributes expected by the customer of the product and of the company that manufactured the product. Quality is no longer the basis of competition that it was in the 1970s and 19S0s.Today·~products me likely to have an increased information content.

   Increasing societal pressures Modern companies are expected to be responsive tel social issues, including workforce training and education, legal pressures, environmental impact issues. gender issues, and civil rights issues.

Modern firrms are dealing with these market forces by becoming agile. Agility is a strategy for profiting from rapidly changing and continually fragmenting global markets for customized products and services. Becoming agile is certainly not the only objective of the firm. There are important other objectives, such as making a profit and surviving into the future. However. becoming more agile is entirely compatible with these other objectives. Indeed, becoming agile represents a working strategy for company survival and future profitability.

How does a company become more agile? Two important approaches are: (1) to reo organize the company's production systems to make them more agile and (2) to manage relationships differently and value the knowledge that exists in the organization. Let us examine each of these approaches in a company's operations as it seeks to become an agile manufacturing firm.

        Reorganizing  the Production  System for Agility

Companies seeking to be agile must organize their production operations differently than the traditional organization. Let us discuss the changes in three basic areas: (1) product design. (2) marketing, and (3) production operations.

Product Design. Reorganizing production for agility includes issues related to product design. As we have noted previously, decisions made in product design determine approximately 70'1(,of the manufacturing cost of a product. For a company to be more agile, the design engineering department must develop products that can be characterized as follows'

   Customizable, Products can be customized for individual niche markets. In some cases, the product must be custornizable for individual customers.

   Upgradeable. It should be possible for customers who purchased the base model to subsequently buy additional options to upgrade the product.

   Reconfigurable. Through modest changes in design, the product can be altered to provide it with unique features. A new model can be developed from the previous model without drastic and time consuming redesign effort.

   Design modularity. The product should be designed so that it consists of several modules (e.g .. subassemblies) that can he readily assembled to create the finished item. In this way. if a module needs to be redesigned, the entire product does not require redesign. The other modules can remain the same

Frequent model changes within stable market families. Even for products that succeed in the marketplace. the company should nevertheless introduce new versions of the product to remain competitive.

In addition. the company must achieve rapid. Cost effective development of new products, and it must have a life cycle design philosophy (the life cycle running from initial concept through production. distribution, purchase. disposal. and recovery).

Marketing. A company's design and marketing objectives must be closely linked The best efforts of design may be lost if the marketing plan is flawed. Being an agile marketing company suggests the following objectives. several of which arc related directly to the preceding product design attributes

• Aggressive and proactive product marketing. The sales and marketing functions of the firm should make change happen in the marketplace. The company should bc the change agent that introduces the new models and products

• Cannibalize successful products. The company should introduce new models to replace and obsolete its most successful current models.

• Frequent new product introductions. The company should maintain a high rate of new product introductions.

• Life cycle product support. The company must provide support for the product throughout its life cycle

• Pricing by 'customer value. The price of the product should be established according to its value to the customer rather than according to its own cost.

• Effective niche market competitor. Many companies have become successful by competing effectively in niche markets. Using the same basic product platform, the product has been reconfigured to provide offerings for different markets. The sneaker industry is a good example here

Production Operations. A substantial impact on the agility of the production system can be achieved by reorganizing factory operations and the procedure, and systems that support these operations. Objectives in production operations and procedures that are consistent with an agility strategy are the following:

   Be a cost effective, low volume producer. This is accomplished using flexible production systems and low setup times.

   Be able to produce to customer order. Producing to customer order reduces inventories of unsold finished goods

   Master mass customization, The agile company is capable of economically producing a unique product for an individual customer

Use reconfigurable and reusable processes, tooling, and resources . Examples include computer numerical control machine tools, parametric part programming, robots that arc reprogrammed for different jobs, programmable logic controllers, mixed model

production lines, and modular fixtures (fixtures designed with a group technology approach, which typically possess a common base assembly to which are attached components that accommodate the different sizes or styles of work units).

   Bring customers closer to the production process. Provide systems that enable customers to specify or even design their own unique products. As an example, it has become every common  in the perxunal computer market for customers to be able to order exactly the PC configuration (monitor size, hard drive, and other options) and software that they want.

   Integrate business procedures with production. The production system should include sales. marketing, order entry, accounts receivable, and other business functions These functions are included in a computer integrated production planning and control system based on manufacturing resource planning (MRP II, Section 26.6)

   Treat production as a system that extends from suppliers through to customers. The company's own factory is a component in a larger production system that includes suppliers that deliver raw materials and parts to the factory. It also includes the suppliers' suppliers.

To summarize, some of the important enabling technologies and management practices to reorganize the production function for agile manufacturing are listed in Tatble27.2.

Managing  Relationships for Agility

Cooperation should be the business strategy of first choice (third principle of agility). The general policies and practices that promote cooperation in relationships and, in general, promote agility in an organization include the following:

o   management philosophy that promotes motivation and support among employees

o   .trustbased relationships

o   empowered  workforce

o   shared  responsibility  for success  or failure

o   pervasive  entrepreneurial   spirit

TABLE   27.2    Enabling  Technologies   and Management  Practices  for Agile Manufacturing

There  are two different types of relationships that should  be distinguished in the context agility; (1) internal relationships and (2) relationships between the company and other organizations.

