Improving Profitability Through Green Manufacturing E-Book

David R. Hillis

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 283

Veröffentlichungsjahr: 2012

Beschreibung

Manufacturers can be green and highly profitable at the same time

Profits do not have to be sacrificed to environmental responsibility, or vice versa. Following this book's tested and proven approach, readers discover how to create and operate manufacturing facilities that are highly profitable while meeting or exceeding the environmental standards of their local community, state, and federal governments. The authors' approach is broad in scope, setting forth the roles and responsibilities of organizational functions such as marketing, product design, manufacturing technology, management, and human resources.

The book begins with an overview explaining why profitability and green manufacturing must be viewed as a single objective.

Next, the book becomes a "how to" guide to creating and maintaining an environmentally compliant and profitable manufacturing operation, with chapters covering:

• Manufacturing, waste, and regeneration
• Building a decision-making model
• Environmental regulation, standards, and profitability
• Case studies
• Tools used to improve manufacturing operations
• The facility
• Applying the profitable and compliant process chart

The final chapter is dedicated to a step-by-step approach in the application and use of the profitable and compliant process chart, a core working tool discussed in the book. In this chapter, several actual manufacturing applications, along with their worksheets, are presented to illustrate how this approach can minimize resources and waste. Armed with this comprehensive systems approach, readers will no longer view profitability and green manufacturing as two opposing goals. Instead, they'll have the tools and knowledge needed to create and maintain a manufacturing operation that is both profitable and green.

