By Jonathan Byrnes
Fifteen years ago, CAMCO, GE's Canadian appliance joint venture,
revolutionized manufacturing: they cut the cycle time for manufacturing
stoves, refrigerators, and other white goods from four months to three
And the new process didn't cost a cent. In fact, it generated
cash from the start.
What did CAMCO do? How did they do it?
At GE, business innovation is part of the culture. Managers
are driven to find ways to remain at the forefront of their
industry. This is GE's ultimate competitive edge.
In 1988, CAMCO's vice president of manufacturing decided
to scour the world looking for innovative manufacturing practices.
In New Zealand, he discovered a company that had developed
a powerful new way of manufacturing, and he brought the process
back to Canada.
This became the basis for CAMCO's great success. The process
was eventually transplanted to GE's U.S. operations, and
widely followed after that.
This was the make-to-order process.
The traditional way
Before 1988, CAMCO was a traditional manufacturer. Each product
was scheduled to be manufactured every four months, and four
months of product was produced.
Forecasting was a Byzantine process. One hundred twenty days
before production, projections were generated by sales reps,
key account execs, and area sales managers. They were reviewed
by zone administrators
and zone managers, then by pricing managers and sales administrators.
At sixty days before production, these were combined into
a sales forecast that was reviewed by the VP Sales, the product
managers, and the VP Marketing. Thirty days before production,
schedule was set.
The problem was that at this point, everyone already knew
that the schedule was obsolete, but there was no process
for faster forecasting. Consequently, the company experienced
a huge inventory
buildup and declining service, despite the fact that each
month, over 2.7 man-years of effort by eighty-seven employees
from twelve different
departments were devoted to forecasting.
The key insight at the core of the make-to-order process
was that while the demand for individual products varied
considerably from month to month, there was very little month-to-month
for a product family as a whole. For example, within the
RSCG (regular oven, steel backguard, coil cooktop, glass
door) product family, the
four products had month-to-month sales variance of 24 percent,
16 percent, 14 percent, and 6 percent respectively. The whole
family, however, only had 2.3 percent month-to-month variance.
With this understanding, CAMCO reorganized its production
to dedicate a constant amount of capacity to each product
family. At the same time, the company developed the capability
to alter the
product mix within each product family every day.
In order to allay the concerns of the sales department, CAMCO's
manufacturing group agreed to keep enough parts inventory
to increase the production of any by 50 percent on any day.
How did CAMCO do this
without an explosion of component inventory?
Each time the company instituted an innovation, it built
work-in-process inventory to ensure good performance.
In building a product, some parts are unique to that, while
others are common to all products in the product family.
The company moved aggressively to redesign its products,
so they used a maximum
number of common parts. (By the way, think about what this
did for repair service parts inventories.)
This product redesign program had a huge impact. For example,
in the range business, which comprised nine product families,
the extra cost of buffering unique parts to accommodate a
percent increase in sales of any was $750,000. However, the
company was able to remove $14 million in finished-goods
was half the total amount for the range business.
As CAMCO rolled out the make-to-order process in its range
business, the company redesigned more products, and taught
its key vendors the make-to-order process for their own companies.
As a result,
the $750,000 extra parts inventory declined to $300,000,
and the $14 million remaining finished-goods inventory dropped
to $8 million.
CAMCO's other businesses achieved similar results.
The overall improvement was striking. In the old process,
the order fill rate was below 60 percent, while in the new
it exceeded 95 percent. Finished-goods inventory companywide
dropped from $100
million to $35 million. Warehouse costs declined by 30 percent.
Minimum production lot size fell from 200 to one. The "frozen" production
schedule period dropped from sixty days to three days.
CAMCO implemented the new process in a well-controlled manner.
Each time the company instituted an innovation, it built
work-in-process inventory to ensure good performance. As
each innovation proved itself,
the company removed the extra buffer, and more.
CAMCO instituted a set of parallel changes in several related
areas of its business to enhance the effect of the make-to-order
- The company put all of its key managers on the same compensation
performance metric. Everyone was measured and rewarded
on (1) return on sales, and (2) fill rate.
- CAMCO worked
intensively with its key vendors. Initially, the company
picked five major vendors, and helped them
institute the make-to-order process in their own companies. This allowed these
to reduce their inventories of parts for CAMCO by 60 percent
over a nine-month period. After that, the company reduced its supplier
base from 1,300 to 400 in order to have more clout, and
to enable it to work more intensively with those who remained. CAMCO invited
a number of these key vendors to send engineers to work
on CAMCO's premises as part of the product redesign teams.
- The company reduced
the number of distribution centers from twenty-six to three.
In the past, each distribution center
carried a full line of products and served a dedicated geographic area. It
also had several months of inventory. In the new system,
each distribution center served one of CAMCO's three plants, each of which was
to one business such as ranges. Each distribution center
had visibility into national demand. This new distribution system combined with
efficient new make-to-order process to radically reduce
the company's need for finished-goods inventory.
- When CAMCO eliminated its regional
distribution centers, it established a set of regional
cross-docks. This allowed
the company to achieve freight efficiencies. CAMCO's manufacturing and distribution
systems were so effective that its order cycle time, from
to product receipt, including manufacturing and shipping,
was six days. About 60 percent of the products were shipped directly to accounts,
while 40 percent were shipped to stock, primarily for smaller
- CAMCO also worked with its accounts. Traditionally, CAMCO's
accounts held about sixteen weeks of inventory. The company
helped them reduce their inventory levels to two weeks of product. The company
also worked with its larger accounts to get them to order
intervals, e.g., weekly.
Key success factors
CAMCO's management reflected on their experience, and offered
the following tips:
- Work with the sales reps to be sure
that they are comfortable with the new process.
alignment is absolutely critical.
- "Just do it": the
process is self-financing.
- Implement the new process
in increments; the company started with a 120-day cycle,
then reduced it to three
weeks, then one week, then three days.
- Vendor commitment
is crucial: "If the vendor doesn't want
to do it, look for another vendor."
- Rely on your vendors: "The
vendors had far more flexibility than we ever believed;
we never used our supplier base
as a resource."
CAMCO summed up its best practices: "Continuous improvement beats
postponed perfection." Beware of "analysis paralysis." CAMCO's
managers observed that some other companies had stumbled
because they over-analyzed the process. Learning by doing
is a very important element
of any process, and you can start the change process
without having all the answers in advance.
©2005 ChainLink Research, Inc.