“Expanding Our Capabilities Will Not Give Us A Competitive Edge” (Lesson 4)

One of the most common responses I receive from CEOs or business owners when discussing a company’s expansion plans is: “I’m not seeing how spending money on expanding our capabilities will deliver a competitive advantage.”

Now, before anyone jumps straight to the mindset of “I’m not seeing how spending money on expansion options will deliver a competitive advantage, end of story….”, I’m not actually suggesting major capital expenditure should be the first priority considered for gaining a competitive edge.  Nor the second, third or even fourth priority.

What I’m advocating is that there is a process that can be followed, with a multitude of improvement opportunities available, and one of those options may well emerge as expansion via capital expenditure as a logical first step, but this generally proves a rare first recommendation.

My 22 years of working across more than 50 manufacturing facilities in Australia and overseas, covering a very broad range of company sizes, complexities and capabilities, has taught me to stop taking an overly simplistic view when first being introduced to a manufacturing facility’s potential for growth or improvements.

Often the really “high-value” opportunities for driving up sales growth, product gross margins and competitive advantages aren’t the reasons why I’ve been invited to visit a site. It requires far deeper investigations, observations and consultation with key staff members to reveal these “high-value” opportunities.

The above diagram shows the visible symptoms of the real underlying issues that can become hidden from immediate view, like the biggest part of an iceberg. In an effort to try to keep your facility flowing more smoothly, it’s common to hold extra inventory or “assets,” which can lead to productivity problems as shown in the diagram below.

Furthermore, if you rush in and spend money in the wrong areas or on the wrong equipment options, then this will most likely translate into a zero net gain in the facility’s capabilities, which would definitely diminish the competitive advantage that you thought you were unleashing across your facility. There are several types of competitive advantages or edges that organisations should be considering before expanding capabilities or facilities:

  • reducing cost of manufacture of goods produced
  • increasing the range of products that can be produced to drive up overall sales, which increases line utilisation
  • reducing cost of manufacturing through elimination of wasteful processes, such as:
  1. reducing or eliminating storage of partially completed product (or WIP = work in progress)
  2. reducing or eliminating unnecessary production processes or distances being travelled due to poorly laid out factory facility
  3. reducing product waste in general by improving a production line’s process control
  4. reducing the need for unnecessary or inefficient change over practices or cleaning practices
  5. reducing the need for destructive testing of product samples
  6. reducing machine reliability issues by standardising machine changeover/set-up practices and maintenance practices
  7. eliminating inefficient processes across all aspects of the company’s supply chain, from materials and ingredient delivery and storage through the production process and through the warehousing and distribution chain.

These are some of the potentially lower-cost opportunities for improving your competitive edge—the list does not include the most obvious and frequently targeted solution of increasing production capacity.

All these potential solutions should be considered, evaluated and exhausted before contemplating even the lowest cost expansion option.