How Are The NPD Practices in The Highest Perfoming Companies
How Are The NPD Practices in The Highest Perfoming Companies
How Are The NPD Practices in The Highest Perfoming Companies
PERFORMING COMPANIES?
Bjørge Timenes Laugen1, Eric Christian Brun2, Nuran Acur3, Harry Boer3, Jan Frick2
1
Stavanger University College, Centre for Maintenance and Asset Management
P.O. Box 8002, N-4068 Stavanger, Norway
[email protected]
2
Stavanger University College, Business and Administration Department
P.O. Box 8002, N-4068 Stavanger, Norway
3
Aalborg University, Centre for Industrial Production
Fibigerstræde 16, DK-9220 Aalborg Ø, Denmark
ABSTRACT
During the last 20 years both industry and academia have searched for World Class
Manufacturing and tried to define ‘best’ practices aiming to increase the companies’ performance
or to stay competitive. However, many of these studies are problematic because the practices
that are considered as best often are predefined and the link to the actual overall company
performance is often not investigated.
This paper identifies the highest performing manufacturing companies based on the
IMSS database, and investigates the practices that these companies have within
manufacturing and NPD and compare this with the lowest performing companies. The
result indicates that NPD practices are strongly linked to improvement of the operational
and the overall company performance.
INTRODUCTION
Manufacturing companies are exposed to ever greater competitive pressure. They need
to be and stay, or become among the best-in-class in order to survive. Both industry and
academia have put a lot of effort into identifying knowledge, processes and tools that
can be labelled as best practice. Many authors maintain that continuous identification of
‘best practice’ in all areas in the organisation will lead to superior performance and
capability resulting in increased competitiveness. New product development (NPD) has
gained increased importance among manufacturing companies during the last years, and
new products represent an increasing amount of the total turnover in companies. As a
consequence of this, time to market, broad involvement of actors in the development
process and manufacturability is gaining increased importance.
An important issue in this discussion is what the best companies are doing considering NPD
practices. There is reason to believe that there are several lessons to be learned from the
highest performing companies and their practices within NPD.
This paper will try to identify the NPD practices that the highest performing companies
have. We will refrain from using the term ‘best NPD practices’ for reasons that will be
elaborated further in this article. Our approach is turned the other way around compared
with previous ‘best practice’-studies, which often define ‘best practices’ before the analysis
starts and compare to what extent other companies have the same practices in place. We
believe that although a number of defined NPD practices can be commonly viewed as
favourable, what constitutes the most beneficial approach to manage NPD processes
within a company depends on a number of situational and strategic factors. We think
that the approach put forward in this paper can add knowledge into the debate considering
best practices and the link to overall company performance.
This paper will put forward a first attempt to address the question: how can we determine
highest performance and, then, are NPD practices related to best performance?
BACKGROUND
The ‘best practice’ approach to manufacturing strategy has emerged with the Japanese
companies’ extraordinary process and product improvement success. Western industry
began to look at Japanese companies’ achievements in order to apply some of the principles
used in Japanese industry to Western industry. Best practice achievement has since become
a driving force amongst industry. The best practice approach to manufacturing strategy
encapsulates the ‘World Class Manufacturing’ (WCM) philosophy and benchmarking,
with the assumption that:
‘The continuous improvement of ‘best practice in all areas of the organisation will lead
to superior performance capability leading to increased competitiveness’ [1].
The theoretical background for this paper will partly be on general movements within
the NPD theory during the last years and partly a general overview over best practice
and World Class Manufacturing (WCM) studies
NPD development
The new product development (NPD) process has gained increased importance during
the last years. This, among other reasons, is because the life-time of many products has
been shorter while new products are launched more frequently. New products are now
representing a higher degree of the income in companies today than a few years ago [2].
With the increasing pressures of global competition, innovation has become increasingly
important, which has led to an increasing awareness and sophistication of NPD methods
[3-8]. It is argued however, that many existing NPD methods are being found insufficient
to meet new demands that are emerging from this development. For example, the
increasing need for innovation has revealed that many existing NPD methods are not
well suited to manage NPD processes of radically innovative nature [3, 9]. Also, while
the usefulness of using partnerships, networks or alliances in the NPD process is generally
recognised [6-9], it does not appear to be clear how existing methods help a company
manage the issues that emerge when conducting NPD efforts with alliance partners.
