1 Introduction
2 Challenges to CM in high-cost environments
Challenges to CM in high-cost environments | Indicated in | Challenge categorisations used in this paper |
---|---|---|
Reduced innovation due to long separation of innovation and production process | Product/service related (P) | |
Inadequate production capacity (e.g., absence of manufacturing stages, resources and internal capabilities) | Production process related (PP) | |
High labour cost (and cost differentials) | ||
Absence of skilled labour (e.g., shortage of qualified staff, lack of tacit knowledge and core competencies) | Organisation related (O) | |
Lack of finances and assets | ||
High cost (overhead) | ||
Lack of systematic planning of supply networks | Fratocchi et al. 2016 | Strategy related (S) |
Absence of local supplier (e.g., limited knowledge and less access to raw materials) | Supply chain related (SC) | |
Lack of attractiveness to local consumers and local demand uncertainty | Market related (M) | |
Stricter labour regulation (e.g., lack of government incentives, lack of labour market flexibility) | General environment related (E) | |
Stricter environmental regulations (e.g., requirement for reduced carbon footprint, environmental standards and laws) | ||
High energy costs |
3 Research method
Parameters | FastCo | PlastCo | ComCo | WashCo | AutoCo |
---|---|---|---|---|---|
Global corporate group’s headquarters | Sweden | Sweden | Sweden | Sweden | Norway |
Company size (number of employees on local site) | 250 | 300 | 800 | 500 | 550 |
Annual turnover (MSEK) | 600 | 1550 | - | 1700 | 900 |
Company ownership | Private | Private | Private | Private | Private |
Customers | Consumer | Business | Business | Business | Business |
Function | FastCo | PlastCo | ComCo | WashCo | AutoCo |
---|---|---|---|---|---|
Sourcing/ purchasing | 1 | 1 | 1 | - | 1 |
Product development | 1 | - | 1 | 1 | 1 |
Production | 4 | 3 | 4 | 4 | 3 |
Sales/ marketing | 1 | 2 | - | - | 1 |
Finance | - | - | - | 3 | 1 |
Logistics/ supply chain | 1 | 3 | 5 | 1 | 1 |
CEO/ Plant manager | 1 | 1 | 1 | 1 | 2 |
4 Empirical findings
4.1 Individual case analysis
4.2 Comparative case analysis
4.2.1 Identifying similarities in each challenge category
4.2.2 Highlighting the most crucial challenges
5 Concluding discussion
5.1 Implications for theory and practice
5.2 Limitations and scope for future research
6 Appendix 1 Within case analysis of challenges and identification of emerging patterns
Category | Sub-challenges | FastCo | PlastCo | ComCo | WashCo | AutoCo |
---|---|---|---|---|---|---|
Product/service-related challenges (P) | Extended value | Needs to improve promotion of several items together to satisfy the customer’s need of complementary products in one package with the main product | Needs to market the product as “the value of less cost per used product”, rather than simply a product for wrapping | Needs to offer a total solution (smart, value adding) simple for the customer to handle. Further, need to offer an “end-to-end” solution, including easier ordering process and packaging of product that enables rapid start up for the customer | Needs to improve logistics: “there are great opportunities in e-commerce and we need to offer the customer a track and trace service” | |
Innovation, product development | Facing declining sales volumes due to changes in the market demands. Need to “find the next big thing” and carefully follow market changes while aiming for new directions and a higher level of electronics in the products | Challenged by competitors who easily can copy the product. Need rapid innovation to always serve the market with new products | High level of innovation and rapid new product development of advanced products are key | Needs to keep high level of innovation and rapid new product development of advanced products. Faces challenging technological shifts in the market segment | ||
Offer more complex/premium products | Faces risks of declining appeal for their “premium” products, ending up in a situation competing on price | Needs to find “a situation where more complex products really benefit from high levels of automation” | ||||
Product portfolio | Faces large costs for keeping a wide range of products; material, production facilities, system maintenance | Needs to widen the product portfolio to reduce the dependency on a few customers | ||||
Product quality | High quality is a prerequisite. Challenged by discrepancy in customer perception; “good quality” is to always deliver what the customer wants | Product is expensive and easily imitable; quality focus has deteriorated. Challenged by competitors catching up on high quality | Offers expensive, premium, product and must “offer really good products”; targeting zero defects | |||
Production process-related challenges (PP) | Automation | Needs to find right level of automation for small batch production by balancing automation and high investment costs. Needs to find “simple automation solutions, semi-automate without too large investments” and “flexible, smart, simple, automation” | Process industry calls for continuous investments in new equipment | Needs automation with the latest technology, constantly updated | Needs to define “automation break-even point” to avoid unnecessary investments, i.e., the point where high levels of automation only are beneficial if they are handling high volume production | |