Leseprobe

Table of Contents

COVER

TITLE PAGE

COPYRIGHT PAGE

PREFACE

ACKNOWLEDGMENTS

CHAPTER 1 MANUFACTURING

INTRODUCTION

MANUFACTURING SEQUENCE

PRODUCT LIFE CYCLES—THERE’S MORE THAN ONE

LIFE CYCLE ANALYSIS

POTENTIAL FOR WASTE AND VALUE ADDED IN MANUFACTURING

VERTICALLY VERSUS HORIZONTALLY INTEGRATED MANUFACTURING

WASTE AND ITS UNEXPECTED SOURCES

A NEW PRODUCT—FIRST PHASE FOR WASTE REDUCTION

EXISTING PRODUCTS—SECOND PHASE FOR WASTE REDUCTION

REGENERATION

LIFE CYCLE OF THE MANUFACTURING FACILITY

CREATING A CLASSIFICATION SYSTEM FOR A COMPLIANT AND PROFITABLE MANUFACTURING SYSTEM

SUMMARY

CHAPTER 2 BUILDING A DECISION-MAKING MODEL

INTRODUCTION

INDUSTRIAL PRODUCTION AND MANUFACTURING

CLASSIFYING MANUFACTURING INDUSTRIES

MAJOR PRODUCT GROUPS FROM NAICS

MATERIAL STOCKS

MAJOR MATERIAL FAMILIES

BASIC PROCESS CLASSIFICATIONS

DESIGN TEMPLATE FOR CLASSIFYING MANUFACTURING PROCESSES

IT ALL BEGAN IN SALLY’S GARDEN

THE ANALYSIS

NEXT STEPS

CHAPTER 3 ENVIRONMENTAL REGULATIONS, STANDARDS, AND PROFITABILITY

INTRODUCTION

ORGANIZING TO COMPLY—THE MANAGEMENT FOUNDATION

FORMALIZING THE MANAGEMENT APPROACH—THE ISO STANDARDS

OVERVIEW OF MAJOR ENVIRONMENTAL REGULATIONS

SUMMARY—COMPLIANCE CAN MEAN PROFITS

CHAPTER 4 CASE STUDIES

INTRODUCTION

CASE STUDY 1

CASE STUDY 2

CASE STUDY 3

CASE STUDY 4

CASE STUDY 5

CONCLUSION

CHAPTER 5 AN OVERVIEW OF TOOLS USED TO IMPROVE MANUFACTURING OPERATIONS

INTRODUCTION

WASTE REDUCTION: THE PROFITABLE AND COMPLIANT PROCESS CHART—A COLLABORATIVE TOOL FOR BOTH GROUPS AND ALL FUNCTIONS

TRAINING AND DEVELOPMENT

MANUFACTURING ENGINEERING AND OPERATIONS

PRODUCT DESIGN

HUMAN RESOURCES

SUMMARY

CHAPTER 6 THE FACILITY

INTRODUCTION

MAKING A BUILDING THAT CAN BE REGENERATED

PLANT LOCATION

SUSTAINABLE DESIGN

CONSTRUCTION SEQUENCE

LIFE CYCLE AND LIFE CYCLE COST ANALYSIS

COST ANALYSIS SOFTWARE

BUILDING FOR ENVIRONMENTAL AND ECONOMIC SUSTAINABILITY

ENERGY STAR

INTERNATIONAL STANDARDS FOR AN ENERGY MANAGEMENT SYSTEM

LEADERSHIP IN ENERGY AND ENVIRONMENTAL DESIGN

SUMMARY

CHAPTER 7 APPLYING THE PROFITABLE AND COMPLIANT PROCESS CHART

INTRODUCTION

PCPC WORKSHEETS

USING THE DATA COLLECTION WORKSHEETS

INDUSTRIAL APPLICATIONS OF THE PCPC

OBSERVATIONS

CONCLUSION

GLOSSARY

INDEX

Copyright © 2012 by John Wiley & Sons, Inc. All rights reserved

Published by John Wiley & Sons, Inc., Hoboken, New Jersey

Published simultaneously in Canada

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Library of Congress Cataloging-in-Publication Data:

Hillis, David R.

 Improving profitability through green manufacturing : creating a profitable and environmentally compliant manufacturing facility / David R. Hillis, J. Barry DuVall.

p. cm.

 Includes bibliographical references and index.

 ISBN 978-1-118-11125-3 (cloth)

 1. Manufacturing processes–Cost control. 2. Manufacturing processes–Environmental aspects. 3. Green products–Cost effectiveness. 4. Sustainable enginering. I. DuVall, John Barry, 1942– II. Title.

 TS183.H55 2013

 628–dc23

2012009796

PREFACE

Let us tell you our story—we were on the road, driving over to meet with people at a manufacturing plant in western North Carolina. We were early for our meeting so we thought we would stop at a fast food restaurant for coffee and a chance to review our meeting agenda. We carried our coffees back to the table, opened a file folder, and booted-up a laptop. A minute later we were surprised to find that we didn’t have enough table space. Our two cups of coffee and the packaging debris of cup lids, cream containers, sugar packets, napkins, stirrers, and a tray left just enough room for one laptop or one open file folder. So we made a quick trip to the waste container to dump all this trash and leave the tray. We realized that even though all this trash was annoying it had served a purpose—it had utility. We finished our coffees and left for the meeting.

When we arrived our host asked if we cared for a coffee. We declined with a laugh and recounted our experience with “coffee waste.” They wanted to know if the restaurant “recycled?” It did not but we pointed out that that was not the issue. So we mentioned the “Three Rs.” It is a path for waste reduction promoted by Singapore’s National Environment Agency and other agencies around the world. The “R”s stand for “Recycle, Reuse, and Reduce” packaging and convenience materials. The goal for implementing the Three Rs is to minimize the amount of solid waste that is generated daily. For us, the reality of this concept struck home on another business trip to southern California.

On that trip we stayed at a chain hotel that provides a com­plimentary breakfast for its guests. There were two of us at the table and by the time we finished eating the entire table was covered in packaging litter. There were single-use plastic spoons, knives, plastic foam cereal bowls, paper coffee cups, plastic juice cups, paper milk cartons, plastic fruit containers, paper sugar envelopes, napkins, and several cellophane wrappers. We picked up all this litter and placed it into the appropriate recycling containers: paper, plastic, and food refuse. We had accomplished the first R—Recycling.

When our morning meetings were finished we stopped at a corner restaurant for lunch. We had soup, salad, and coffee. This food all arrived on sturdy china plates with stainless steel flatware. There were paper napkins, but that was the only single-use item. All the other items were in the second category—Reuse.

Finally, at the end of the workday our host suggested we have dinner at an Ethiopian restaurant. There were four of us at the table and the food was brought out on a large platter. There were some bowls with sauces but little else. There were no eating utensils. We discovered that we were to use the flat bread that was served to scoop up the food. By the time we finished eating there was one large empty tray in the center of the table along with a few bowls. The restaurant had provided cloth napkins, which would be laundered and reused. The dinner was an example of the third category—Reduce.