An interesting line of thought that is emerging is therefore that the most beneficial
NPD practice for a particular company may be one that is effectively adapted to the
company’s situational and strategic context [10-12].
World Class Manufacturing
Hayes and Wheelwright [13] introduced the term World Class Manufacturing, and
described this as a set of practices, including quality management, continuous
improvement, training and investments in technology. The implementation of these ‘best
practices’ would lead to superior performance [14].
Schonberger [15] argued that many lessons could be learned from Japanese
manufacturing industry. He regarded improving the material flow in the production as
one of the most important issues, and the flow could be improved through implementing
Just-in-Time, Total Quality Control and Total Preventive Maintenance. In addition, still
according to Schonberger, WCM means continual and rapid improvement in all areas of
the company, and training is the catalyst for that [15].
Flynn et al. [16] investigated how different innovation programmes have been
implemented, the influence of quality management practices on quality performance
and the interrelationship between JIT and quality management. However, their study,
which followed from the World Class Manufacturing project, was primarily limited to
investigating the separate practices’ influence on the (separate) performance criteria,
and the study does not offer a holistic perspective either on practices or performance.
Research questions
Most of the theories about NPD have primarily been focusing on different issues by
considering methods, tools and best practices only within the NPD process. Few empirical
studies have been done to relate between NPD performance and the total performance of
the company. In addition, there has been given little attention to investigate whether the
companies with a good NPD process do also have good overall performance.
The main purposes of this paper are to:
- Define the best overall performing companies, based on Return on Sales (ROS), which
is a financial performance criteria measuring the current status for the companies’
profitability.
- Investigate what, if any, are the common characteristics of the best performing
companies? Characteristics should be analysed both on the firm-level, i.e. size,
process types and contextual, i.e. market development, customers
- Investigate how are the NPD practices in the highest performing companies?
- Does implementation of NPD practices lead to improved manufacturing
performance, e.g. reduced manufacturing lead time, increased customisation and
increased quality.
METHODOLOGY
The paper is based on the 2002 International Manufacturing Strategy Survey (IMSS-
III) database, which contains data from 474 manufacturing companies from 14 countries,
shown in Figure 1. IMSS is a co-operative research network of business schools, whose
aim it is to develop, maintain and analyse using a variety of perspectives and research
questions, a global database for the study of manufacturing strategies, practices and
performances.
We assume that
practices and Number of respondents and country ISIC 382>250 employees
performance in N Swe Arg Aus
manufacturing NL 1 % 10 % 1 % 7 %
Be
companies are to a 1%
large extent 8%
Irl
dependent on
8%
industry type and
company size. Thus,
we divided the Ch
respondents into five It 20 %
groups of industry 18 %
type and then in three
size categories: small Dk
– up to 100 Hu Ge 3 %
employees, medium 13 % 10 %
– up to 250 Figure 1 – Respondents in the IMSS III, ISIC 382 (machinery), more
employees and large than 250 employees, N = 72
– more than 250
employees. These
categories agree with the categories used by e.g. the EU. The grouping of the respondents is
shown in Table 1. The further analyses in this paper will be based on the manufacturers of
machinery equipment (ISIC 382) with more than 250 employees. This is partly due to a need
for limitation in this paper and partly because several of the groups include too few respondents
to be a basis for analysis.
