3 Reasons Why Annual Operating Plans Fall Short in Manufacturing

When it comes to maintaining and growing gross margins, manufacturers face consistently stiff headwinds.^[1] Currently, a mix of market factors are proving especially challenging: global growth has stalled, while wages in the U.S are rebounding—and it’s all happening during one of the biggest productivity slumps in recent U.S. history.

While it may seem like achieving year-over-year double-digit improvement goals in this environment is difficult or impossible, it’s simply not the case. One of the main reasons that manufacturers miss their numbers is because of a lack of alignment across departments for operational goals. That’s why the missing link to annual operating plan success is often an effective goal deployment process coupled with good execution. Get goal deployment wrong and you’ll consistently miss target numbers. Get it right and your company could regularly drive multiple percentage point increases.

What does it take to get goal deployment right? This blog post explores:

• Common reasons we see manufacturers miss organizational goals
• Why organizational goal misses can become a recurring pattern
• How you can hit yearly goals for gross margin gains through the marriage of a disciplined and rigorous goal deployment process with the right technology.

Before we consider why manufacturers often fall short with goal deployment, let’s quickly define goal deployment and why it’s so important.

Goal deployment defined

Goal deployment is a process that includes a detailed roadmap of your organization’s annual operating plan. Its purpose is to transform high-level goals into meaningful targets at each level of the business. To meet the targets, the process involves creating specific improvement plans for everyone from front-line employees and supervisors, to team leaders up through middle management.  Goal deployment ensures that each department has outlined specific actions that it will take to meet the broader goals of the organization.

Goal deployment misses: common themes

Most manufacturers clearly understand the importance of setting high-level goals for improving margins, and they do so regularly. The problem is that the average deployment process includes all kinds of opportunities for misses and shortcomings.

1. Misunderstanding the gaps

   The challenges often start with correctly understanding inflationary gaps that must be addressed. After all, missing the right targets is easy when you don’t have clear data about what drove the business in the previous year, or when you are dealing with volatile commodities, for example.

2. Ineffective top-town approaches

   Beyond targeting the right numbers, many manufacturers struggle with effectively managing organization-wide pursuit of goals. Top-down approaches are usually a key culprit. Often times, there are no processes or mechanisms in place for determining realistic improvement targets for individual departments. That means some departments may end up facing completely unrealistic expectations while the bar may be set too low for others. Moreover, people are often unrealistic about the potential timing for when they’ll see the benefits of improvement projects flow through to financials.

   A lack of collaboration between departments often compounds the challenges. After all, if one department is striving to improve overall equipment effectiveness within a machining area, it will need support from maintenance. But the improvement will not be a priority for maintenance unless they have goal deployment plans specifically connected to the target for overall equipment effectiveness.

3. Poor execution

   Even manufacturers that set realistic goals often struggle to manage the details around achieving them. Defining action plans and who owns key responsibilities is only the first step. Effective goal deployment also hinges on clear visibility into data and process agility. Yet deployment is often managed with standalone spreadsheets that make it difficult to share key information and data in meaningful ways within and across departments. This poor visibility makes it difficult for executives and departmental managers alike to understand where things are going and make course corrections in a timely manner.

A vicious cycle

The combination of the above factors can make it very difficult for manufacturers to hit goals. Usually they lead to a goal deployment pattern that looks something like the following: The leadership team thinks it’s possible to achieve a 10% improvement for the year, but 5% is a more realistic number based on past experience. Then at the end of the year, the company only achieves half of the half, meaning 2 or 2.5%. When the whole process starts over again the next year, people rationalize what happened, massage the numbers accordingly, and then go on to face the same kind of shortfalls.

In the end, a lack of visibility into current and historic data at different levels of the organization, along with rigid processes and improperly focused goal deployment processes severely limit the possibilities.

How the right technology can enable effective goal deployment

With goal deployment, getting to multiple percentage year-over-year improvements requires well-conceived and flexible processes. And in a complex manufacturing environment, technology for managing goal-related data and processes has become key to success. Why? Because focus, alignment and accountability (FAA) are essential to setting and achieving goals. And achieving these things is practically impossible using standalone spreadsheets, email and periodic meetings.

Just think back to the discussions about delegation and execution above. Hitting key objectives at the departmental level starts with defining specific actions the department will take to meet goals and aligning their goals with other departments, when necessary. A centralized solution can facilitate and track both processes in a way that removes burdens on stakeholders for constantly hunting down information and contacting other people to figure out what’s going on. It can also improve accountability by tracking the completion of steps along with whether or not the department is hitting plans from a metrics perspective. Moreover, access to timely data at every level of the organization makes it possible to course correct on a daily, rather than weekly or monthly, basis. And having data in one place also makes it easier to go back and investigate the root causes of misses so you can countermeasure and correct going forward.

Keeping up with relentless pressures

Although inflation rates have been low by historical standards in recent years, anemic global growth and now several quarters of falling productivity in the U.S. could prove stifling for manufacturers. Figuring out how to address competing challenges of plunging productivity in the face of rising wages is particularly challenging. In an upcoming post we will dig a little deeper into how a technology-driven goal deployment approach, built around a solution such as Dploy Solutions Project Management, could prove invaluable.

^[1] Productivity Fall Imperils Growth, The Wall Street Journal, August 9 2016.