These stories help make the point that a strategy for waste reduction should aim at moving up the hierarchy away from single-use items to a system that reduces the packaging and convenience items. Recycling therefore is not an endpoint but a starting point for the Three Rs of waste reduction. So, you may ask how do you move up this hierarchy? A partial answer is waste reduction begins with the design of the product. Recycling is accepting the current design and then trying to make the best use of the waste that is generated by that design. In our southern California trip we started the day with a “serving design” for breakfast that was predicated on recycling. By evening of that day the serving design for dinner was based on the third R, reduce. That design had less waste. So think of the Three Rs as a systems approach to waste reduction. The approach presented in this book is also a systems approach, but it is applied to manufacturing. Both approaches provide a strategy for analysis, decision making, change, and improvement. They also provide opportunities! The beauty of the systems approach is that it can be used to analyze complex things and make them simple. Albert Einstein said it well: “make everything as simple as possible, but not simpler.”

In our discussions with corporate executives and environmental groups, and working with practicing professionals on the plant floor, we came to the realization that success in manufacturing is not based on magic or “green technology.” We learned that traditional manufacturing companies can be environmentally responsible and profitable through improved decision making.

In this book we provide a model for improvement that you can modify and apply in your own way, in your own environment. We have provided examples of this systems approach along with supporting methods and techniques that are being used by a variety of manufacturing companies to be environmentally responsible and profitable. Now it is up to you! We hope this will be helpful to you in your company and industry. Please let us know how things go and feel free to contact us if we can help you in the future.

DAVID R. HILLISJ. BARRY DUVALLGreenville, North [email protected]@ecu.edu

ACKNOWLEDGMENTS

The authors thank our wives, Carol and Jean, for their encouragement and belief in the importance of this project, and the following individuals, companies, and organizations for their assistance and contributions.

Members of the North Carolina Department of Environment and Natural Resources, Division of Pollution Prevention and Environmental Assistance, particularly:

Ms. Julie Woosley, Section Chief

Ms. Angela Barger, Environmental Stewardship Initiative Lead Coach

Mr. Ron Pridgeon, Environmental Engineer

Singapore’s National Environment Agency

Ms. Hong Yang, Manager Waste Minimization & Recycling, Waste and Resource Management Department

Engineered Sintered Components, Troutman, NC

Ms. Jan Comer, Vice President Human Resources

Mr. Marty Todd, Vice President Operations

Mr. Stephen Jenkins, EHS/Training Manager

Corning Cable Systems, Hickory Manufacturing and Technology Center, Hickory, NC

Mr. Steve Street, Senior Environmental, Health, and Safety Coordinator

East Carolina University, College of Technology and Computer Science, Department of Technology Systems, Greenville, NC

Thanks to our students for the opportunity to work with and learn from you, and for testing PCPCs in your own work environments:

Brian Miller, Carver Machine Works, Washington, NC

Mr. Monty Hilburn, Hamilton Sundstrand Corporation, San Diego, CA

Armen Ilikchyan, Cooper Standard Automotive Corporation, Bowling Green, OH

Gregg Phipps, Gasdorf Tool and Machine Corporation, Lima, OH

Ms. Rebecca Farmer, U.S. Coast Guard Aviation Logistics Center, Elizabeth City, NC

CHAPTER 1

MANUFACTURING

INTRODUCTION

It frequently surprises people when they learn that the world’s leading manufacturing country is the United States of America. Why this may be so astonishing is the prevalence of “Made in China” labels found on so many consumer products, particularly clothing and electronics. In 2007, prior to the recession in the latter part of that decade, the value of goods produced by the United States reached over $1.8 trillion. (see http://unstats.un.org/unsd/snaama/cList.asp)—and, even more surprising, the amount produced in 2007 was nearly twice the value made two decades earlier. Today the United States is still a major producer, generating much of its prosperity from manufacturing. Nevertheless, there is no doubt that a large portion of our products come from overseas.

Part of the reason the United States continues to lead in the production of goods is the manufacturing methods or procedures that were developed during the twentieth century. These methods enabled companies to produce large amounts of affordable goods profitably. During the latter half of that century other nations adopted these methods and even made substantial improvements. Now many believe that manufacturing in the United States is too costly both in dollars and harm to the environment. This is not true. There are ways to make manufacturing sustainable and profitable while meeting environmental obligations and requirements.