We define the best
performing companies Company size
within this sample from a Industry type (ISIC) -100 101-250 251+ Total
financial profit perspective Metal products (381) 47 56 35 138
only. Ten companies are Machinery (382) 30 47 72 149
defined as the best Electrical equipment 16 26 65 107
performing companies, and (383)
another ten as the lowest Transportation
7 4 33 44
performing, based on the equipment (384)
80 % percentile, Professional
3 18 15 36
respectively 20 %, of equipment (385)
Return-on-Sales (ROS). Total 103 151 220 474
As we show later in the
paper, we found significant Table 1 – Number of respondents distributed in industry type and
correlations between the company size
ROS and the action
programmes or
manufacturing practices of these companies. In contrast, additional analysis, not included in
this paper, carried out on all the companies in ISIC 382, and on the companies smaller than
250 employees, showed no significant correlations between the ROS, and the action
programmes or manufacturing practices of these companies. This indicates that the standard
deviation in degree of implementation of practices among the small and medium sized companies
is bigger than among the large companies. In addition, an analysis based on the whole IMSS
III-sample gives weaker relationships and levels of significance relative to those found in the
large ISIC 382-companies. This indicates, not surprisingly, that both company size and industry
type does affect the relationships between manufacturing practices and performance.
ANALYSIS
The analyses in this paper starts with defining the best performance companies and an
investigation of the main characteristics of these companies. Thereafter these companies’
manufacturing practices are investigated and finally these practices’ influence on performance
improvement.
Process Eqp
5
Environment Mfg Capacity
4
NPD 3 Process Autom
2
Workpl dvlp 1 ICT/ERP
0
TPM E Bus
TQM SCM
Pull Prod Outsourcing
Process focus
programmes investigated.
As Table 2 shows, 6 of the 14 action programmes ISIC 382>250 ROS
are strongly and positively correlated with ROS. This Manufacturing capacity 0,452
confirms the findings shown in Figure 2, however, Process automation 0,454
with process automation and expanding Process focus 0,303
manufacturing capacity as the action programmes Equipment prod (TPM) 0,323
with the strongest relationship with ROS. Use of Workplace development 0,334
NPD programmes are also quite strong correlated NPD 0,298
with ROS, that indicate that the companies that are Training regular employees 0,418
having a large effort in NPD practices during the Inv in process equipment 0,404
last three years have high ROS. However, it is not
possible to state a cause-effect-relationship, meaning Table 2 – Correlations between action
if NPD practices lead to improved financial programmes/ practices and ROS for ISIC
performance, or if the profitable companies only are 382 >250 employees. All significant at
putting more effort into NPD without any significant 0,05-level.
effect on ROS. Highest Lowest
Table 3 indicates that the highest performing performing
performing companies to a larger Coordinate design-manufacturing
extent than the lowest are using Rules 4,5 4,1
meetings to coordinate design and Meetings 4,1 2,9
manufacturing. In addition, early Multiskilled 3,2 3,3
involvement of manufacturing in the Job rotation 1,8 1,6
NPD processes and concurrent Manage NPD cycle
engineering is also used to a larger Mfg involvement 3,7 3,3
extent among the high performing Conc engineer 3,9 3,3
companies to manage the NPD cycle.
Prototype 3,2 4,5
Change orders 3,6 2,9
Do the NPD practices lead to
improved manufacturing Table 3 – NPD practices among the highest and
performance? lowest performing companies
Implementation of action (1 = no use, 5 = high use).
programmes that aim to increase
equipment productivity (e.g. TPM)
and to improve New Product Development processes, seem to relate to the largest amount
of manufacturing performance indicators, as shown in Table 4. The companies with large extent
of practices implemented to increase equipment productivity have increased performance in
several areas, i.e. quality, lead time, productivity and capacity utilisation. The companies that
have implemented practices regarding improvement of NPD processes have increased
performance within i.e. quality, customisation, time to market, delivery speed, lead time and
productivity. This indicates that NPD improvement practices are related to improving several
of the most important manufacturing performance criteria.
Mfg performance
function are positive correlated to Time 2 Market 0,285
indicators
improve several manufacturing Service 0,271
performance criteria. This supports Delivery speed 0,247
the findings shown in Table 4. Procurem cost 0,293 0,285
Labour produc 0,334
DISCUSSION Cap utilisation 0,248
As the analysis shows, few Overhead 0,322 0,349
groundbreaking findings have been
developed through this paper. Table 5 – Correlations between NPD practices and
Several of the practices that the improvement of manufacturing performance. All
highest performing companies are significant at 0,05-level
using, are the well-known ‘best’
practices defined by among others
[19]. This indicates that the practices that were in use ten years ago still are in use and still are
strongly related to the company performance.