Internal Relationships. Internal relationships arc those that exist within the firm. between coworkers and between supervisors and subordinates. Relationships inside the firm must be managed to promote agility. Some of the important objectives include

(1) make the work organization adaptive. (2) provide cross functional training, (3) encourage rapid partnership formation. and (4) provide effective electronic communications capability

External relationships. External relationships are those that exist between the company and external suppliers. customers, and partners, It is desirable to form and cultivate external relationships for the following reasons: (1) to establish interactive. proactive

relationships with customers; (2) to provide rapid identification and certification of suppliers: (3) to install effective electronic communications and commerce capability and

(4) to encourage         rapid partnership     formation    for mutual  commercial  advantage,

The fourth reason raises the issue of the virtual enterprise. A virtual enterprise (the terms virtual organization and virtual corporation are also used) is defined as a temporary partnership of independent resources (personnel, assets. and other resources) intended to exploit a temporary market opportunity. Once the market opportunity is passed and the objective is achieved. the organization is dissolved. In such a partnership, resources are shared among the partners. and benefits (profits) are also shared. Virtual enterprises arc sometimes created by competing firms.

The formation of a virtual enterprise bas the following potential benefits: (1) It may provide access to resources and technologies not available in house, (2) it may provide access to new markets and distribution channels. (3) it may reduce product development time, and (4) it accelerates technology transfer. Some of the guidelines and potential problems associated With virtual enterprise are listed in Table 27.3.

Valuing Knowledge. We must begin discussion of this topic by stating a fundamental premise. It is that the people in an organization, their skills and knowledge and their

TABLE 27.3 Virtual Enterprises:     Guidelines   and Problems

Guidelines   •Marry well; choose  the right partners  for good  reasons.

• Play fair win; win opportunity for all concerned •Put your best people into these relationships, •Define the objectives.

•Build a common infrastructure.

Problems    •legal  issues protection of intellectual        property     rights.

   How to valuate each participant's contribution, so profits can be equitably snared.

   Reluctance  of companies  to share  proprietary  information.

•Loss of competitive      advantage by sharing  knowledge

ability to use information effectively and innovatively, are distinguishing characteristics of an agile competitor. To whatever extent this premise applies to a given organization. the skill and knowledge base must be encouraged, developed. and exploited for the good of the organization. Some of the important objectives include: (1) open communication and information access, (2) openness to learning is pervasive in the organization, (3) learning and knowledge arc basic attributes of an organization's ability to adapt to change, (4) the organization provides and encourages continuous education and training for all employees, and (5) there is effective management of competency inventory, meaning that the organization knows and capitalizes on the skills and knowledge of its employees.

        Agility Versus Mass Production

Like lean production, agility is often compared with mass production. In this comparison we must interpret mass production to include all of the requisites that made it successful, such as the availability of mass markets and the ability to forecast demand for a given product in such mass markets. Our comparison is summarized in Table 27.4. Let us elaborate on the items listed in the table.

In mass production, companies produce large quantities of standardized products. The purest form of mass production provides huge volumes of identical products. Over the years, the technology of mass production has been refined to allow for minor variations in the product (we call it "mixed model production"). In agile manufacturing, the products are customized. The term used to denote this form of production is mass customization, which means large quantities of products having unique individual features that have been specified by and/or customized for their respective customers. Referring to our PO model of production in Chapter 2 (Section 2.3),

In mass production,       Q is very large, P is very small, and

in mass customization.           P is very large, Q is very small (in the extreme     Q = 1),

where P = product variety (number of models), and Q = production quantity (units of each model per year).

Along with the trend toward more customized products, today's products have shorter expected market lives. Mass production was justified by the existence of very large markets for its mass produced goods. Mass markets have become fragmented, resulting in a greater level of customization for each market.

In mass production, products are produced based on sales forecasts. If the forecast is wrong. this can sometimes result in large inventories of finished goods that are slow in selling.

TABLE 27.4      Comparison  of Mass Production       and Agile Manufacturing

Agile companies produce to order: customized products for individual customers. In-ventories of finished products are minimized.

Products today have a higher information content than products of yesterday. This is made possible by computer technology. Think of the many products today that operate based on integrated circuits. Nearly all consumer appliances are controlled by l C chips, Modern automobiles use engine controllers that are based on microprocessors. The personal computer market relies on the ability of the customer to be able to telephone an 800 number for assistance. The same is true of many appliances that are complicated to operate, for example, video cassette recorders (VCRs). Manufacturers of these appliances keep adding more and more features to gain competitive advantage, further complicating the products

Single time sales was the expectation of the merchandiser before agility. The customer bought the product and was not expected to be seen again. Today, companies want to nave continuing relationships with their customers, Automobile companies want their customers to nave their new cars serviced at the dealer where the car was purchased. This provides continuing service business for the dealer, and when the customer finally decide, that the time is right to purchase a new car, the first logical place to look for that new car is at the same dealer.

Finally, pricing of the product is traditionally based on its cost. The manufacturer calculates the costs that went into making the product find adds a markup to determine the price (Example 2.8). But some customers are willing and able to pay more. The product may be more valuable to them, especially if it is customized for them. The marketplace allows different pricing structures for different customers. Instead of standard prices for everyone, different prices are used, according to the value to the customer, The airline industry is a good example of multilevel pricing structure. Tourists who fly and stay over Saturday night pay sometimes one third the airfare of business travelers who travel round trip during the same week. Automobiles produced in the same final assembly plant on the same body frame can vary in price by two to one depending on options and nameplate. In the higher education industry, we have different tuition rates for different students. We use a different lexicon tor the lower rates than other industries use: We give a discount on the tuition price and call it a scholarship.