MANUFACTURING SEQUENCE

To understand how this can be done let’s begin by examining the manufacturing sequence. The production of a product begins after a raw material has been transformed into a manufacturing “stock.” Think of “pig iron” as a raw material and 16-gauge cold-rolled steel as a manufacturing stock. Yes, an argument can be made that pig iron is a manufacturing stock after iron ore has gone through a smelting process. Regardless of where the starting point occurs there is a specific series of steps that occur in the manufacture of a product and its sale to a customer. Figure 1.1 illustrates these steps.

Figure 1.1. The general sequence of manufacturing.

A simple example of this sequence is the manufacture of a molded plastic bowl that is actually a component that will be assembled with other parts to create a more complex product—an inexpensive food processor. The bowl is produced by a molding process using a stock of plastic pellets. The pellet stock is polystyrene, which is produced from an aromatic polymer that comes from a liquid hydrocarbon manufactured from the raw material, petroleum. The food processor is next distributed to a customer. After years of use the bowl cracks and the owner finds that it has a recycle number “6” discretely molded on the bottom of the bowl. The owner of the bowl deposits it in a recycling bin that ultimately allows it to be recycled into another stock. The manufacturing sequence in this instance is a closed loop, illustrating one of the several definitions for a product life cycle.

PRODUCT LIFE CYCLES—THERE’S MORE THAN ONE

This concept of a product’s life cycle based on the manufacturing sequence provides a useful perspective for developing a com­petitive and compliant facility. However, the term product life cycle is also used to name several other concepts. Probably the most well-known use refers to a marketing-oriented definition of the phases or stages a product passes through over its lifetime. Marketing people generally list five phases, beginning with “product development.” The next phase is the product’s “introduction into the marketplace,” followed by a “sales growth” phase. The last two phases are “product maturity” and finally the product’s “decline” in the marketplace. In this instance the life cycle traces the life span in terms of the product’s sales volume in the marketplace.

A third form of analysis that shares the title “product life cycle” includes the term “management”: product lifecycle management (PLM), which involves managing the information acquired over a product’s life so that a company understands how its products are designed, built, and serviced. The emphasis is primarily on the engineering and business aspects of producing the product.

The title of the fourth application, product life cycle management (PLCM), sounds identical to the previous one. The difference of course is lifecycle is now two words instead of one. PLCM has to do with the strategies a business uses to manage the life of a product in the marketplace. These strategies change based on the product’s “marketing phase.” Recall the five phases mentioned earlier.

There may well be other product life cycle methods or techniques in use. However, this sampling illustrates their basic objective—to enable a business to understand how a product is doing in the marketplace and what improvements or actions need to be taken to increase sales, performance, and/or safety. These techniques are used primarily for increasing a company’s profitability. Our objective, however, is to improve both the company’s profitably and its environmental performance.

To do this we’ll go back to the general sequence of manufacturing. Recall the example involving the plastic bowl? The bowl started out as a raw material and moved through the manufacturing sequence until it was purchased and placed into use. When it cracked it was recycled. This sequence can be used as the basis for an analysis that examines how manufacturing impacts the environment: life cycle analysis (LCA).

LIFE CYCLE ANALYSIS

The origins of life cycle analysis probably came from the environmental impact studies and energy audits that were carried out in the late 1960s and early 1970s. These studies attempted to assess the resource costs and environmental implications of the industrial practices going on in the world at that time. Paper manufacturing, as well as its associated recycling processes, was one of several activities that received a great deal of attention in these early studies. The methods these studies used were unique at the time because they followed the entire sequence of business. As with the manufacturing sequence, these studies started with turning raw materials into usable stocks for production and followed the sequence through distribution, the customer’s use, and finally the product’s disposal or recycling. The analysis attempts to identify the environmental costs associated with a product by examining the all the resources and materials used along with the wastes released to the environment over a product’s lifetime.

These studies have evolved into a defined protocol. The LCA has become a popular technique in building and construction projects. In fact its popularity has reached a level that there are several software products available to assist in the analysis. An example is the “Building Life-Cycle Cost” (BLCC) program developed by the National Institute of Standards and Technology (NIST). The U.S. Department of Energy’s Federal Energy Management Program says that the BLCC enables architects and builders to evaluate alternatives to find the most cost-effective building designs in terms of energy use over the life of the project.

