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Resource Productivity

March 24, 2015

Resource Productivity for Manufacturing Growth

Resource productivity should be a top priority for manufacturers. This excerpt from a new book by McKinsey presents five core beliefs to drive growth by becoming leaner and greener.

Resource Productivity
Resource Productivity

The Change in Resource Focus

A decade or so ago, companies in industrial manufacturing and other process industries did not need to focus on resource productivity. If they gave any attention to the topic, it was to undertake small, incremental measures with the hope of generating marginal improvements. That period is over. Today, there is no debate: resource productivity must be among the top priorities—if not the top priority—of industrial manufacturers around the world.

Scarce Resources

Recent shifts in both supply and demand are squeezing these companies from both sides. On the supply side, raw materials are increasingly scarce, making them more difficult and more expensive to procure. At the same time, demographic changes—primarily in emerging markets—are increasing the demand for finished goods. These trends have been building over the past several years, and they will continue to gain momentum. As a result, industrial manufacturers will need to do more with less.

Changing & Believing

Compounding this problem is the fact that the easy gains have already been captured. Most organizations have already taken the obvious steps—for example, upgrading their lighting and automating their heating, ventilation, and air-conditioning controls. Yet they are now bumping up against the limits of what they can accomplish using a traditional approach. Why? The fundamental premise of that approach—in which resource productivity is subordinate to other operational priorities—is no longer valid.

For example, many managers still assume that these measures will only serve as a hindrance to plant operations—that they will be an opposing force that makes their daily work more difficult. Others assume that they simply don’t need these measures. (This is a line we hear frequently when meeting with companies: “Our plant is already as efficient as it can be.”) Yet there are always opportunities to transform a process or facility, improving efficiency and yield and also generating clear financial benefits, often with little or no capital expenditure.

To capture these gains, however, organizations need a better approach to resource productivity. They need to embed new ways of thinking—core beliefs—in their management teams, workforces, and organizational cultures. We use the word “belief” deliberately, because it underscores the way that change comes from thinking about productivity in a whole new way. Specifically, our approach for enhancing resource productivity centers on five core beliefs:

  • Think lean. In the original application of lean, companies analyzed the value stream of a particular manufacturing process and ruthlessly cut away anything that did not clearly add value.
  • Think limits. In the traditional approach to resource productivity, companies typically start with their existing process as a baseline, and then seek to make incremental improvements from there.
  • Think profit per hour. Our third core belief—thinking in profit per hour—helps align objectives for the organization. This is critical, because different productivity initiatives often have different goals, which can conflict with one another. Production managers, for example, strive for improvements in output, while energy managers focus on reducing energy consumption. Which one takes precedence?
  • Think holistic. Despite the best intentions, many companies fall short of their resource-productivity goals. Why? Success requires a thorough change-management effort.
  • Think circular. At a basic level, the global economy relies on taking raw materials out of the ground and making them into finished products, which ultimately get thrown away.

This is an edited excerpt from Resource-Productive Operations: Five Core Beliefs to Increase Profits Through Leaner and Greener Manufacturing Operations. For more details about the book, including the ability to download the first chapter, visit here.

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