Our analysis indicates that some of the new/emerging practices also are used, e.g. TPM and
NPD programmes, and that these practices are significantly related, both to operational and
financial performance. Unfortunately, the questions formulated in the questionnaire are too
broad to say to if there are sub-practices within the upcoming practices that are most influential
on the performance, e.g. concurrent engineering or 5S. Further development of the questionnaire
is necessary if the influence of the sub-practices should be addressed.
Another issue that is not discovered in this paper is to what extent the performance of the best
companies are due to practices or factors that are not asked for in the survey. There are no
open questions in the questionnaire. Organisational culture and network relationships are among
the issues that can have a considerable effect on the performance but these factors were not
asked for in the survey.
As mentioned earlier in the paper, we chose ROS as the indicator for company overall
performance. ROS gives an impression of the current financial performance/profitability
of the companies. The ROS consists of two central elements: cost and price. The price
element is primarily dependent on the type of industry and the market that the company
operates in. As mentioned earlier, price is not among the most important competitive
priorities for the best companies, but the third most important for the lowest performing.
This difference can partly be explained by that the highest performing companies are
operating in growing markets, while the lowest performing companies are operating in
mature markets. In mature markets, price becomes more important as a competitive
priority. The cost element is depending on an efficient production and can be largely
influenced by the different practices that are implemented. Practices that are largely
used by the highest performing companies, i.e. upgrading process equipment, process
automation, process focus, TQM and TPM, are significantly related to the manufacturing
performance.
The highest performing companies are putting significant higher effort into practices considering
manufacturing capacity than the lowest performing companies. This is not surprising taken into
consideration, again, that the best companies investigated in this paper are in growing markets.
Practices related to growth are primarily updating the process equipment, quality programmes
and expanding manufacturing capacity.
Several of the most influential practices seem to be improvement related. Among these are
NPD programmes and various programmes to increase productivity, e.g. TPM and TQM.
This indicates that the best companies are more committed to continuous improvement activities.
Important to notice is that implementing actions to speed up the NPD process are linked to
improvement in more manufacturing performance indicators than all the other investigated action
programmes. In addition, coordination of manufacturing and design through meetings and job
rotation, and early involvement of manufacturing in the NPD process are also quite strong
correlated to improvement of manufacturing performance indicators, e.g. quality, time-to-market
and customisation. However, it is not possible from these analyses to say if the improvement in
manufacturing performance is due to the various NPD practices, or in other ways try to indicate
a cause-effect relationship between NPD and manufacturing performance.
As shown earlier in the paper, the best companies are putting more effort into all the investigated
practices and action programmes compared with the lowest performing companies. This indicates
that it is the configuration of several practices that gives the significant difference in performance
between the highest and the lowest performing companies, and not large effort or excellence in
one or two practices. The main reason for this is that the companies are doing a lot of different
processes and have to manage various market demands, e.g. quality, deliveries, growth and
service. To solve this, various practices, techniques and technologies are necessary to implement
and improve. The best companies seem to have a configuration of practices that are considering
effective/efficient production (investments in technology, training, quality and maintenance) as
well as innovation (NPD). The various NPD practices are therefore a part of the total
configuration of practices that are carried out within manufacturing companies. However,
the various NPD practices seem to be strongly linked to both improvement of
manufacturing and the overall company performance.
The analyses in this paper are exposed to some methodological problems due to the
data/questionnaire that has been used. First, the majority of the analyses are based on
questions requiring the respondents to answer on a 1-5 scale. These scales are attended
with some methodological problems compared with questions that asking for an absolute
value, as perception rather than fact comes into play. Second, the respondents’ practices
are based on a question considering the degree of use of different action programmes
during the last three years. These action programmes can be seen as sub-configurations
of practices. However, the question is not asking about the extent to which the practices
have been implemented and disseminated in the organisation, only about the effort put
into their implementation. Furthermore, there is usually a time lag between the
implementation of practices and their effect on the performance.
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