Along with LCA and BLCC there are a variety of other terms being used to describe this technique. The most familiar term is probably LCA, but there are others now in use such as life cycleinventory (LCI) and life cycle assessment (also abbreviated LCA). Also, if you do an Internet search on LCA you will also find more terms such as cradle-to-grave analysis, eco-balancing, and material flow analysis. Regardless of the name, the primary aim of life cycle analysis is to identify the environmental impact of the materials and resources used in the manufacture and use of a product.

To be of value the analysis needs to identify and quantify the source and amount of waste generated over the entire manufacturing sequence. This is similar to a procedure that financial managers call sources and uses. Large publicly traded companies will include a “sources and uses of funds” statement in their annual reports. The resource in this case is money—where it is obtained, its source, and how it is used to carry out the activities of the business. Individuals and institutions that are contemplating lending money to a startup company look for a sources-and-uses worksheet because it is an excellent summary of the “startup’s” financial plan. In a similar manner an LCA can be viewed as a sources-and-uses statement.

Most LCAs include a comprehensive listing of the inputs, the resources. The output defines how effective the facility is in converting these resources into products while minimizing waste. Inputs include all raw materials, stocks, and resources that are used for the creation of the product. Resources include energy demands (electricity, gas, oil, coal, etc.) and water. In some special instances land use might be included. While land is not considered a consumable in the creation of a stock or product, there could be a circumstance that would make the land unusable for a period of time. An example is strip mining.

Figure 1.2 shows an example of an LCA format. This format includes the most common steps in the manufacturing sequence plus extraction of raw materials and repair or service. The outputs of course include the product as well as everything else, which is defined as waste. The major waste categories are water and water effluents; airborne emissions; solid waste; and recyclables. An item that is often overlooked in the analysis of manufacturing waste is packaging. This is not the case in LCA. A major source of waste in the distribution step of an LCA is “single-use” packaging.

Figure 1.2. A life cycle analysis model.

The LCA, like the manufacturing sequence, addresses material in the first two steps. On the left side of Figure 1.1 these steps are identified as Stage 1. In the first two steps of an LCA (extraction of raw materials; creation of the stock) the industry carries the name of the material being converted to a stock. As an example, when someone says “the steel industry” what comes to mind? In most cases an image of a steel mill will pop up in our mind’s eye. However, when it becomes a coil of cold-rolled steel it is a stock that will be used to manufacture a product. So, beginning with the third step (Stage 2 in Fig. 1.1) of the LCA, the industry name changes from the material name to the product name. Steel would be replaced by a product name such as auto or appliance.

It is apparent that completing an LCA on just one group of materials or a single industry such as the appliance industry is a major undertaking involving hundreds of companies. However, it is the approach that the analysis uses that is valuable.

Measuring and quantifying the costs of all the materials and resources required to create a product is a basic part of manufacturing. Cost accountants have been allocating direct and indirect costs to specific products and work centers for more than a century. An example of a direct cost is the amount of a stock used to create a product. These direct costs and their proper allocation to a product are relatively easy to calculate. Indirect costs are more difficult to assign. They are expenditures that are not apparent by examining the bill for materials or the list of operations used to make the product. The classic example of an indirect cost is the person who sweeps the aisles when a shift is over. Accountants often handle these costs by allocating them as a percentage of floor space used in the plant to produce a specific product or by using some other proportionality. The task, which is also the problem, is developing a method that will account for all the stocks and resources and then accurately apportion them to the product.

A further complication when using LCA is its “comprehensive” approach. The point-of-view taken by an LCA is excellent. It is the environmental version of the sources-and-uses worksheet but it is applied on an industry scale—much too general for a company involved in just one step of the manufacturing sequence. The general approach of the LCA, however, would be useful for building a new plant. It is not difficult to list the activities at each of the seven steps of a manufacturing sequence for constructing a manufacturing plant. You can list the stocks and processes used to construct the building and the assembly operations to put in the electrical distribution system, the HVAC, the plumbing, and so on that are needed to complete the facility. Servicing the building and its final disposal can also be handled effectively. Therefore the LCA is an excellent technique for assisting management in costing and designing an environmentally effective manufacturing facility.

