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December 5, 2002

8 Min Read
Raising management’s standards to improve the bottom line

Editor’s note: The author, Woodruff Imberman, Ph.D., is president of Imberman & DeForest Inc., an international management consulting firm located in Evanston, IL.

Good management is key to maintaining a successful molding operation. Often presidents and top executives overlook aspects that could improve a company’s bottom line. In this article, the results of a monthly survey of 427 plant managers in the Great Lakes states (Pennsylvania, Ohio, Michigan, Indiana, Illinois, and Wisconsin), gathered by Imberman & DeForest Inc., are explored.

Our firm reviewed the operations of 51 manufacturers in the automotive, home appliance, computer and office products, and medical equipment segments of the injection molding industry. Only a small minority of those 51 actually showed the financial signs of having well-run, efficient operations. In fact, a large number of molders in this sample barely reached the average. Let’s look at the data. 

  • Employee turnover rates. Employee turnover rate is defined as the total number of employees who left as a percentage of total annual employment. In this category there are some truly lamentable data. Not one molder reported no employee turnover. High turnover rates mean excessive training costs and poor productivity as new employees learn the ropes. That’s a severe drain on the producers’ P&L statements. 

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HOW THEY DO IT
What methods do the executives exhibiting great leadership use to produce such a high-margin environment? Many in these high-return molding shops held annual retreats in which they employed the talents of outside consultants and specialists to engage the management team in a series of exercises. The purposes of these exercises were severalfold:

  • To pinpoint what the company does best, areas or problems needing the most attention, and why.

  • To review work processes to make them more effective.

  • To teach managers the difference between efficiency and effectiveness.

  • To help each manager relate his day-in, day-out activities to his long-term goals so that he can use this time most effectively.

  • To determine how the changes are to be achieved and who will be responsible for achievement.

  • To tie compensation/motivation policies to overall company strategy so that employee reward systems are congruent with reaching these objectives.

  • To decide what mix of negative and positive incentive systems will best instill a sense of urgency, in order to boost productivity, improve quality, and provide top customer service.

    These exercises can be done on a modest budget that most small injection molders can afford and will pinpoint the problem areas that need to be addressed if company profitability is to be improved. These exercises also suggest which managers and supervisors need coaching and development to reach their full potential.

  • Scrap and rework rates. High scrap and rework rates are a waste of time, money, and materials, and an indication of lackadaisical management and poorly trained workers. Savings generated by reduced defect rates go straight to the bottom line.

    Most of the companies reported a scrap/rework rate of .5 to 3 percent, but five companies didn’t even bother to track this vital measure, saying, “it goes back into the process as regrind.” 

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  • On-time shipments. On-time shipments to customers are measured using the original promised shipping date. A good record encourages reorders from OEMs and suggests there are well-scheduled production lines.

    No objective measure could be determined for 10 percent of the companies not included in this measure because their shipping schedules were so garbled with original and renegotiated shipping dates. But, subjectively, the on-time shipment performance was very poor, and customer complaints were high. 

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  • Inventory turns. Inventory turns is one measure of operational efficiency. Slow inventory turnover indicates excessive inventory and work in progress—two items that act like vacuum cleaners, sucking up much-needed working capital.

    While a whopping 83 percent of respondents only managed to turn over their inventory 11 times or fewer in a year, 18 percent ran such lean operations that their inventory turnover was greater than 25 times/year. (Figures are rounded up.) 

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  • Bottom line: Return on sales. Profit margin on sales is the bottom line in injection molding. Of the 51 molders, 35 percent reported returns on sales of less than 2 percent; another 45 percent recorded returns on sales of about 4 percent. Only 14 percent could boast of a return on sales greater than 8 percent, and 6 percent of respondents were running at a loss with no explanation as to why.

 


Good Enough is Not Good Enough
What accounts for the variation in company performance? Having interviewed dozens of company presidents, VPs, and plant managers, there are only two answers: inertia and lack of leadership.