Design for Manufacturing | Essential to focus on “products that are easier to manufacture, and thereby cheaper | Needs to develop new products that are easy to produce, “too complex production may result in quality issues” | ||||
Process flexibility | Faces customer demands for fast, low volume deliveries and needs to “be better at producing low volumes with short, flexible set ups | Necessary with flexible processes to address demand for “shorter and shorter delivery lead times” | ||||
Internal supply chain | Needs to be “better at the internal delivery service, especially from production to warehouse” | Needs to improv internal processes and internal delivery precision “to 95 percent to become more efficient” | Needs to keep better track on the material in-house | |||
Labour cost | Needs to decrease the amount of man hours per product, as “we cannot compete on labour cost, so we need to work more efficiently” and “we need to reduce waste in the production process to keep the labour cost down” | Faces challenges associated with labour costs, “including benefits such vacation” | Needs to “utilise our person-hours and minimise all waste to assure efficiency and thereby keep the labour cost at a minimum” | The direct labour cost is “a very important cost to keep low” | “Labour cost is a large drawback for Swedish production, need to balance it with high automation levels” | |
Lean and waste reduction | Needs to reduce waste throughout production | Produces too much scrap material | Seems to have lost focus for why lean is important and needs to “map the waste to the processes to be more efficient” | Needs to constantly reduce waste and identify value adding activities | ||
Process quality | Challenged by different views on quality: as “the foundation of all other work” or as something more relevant in the past; “it has had to stand back to the focus on speed” | Needs to introduce new quality controls to “reduce the customer complaints” | ||||
Process speed | Needs to handle incoming orders faster through simple fast internal flows | Faces demand for shorter and shorter delivery lead times | ||||
Square meter utilisation | Needs to free up space to rationalise production | Consolidates space to save money and increase profitability | ||||
Standardised internal processes | Needs to standardise internal processes to identify synergy effects and get a shared understanding throughout the company | Needs to “focus greatly on bringing in a better standardised work, too many routines fail a bit too often” | ||||
Organisation-related challenges (O) | Employee involvement/commitment | Faces difficulties getting “everyone on board” during organisational change, concerning communication and in assuring that improvements are initiated for competitiveness, not for headcount decrease or offshoring | Needs to “focus more on the employees and make them feel involved and engaged in what we do”, emphasising: “every individual is important, and we need to utilise their competence” | Needs “motivated, committed employees” with “willpower and passion for doing a great job”; “we need all hands and feet and brains, really”. Problematises getting everyone on board: “to be aware of the own role in the operations” | Challenging to “involve all employees, not to depend on a few driving spirits to possess the knowledge and the will to improve” | Strives to involve everyone in identifying areas of improvement and to give them the possibility to develop within their own roles |
Improvement work | Needs to “find improvements constantly to assure that our product price does not go too high”. Believes in “evolution instead of revolution”, stressing both the importance of dissatisfaction with the current state, a strive to do better and a positive attitude towards changes | Needs skilled operators able to identify problems and an organisation open for problem solving through interaction | Needs to constantly improve to keep up with the competitive situation in the market | Struggles to define documentation structure capturing improvement activities and to find time for improvement work in a slim organisation | ||
High overhead cost | Needs to reduce overhead costs as cost for material is set on a global market and difficult to impact | Faces unnecessarily high overhead costs due to “a lot of support functions that might be better to outsource”, since supporting staff does not “generate income” | ||||
Intra-organisational collaboration | Needs to consider production and modularisation already at the product development stage and increase collaboration among sourcing, product development and sales to assure that decisions are not sub-optimised | Needs to include workers in machine investment decisions | Needs “a much closer collaboration among functions to assure understanding of cause and effect”. Currently organised in “independent silos” risking sub-optimisation. “The hierarchical structure is too slow to maneuver, we need more networking, more agile groups.” Further, needs to involve blue collar workers: “white collar workers cannot make decisions without involving the people who later are going to do the work” | Needs to remove some of the inherited organisational boundaries and improve collaborations. Needs to incorporate (automated) production process knowledge early in product development, assuring production efficiency. Needs more communication and interaction in interface between product development and production. Problematises recent relocation of sourcing/purchasing to another city | ||
