The fundamental tasks of any manager are to continually understand the real situation of the company’s external and internal business environment, to identify the main issues alone, and to come up with solutions and to mobilize his/her own staff, colleagues, superiors, and all other persons from outside the company to achieve the expected results. Managing cost reduction means understanding, planning, and gaining control over all the activities needed to have efficient and effective processes, to achieve your goals and meet a cost targets.
Before deciding on the adoption of the manufacturing cost policy deployment (MCPD) system for the achievement of the long-term target profit and the annual target profit, the initial steps concern the preparation of the management system for the establishment and fulfillment of the annual manufacturing cost improvement (MCI) goal and, implicitly, the annual MCI targets and means, and for strategic and departmental organization for achieving the annual MCI goal to complete the annual target profit, besides the annual external profit (from sales).
Firstly, it is necessary to measure in detail the essential dimensions of the whole company, both its external, market (market driven for MCI) and profit (profit driven for MCI), dimensions and internal dimensions, the manufacturing costs (driven by MCI targets deployment) and the manufacturing flow (driven by MCI means deployment). These measurements start from the vision and mission of the company on productivity, implicitly from the current and expected market share, from the long-term profit plan of the overall company (profit target) and the profit plans (profit target) of each product family cost (PFC) throughout their life cycle.
In order to motivate people to adopt the MCPD system, they need to understand from the beginning the main implications of changing the current paradigm to address the continuous improvement of the manufacturing flow by focusing on MCI. The managers need to ask objective questions about the manner of occurrence and manifestation of CLW and CCLW and not hide the real size of the profit margin from the losses and waste categories of each process and, especially, the causality relationship between losses and waste along the manufacturing flow.
The core stakes of managers to adopt the MCPD system lie that by achieving the annual MCI goal, the following are achieved concomitantly:
Multiannual target profit consistently (external, but especially internal profit)
Continuous reduction of the unit manufacturing cost level, which ensures the continuous development of the company by increasing the production volumes and, implicitly, the target market share
Continuous improvement of operational performance throughout the entire manufacturing flow
All these stakes, achieved through the MCPD system, contribute to practicing a performance management that ensures a sustainable transformation of manufacturing companies. At the same time, people’s attitudes and behaviors are changed at all levels against the improvement opportunities as their initiatives are continually aligned with the strategic needs for achieving the annual MCI goal; they are directly coordinated by the real market needs of manufacturing costs reduction and, implicitly, ensuring on time all the necessary resources.
Only after the acceptable preparation of the implementation of the MCPD system, about three to six months, depending on the size of the company, one can proceed to the detailed development of the three phases and the seven steps. The essential elements of the initial preparation of the MCPD implementation are (1) the full involvement of the management team and (2) establishing the connections between the desired medium- and long-term effects (what do we want?) and the MCPD system processes (how to approach through MCPD?).
So, this chapter gives answers to the following question: what are the steps preceding the introduction of the MCPD system? The answers are two ways: a technical answer (MCI targets deployment: preliminary steps) and an organizational answer (preparation for the implementation of an MCPD system). Therefore, in Section 3.1, the preliminary steps needed to establish MCI targets are presented by approaching in detail the market-driven activities for setting annual MCI goal, the profit-driven activities for setting annual MCI targets, and the annual management coordinated by MCI targets and means deployment. Then, in Section 3.2, the organizational steps necessary for the adoption of the MCPD system are presented, as a way of fulfilling the multiannual production profit plan by productivity improvement; more precisely, the elements underlying the MCPD system implementation decision and the prediction of its effects, the MCPD system organization, and the creation of its structures to support MCI and internal and external communication of the MCPD system purpose are presented.
3.1MCI Targets Deployment: Preliminary Steps
At the level of a group of companies or a company within a group, the annual challenge of the MCPD system is setting the annual MCI goal to meet the annual target profit (see Formula 1.2). The setting of the annual target MCI should consider the multiannual targets profit (implicitly the level of external and internal profit—see Formula 1.1) and the real possibility of the contribution of each PFC to this goal, through MCI targets and means at the level of their processes.
MCI targets deployment at PFC level aims at ensuring concomitant customer satisfaction by price/cost, quality, and delivery times. In order to accomplish all connections and stratifications at Overall Management Indicators (OMIs) and Key Performance Indicator (KPI) levels (10 steps ahead of MCI targets and means; see Section 1.4), the management teams are and will continue to be continuously concerned of ensuring a high level of synchronization for all process capacities at the pace of customer demand (takt time) by providing the highest possible OTIF (On-Time In-Full) for the delivered finished products, as close as possible to 100%. In order to achieve the highest possible percentage of OTIF, companies develop strategies and action plans for the optimization of (1) material lead time, MaLT; (2) factory lead time, FLT [manufacturing lead time (MLT) and stock days for raw material and finished products]; and (3) ...