“Inertia in management is responsible for more loss of market share, more loss of competitive position, and more loss of business growth than any other factor,” says Peter Drucker in Managing for the Future: The 1990s.

A large number of plastics molding executives are satisfied with their company’s performance, whether it’s a 2 percent return on sales, 2 percent internal defect rate, or a 25 percent employee turnover rate. Why are they content with mediocre performance?

Improving performance requires gathering and then carefully analyzing operating statistics, plus thoughtful planning, talking, cajoling, and then action. Most executives, despite their honest assurances that they strive to improve results, settle for the results reached because they do not want to upset anybody by insisting on better performance. To do better requires too much trouble. One case, albeit extreme, exemplifies this apathy.

The Perils of Inertia
As part of the survey, Imberman & DeForest did in-depth interviews with a number of molding shops. One especially worth discussing is an Ohio molder with annual sales of about $60 million. The product line was pretty much limited to the automotive industry. Return on sales was about 1.7 percent. Why not more?

The interview clearly showed that the president/owner was primarily concerned with sales and had shifted all responsibility for production to his plant manager. As far as efficiency was concerned, the president knew that 95 tons of resin were supposed to go into the molding machines each week, and 93 tons of wheelcaps, light covers, and interior knobs were supposed to be ready for shipment seven weeks later. What happened in between?

Well, he didn’t know, and no one could tell him. Because statistics were poorly kept, nobody could tell which machine was producing the most regrind, or why. And because no reliable records were kept when employees were shifted willy-nilly from machine to machine to take care of flash from individual molds, there were no reliable measures of productivity or costs. The fact that short-shot rates were high didn’t seem to concern anyone, especially the president. If too many defects were found in assembly, it was easy to order a mold change to make up the difference. Of course, this played hob with production schedules up and down the line. And when a customer got its dander up about a late shipment, extra plant overtime was routinely ordered to catch up.

A visit to the plant found no one with a sense of urgency. In fact, an 11:00 pm trip to the facility found no one at all. Rather than a signal to start third-shift production, the 11:00 pm whistle was the notice for most of the employees, including supervisors, to finish their coffee and start strolling to their workstations. Shipments to customers were normally only about 95 percent on time, with many partials. Needless to say, the company was in grave danger of losing its preferred supplier status awarded by its automotive customers.

When questioned about his company’s high semifinished inventory and work in progress—he turned his inventory 7.4 times a year, compared to the molding industry average of about 12—the president said he had more assembly operations than most molders, which took additional time.

The need for improvement in the plant was so obvious that one wonders why nothing was done to make needed changes. The answer: inertia. The president/owner was happiest concentrating on sales and accepted the mediocre operating results as someone else’s problem. As long as the plant was kept orderly and nonunion he had no interest in what went on inside. He saw his opportunities in the marketplace and left internal matters to the plant manager.

While this is an extreme case, interviews with other company presidents revealed that inertia was a common characteristic among the low-margin companies. Good enough was good enough. As long as the company earned a profit, no matter how meager, the CEOs were satisfied not to rock the boat with improvement. In many cases, the CEOs’ eyes were focused on the outside world—the opportunity-filled marketplace. The internal situation bored them. To take a strong leadership role to improve company performance was not in the psyche of a number of these executives.

What is Leadership?
Leadership is the ability to discern what needs to be done, and motivate others to make those needs their own priorities. It is a gnawing drive to improve. Leadership is not to be confused with affability or popularity.

Leaders determine goals and priorities and give the achievement of these goals a sense of urgency. The presidents of those molders reporting a 7 to 9 percent return on sales exhibited a perpetual drive to improve. Such a drive generates a sense of respect, credibility, and urgency.

For more detail, see “How the Growth of Outsourcing Will Affect Suppliers” Handbook of Business Strategy, 1999, and “Be Your Own Turnaround Manager,” USA Today, July 1995. For more information on this topic, e-mail Woodruff Imberman at [email protected].

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