Knowledge, competence, multi-skilled workers | Needs multi-skilled workers, production requires craftsmanship and employee flexibility: “not enough to have machine competence, need to be more knowledgeable about whole value chain”. Further, faces need of production technicians and employees with knowledge on tools, machines and equipment maintenance | Needs to “educate younger people”. Facing too many retirements within ten years and needs to “ensure their knowledge stays in the organisation”. Further, increased levels of automation leads to “completely changed demands on work force: skilled set up technicians able to handle advanced automated equipment” | Needs wider range of competence, including comprehension of customer needs, and how to influence the product design. Worried by a too old workforce where there are no youngsters with right knowledge available | Faces challenges associated with finding the right competence for tool and die makers | ||
Organisational culture | Need to alter mindset regarding costs with everyone aware of the importance of profitability | Needs good leadership encouraging collaboration and challenge traditions. and | Faces a challenge where “the local culture is not as prevalent as it used to be. Employees have lost their sense of belonging to the company and its importance for the local community” | |||
Organisational structure | The organisational structure challenges the organisational strength with its “too hierarchical organisation and decision processes”, risking separate silos with limited collaborations | Challenged by the corporate group’s top-down management style, mirrored in the organisation at the local site | ||||
Strategy-related challenges (S) | Customer requirements | Needs to improve understanding of customers’ markets to adjust accordingly and closely collaborate with customers. An increasingly individualised market requires a wider range of options, leading to the challenge of producing small order quantities | Challenged by global market with different demands and adjustments for different countries. “We need to manage to be “glocal”, both local and global. It is a nice word but it is very difficult to understand what it really implies.” | |||
Formalised operations strategy | Needs a common strategy, standardising the basic understanding of what the company is | Needs a clear strategic plan and to talk more about “what steps to take next” | ||||
Lean | Challenged by a “lack of strategy and how Kaizen activities link to such a strategy”. The strategic lean approach originates from corporate group, i.e., a top-down initiative with emphasise on fast set ups. Main challenge relates to communication: “we have not been able to communicate why this is important” | Associates the strategic aspects of lean with the concept of the “whole individual”, challenged to make lean the backbone of the organisation and to assure that the method is understood in the own organisational context | ||||
Long-term focus and strategic work | No outspoken operations strategy: “the strategy is to improve productivity by 10% and relates to the owners’ strategic philosophy”. “We do not have control over our processes, quality suffers due to too much rationalisations, being reactive rather than proactive” | Challenged by the organisational structure: “it is very difficult to work with strategies as there are so many levels”. Further challenged by “quarterly-capitalism” and its demands on return on investments within a year | Challenged by strategic work with lean throughout the organisation: “we have a rather uneven distribution of this knowledge”. Strategic investments are challenging as the return on investment requirement is quite short, two years, with great emphasis on the quarterly statements | Suffers from lack of strategic direction provided by the corporate group: “it is a challenge to understand how the market is changing and where our place will be” | ||
The role of owners | “This owner will never allow for large investments, have to make small investments and build on what we already have.” The owner lacks the feeling for being local, the site is “just a dot on the map, easily movable” | Challenged by the owner’s listing on the stock exchange and need for a steady cash flow: “there is no room for investments with long payback time” | Challenged by corporate group’s centralised decision processes on where to locate manufacturing activities, i.e., the intra-group competition. Concerned about the local site’s role in the group, “we are just one of all the other sites”. Further challenged by global investment stoppage | |||
Strategic alignment and strategic consensus | Needs to “get information out in organisation, wearing it down, so that people have truly understood” | Needs everyone on board: “they do not only need to understand what and how we do things, but also why we do it” | Needs “a standard for how to work with targets” | |||
Supply chain-related challenges (SC) | Distance to market and customers | Challenging to supply distant markets due to tendency to store too much inventory to handle long delivery lead times, causing inventory monitoring problems | Needs to be located with proximity of the customers’ production sites to avoid large fines for causing production stoppage. However, challenged by the size of the Swedish automotive industry, unclear what offshoring would lead to | |||
Flexibility, high mix/low volume | Needs proximity to suppliers, material needs to be near for rapid reactions to changed market conditions | Needs to find new ways to distribute small batches, potentially directly to the end customers | Needs a very flexible supply chain to meet different customers’ requirements | Needs suppliers that can manage flexible demands | ||