However the LCA doesn’t adapt very well for a company that makes, for example, impeller blades for diesel fuel pumps and dishwashers. The overall approach of the LCA doesn’t provide a means to identify or quantify the value of the alternatives available for improving profits and becoming environmentally compliant. The question then becomes how can the LCA concept be used? Chapter 2 introduces an alternative approach that carries with it the underlying notion of an LCA. It is founded on a detailed examination of the waste and resources required to process the materials to manufacture a product.

POTENTIAL FOR WASTE AND VALUE ADDED IN MANUFACTURING

Each of the seven major activities in the manufacturing sequence offers manufacturers opportunities for creating value and waste. Table 1.1 lists these opportunities along with their potential for creating waste. This potential will vary for each of the seven steps. For instance, an assembly operation may generate some waste but generally the environmental impact will be minimal. However, in some of the other steps the waste and environmental costs can be quite high. As an example for the extraction of raw materials a large part of all waste will be environmental costs.

TABLE 1.1. Potential for Creating Waste Compared with the Value-Added Potential for Each Step in the Generalized Manufacturing Sequence

Manufacturing Sequence

Potential for Creating Waste

Potential for Adding Value

Extraction of raw materials

High

Moderate

Create stocks

Moderate to high

Moderate

Manufacturing processes

Moderate to High

High

Assembly operations

Moderate

Low to moderate

Distribution

Low

Low

Sales and service

Low

Moderate

Disposal

High

Low

The table’s third column lists the value-added potential for each step in the manufacturing sequence. As is the case with waste, the potential to add value varies significantly depending on the step and certainly on the product being made. You’ll notice that assembly operations have a low to moderate potential for waste and a moderate potential for adding value. Balancing the potential for waste against the potential for adding value has been a manufacturing tactic for years. Changes in technology and proprietary knowledge can also reorder the balance between value added and waste generated for a particular step.

A company that limits itself to performing just one step in the sequence would in theory be simplifying its business by focusing on just that function. However, this limits the company to the amount of value added in that step. Alternatively a manufacturer could try to do all seven steps and earn all of the value-added potential from the raw material to the sale and disposal of the product. Of course all the potential for waste would be present too. Also, the company would have to develop the skill and expertise for all aspects of the manufacturing sequence. There is a company that became the classic example of this approach.

At the beginning of the twentieth century Ford Motor Company had success in producing a rugged and durable automobile. The car design was good but there were other autos being manufactured at the time that were just as good. Henry Ford, however, wanted to make large numbers of cars that were affordable. With this in mind he toured plants in other industries to understand how they made their product. It has been mentioned that he came up with the idea of a continuously moving production line after he had visited a meat packing plant. True or not, he eventually concluded that effective large-volume manufacturing has four principles:

The product uses interchangeable parts; no custom fitting or modifications should be required.

The product moves to each workstation at a predetermined rate; this was the introduction of continuous flow manufacturing.

The work to manufacture the product should be broken into a sequence of simple easy-to-learn tasks.

Reducing or eliminating waste of all kinds is an ongoing effort.

It took Ford five years to put these four principles into operation; that was in 1913 at his plant in Highland Park, Michigan. These changes created the first moving assembly line ever put into service for large-scale manufacturing. Very quickly the assembly line became the icon for Ford’s system of production.

A year later the continuously moving assembly line had significantly increased production and labor productivity. However, Ford’s monthly turnover of labor had reached 40 to 60 percent. The company realized that this was due largely to the tedium of assembly-line work and the frequent increases in the production quotas that were placed on the workers. Ford solved this turnover problem by paying his workers $5 a day when other manufacturers were paying about $2.50 per day. The increase in labor costs were offset by an increase in output (productivity) due to a more stable workforce. The improved productivity also provided a substantial increase in the company’s profits. At the same time the company’s profits were increasing, the price of the Model T continued to drop. The result was an increase in demand for the Model T. Before Ford stopped making the Model T in 1927 over 15 million of these cars had been sold.

VERTICALLY VERSUS HORIZONTALLY INTEGRATED MANUFACTURING

Certainly the manufacturing principles that Henry Ford and his team developed were important. But it shouldn’t be overlooked that the company also had an intense commitment to lowering costs and capturing all the value-added opportunities available in making and selling automobiles. His company embodied most of the steps in the sequence of manufacturing, starting with mining the iron ore to create the steel stock that went into their cars. Ford’s enormous industrial facility on the Rouge River in Dearborn, Michigan, took the iron ore off ships and just days later the ore was steel and iron in finished automobiles on the way to car dealers. The Ford Motor Company was an excellent example of a vertically integrated manufacturer and for its time a lean manufacturer. Recall Ford’s fourth principle.