Intra-group relationships and ownership | Change in ownership challenges the supply chain structure. The local site has lost control over many functions and is competing for survival | Faces intra-group competition, a constant battle where the goal is to “win most of the available business” | ||||
Price incoming goods/material | Needs strategic purchasing at an advantageous price since raw material represents 80 percent of the selling price | Needs suppliers to understand the necessity of value chain wide cost reductions, “we need to be much better at getting competitive prices”. Faces competitive market prices for some incoming material, like steel | ||||
Quality incoming goods/material | Needs to support suppliers to fulfil the quality demands | Poor quality on incoming goods risks “triggering a lot of costs in our production” | Impossible to change from the only supplier available despite poor raw material quality for items of great importance for production | |||
Stronger supply chains, supplier relationships | Needs to consolidate supplier base and develop better system for active supplier relationship management | Needs to integrate customers into the supply chain, observing the “end-to-end” perspective. Further, needs an improved internal supply chain: “better to compete as a supply chain, rather than as independent companies” | Dependent on few suppliers with no alternative options. Received support from the customer when dealing with suppliers’ delivery problems. Supplier relationship development is unbeneficial: “we finance their business, but the return is too low” | |||
Market-related challenges (M) | Increased competition | Challenged by Chinese competition, with highly trained, extremely driven and ambitious work force, “we have to shape it up if we shall stand a chance” | Challenged by globalisation: “it is possible to produce almost everything everywhere, while our cost level is consistently high” | |||
Marketing the own brand as local, Made in Sweden | Decreased differences among European producers but might still be differences in customers’ attitudes towards Chinese products. However, smaller differences than ten years ago | “It is currently an advantage to be local, to be Swedish, but newer generations might necessarily not care in the future, viewing themselves as international constantly being introduced to worldwide news” | ||||
Rapid changes, turbulent business environments | Needs to prepare for rapid changes and adaptations to the market: “when customers require news, we cannot spend years on product development” | Faces “shorter and shorter” time spans from quoting an offer to production initiation: “the concept creation and development stages are almost gone, barely have time to test before customers want products” | ||||
Reduced volumes of sales, products with reduced interest from market | Faces market changes, moving towards a paperless society, leading to decreased demand for some of the company’s products, “have to steal market shares from competitors” | Faces changes to housing situations: “abandon old shared laundry rooms in apartment blocks in favour of household’s individual machines. We survive based on exchange of existing machines” | Faces reduced sales figures due to fluctuations in the market and customer projects’ life cycles | |||
General environment-related challenges (E) | Educational system, attractiveness of industry jobs | Challenged by “the educational system, primarily on high school level” that “does not fulfil industry’s need for competent workforce” | Faces a younger generation “considering industry jobs to be dirty”. Challenging to “make people interested in process industry” Links attractiveness to geographical location: “very difficult to attract well educated and skilled employees to a small rural town.” Must “collaborate more with schools” to address need of “people with higher education”. National challenge: “redundant workforce no longer needed for simple tasks causes great matching problem in Swedish society.” | Challenged by expectations university graduates have on work tasks: “they seem to only be interested in office jobs, as if they have been promised something fancy. In reality they have to start at a lower level and prove they can perform” | Challenging to attract people to industry jobs: “worried the educational system cannot provide competence needed in the future.” | Identifies gap between educational levels: “cannot only have university educated engineers to run development, also need skilled workers to produce the products. Lacks high school engineers working with maintenance and as production technician.” |
Political decisions, rules and regulations | Challenged by European Union subsidies that support production in southern and eastern Europe, causing overcapacity on a European level and unfair market conditions. Further, Swedish social security system poses challenges due to extra costs and planning difficulties. Strong employment regulations are challenging when disallowing testing employees. Moreover, challenged by local energy market and its prices | Increasingly difficult to fulfil legal requirements, traceability, safety and European directives. Further, challenged by domestic public procurement regulations only considering procurement cost, not product life cycle cost |