At the same time Ford was developing his system of manufacturing automobiles, most of the other car builders remained specialists, concentrating on some processing but primarily on assembly. These companies limited themselves to just one or two steps in the sequence of manufacturing. Therefore they could be described as being more nearly horizontally integrated. Usually a horizontally integrated manufacturer makes more than one product. The company can expand its production or sales by offering a wider range of products or models. If the company elects to purchase parts and limit its manufacturing operations to just assembly, then it becomes a limited horizontally integrated manufacturing company.

There is an interesting observation that can be made. Ford’s innovations were primarily in the way cars were made—Ford developed manufacturing technology, not product technology. The change in product technology was modest during the period the Model T was in production, which started in October 1908 and continued until 1927 when its replacement, the Model A, was introduced. During this period Ford was able to master the complexity of the entire manufacturing sequence and capture most of the value-added opportunities.

So what is the downside for vertically integrated manufacturers? These companies are much more vulnerable when product technology is changing quickly. A horizontally integrated manufacturer can usually adopt new technology more quickly than a vertically integrated company. In part that’s because the horizontally integrated manufacturer has a narrow focus, reducing the knowledge and skills that must be acquired. Similarly the amount of investment needed for new equipment and tooling is also less. The magnitude of change for the vertically integrated company can be enormous. They tend to “hang on” to processes and methods that are not competitive, thereby forcing them into a period of being unprofitable and relying on costly “stopgaps” to be environmentally compliant.

The personal computer (PC) industry provided a good example of the impact that fast-changing product technology can have on manufacturing. In the late 1970s several of the desktop PCs relied on an agglomeration of parts that included portable cassette-tape players for data storage. Assembly was very basic and similar to the methods used to produce a television set. In fact many of the popular desktop computers at the time were actually electronic kits that were assembled by hobbyists and technicians. The key component was the microprocessor, which was a single chip that replaced all the circuitry that formerly occupied large cabinets in mainframe computers.

By the mid-1980s there appeared to be an opportunity for a sophisticated vertically integrated computer manufacturer to enter the PC market. The PC market fueled by the popularity of word processing and spreadsheet programs was definitely in the sales growth phase. One such company that recognized this opportunity was IBM, which at the time spanned at least three of the seven steps in the manufacturing sequence of a PC.

However, the PC was being produced during a period of rapidly changing product technology. Most of the components used in a PC were produced by companies that specialized in just one step of the manufacturing sequence. When innovations in data storage occurred such as in “disk drives,” the producers of PCs quickly adopted the new style “floppy disk” into their product. By the late 1980s the technical product life of PCs was measured in months, which meant the distribution step became critical in the sequence of manufacturing. Dell computers exploited this by selling directly to the PC user. During the early 1990s horizontally integrated companies became dominant as producers of PCs.

WASTE AND ITS UNEXPECTED SOURCES

Regardless of whether a manufacturer is involved in one or all of the steps in manufacturing, the fundamental strategy for a company should be to maximize value added by minimizing waste. Obviously during periods of rapid change in product technology a company might be wise to limit its manufacturing involvement to two steps, assembly and distribution. Products such as the tablet computer and the smart phone provide examples of how this strategy can work, especially while these products are in a growth phase in sales. However, product technology is normally an evolutionary process. It can creep up on companies particularly when their products are in a mature phase in sales. Too often companies feel that the most effective way to differentiate their product and maintain sales levels is through price, specifically price reduction. After the price is reduced the company then looks for ways to reduce its manufacturing costs so that it can remain or once again become profitable.

Too often organizations try to reduce cost by taking away value from the product. That is wrong. Reducing value by eliminating features, service life, or functionality is placing the burden of cost reduction on the customer when it should be the organization’s responsibility. The focus of cost reduction must be on the elimination of waste. In later chapters specific methods for identifying opportunities for waste reduction are introduced. There are also some case studies to illustrate how some of these waste reduction methods are used by companies. However, before moving on to these topics the source and types of waste need to be defined.

The First Source of Waste