Do you know what drives your manufacturing company’s bottom-line results? Can you name and explain the metrics that are most important to your employer’s financial strategy and goals? Are you aware of how your daily decisions on the job can help or hinder that strategy, and how they can impact the financial fortunes of your company?
If you can confidently answer these questions in the affirmative, you are likely in the minority.
“We have lots of very hard workers in the United States who are excellent at their given tasks. But what I’m hearing from companies all over the place—and it doesn’t really matter what industry—is that our people don’t really understand, holistically, how what they do at their jobs impacts the rest of the food chain,” says Bill Albert, president of Business Methodologies International Ltd., a Warrenville, Ill.-based training and consulting firm. “If we’re going to compete globally, we need to have people understand, literally, the financial ramifications of the decisions they’re making, and what the impacts are.”
In an effort to address this issue, a growing number of manufacturing companies are turning to computer- and board-based business simulations as a way to instill more business savvy throughout the ranks. These simulations are typically provided by third-party vendors and consultants. And their return on investment can be difficult to measure directly. But according to several industry sources interviewed by Automation World, the intangible payoffs from a business simulation can be substantial.
“I can’t believe I’m saying this, because I’m a financial guy, but sometimes you can’t put a price on education,” observes Donald Johnson, an internal corporate auditor at International Paper Co., in Memphis, Tenn. The company recently conducted a business simulation to help its financial personnel better understand the company’s manufacturing business.
“When I look at the total cost of the simulation, I feel like it was far exceeded by the benefits,” says Johnson, “because every one of us who participated in the simulation left the room with a greater sense of understanding on how International Paper does business.”
Unlike traditional, instructor-based training, business simulations provide “experiential learning,” in which participants learn by doing. In a typical manufacturing business simulation, a group of about 24 to 30 employees splits into four- or five-person teams. Each team takes control of a simulated company that competes against the other teams to produce the best business results. Every team starts with the same amount of resources, then creates its own business strategy and attempts to execute that strategy over the time period covered by the simulation, typically several years.
The simulations can be computer-based or playing-board-based, and they can be customized using the financial and industry metrics of the sponsoring company. In a board-based simulation known as Manufacturing Reality, for example, created by Business Methodologies for automaker DaimlerChrysler (now Chrysler), participating Chrysler employees compete to build the most successful car manufacturing company.
Over the course of the two-day Manufacturing Reality simulation—which covers seven or eight simulated years—each of the employee teams makes between 1,500 and 2,000 decisions, says Business Methodologies’ Albert. The teams must manage everything from procurement and supply to overhead, taxes, production costs and inventory.
Decisions must be made on which automotive platforms to build, and how much to invest in sales and marketing, quality, research and development, production line efficiency and manufacturing flexibility. Teams are measured at the end of each simulated year on metrics including return on assets, market share, gross profit margin and operating profit margin. When the simulation concludes, the team that has driven the most shareholder value for their company is the winner.
“One thing that a simulation does is help people see the business from a broader perspective,” says Tim Ahrens, learning and development leader at Johnsonville Sausage, in Sheboygan Falls, Wis., which has also used a version of the Manufacturing Reality simulation. “So an engineer, for example, no longer sees it just from an engineering perspective, but can see things from the production and sales perspective as well.”
That can lead to improved interdepartmental communication when people get back to their day-to-day jobs. The simulation experience “breaks down a lot of walls, because people understand, ‘Wow, it really does start with sales, and if we don’t have sales, there’s nothing to produce. And then once we get into production, if we don’t have quality, our customers are unhappy,’ ” observes Deanna Alaimo, a consultant and principal at Performance Lift Solutions, based in Leawood, Kansas. “So people really, truly see the product life cycle, and they understand where they fit in, and what an ideal product life cycle looks like for their business.”
Simulations also help build business literacy among employees who may have no formal financial education or background. In Manufacturing Reality, for example, participants put together a profit and loss (P&L) statement and balance sheet at the end of each simulated year, points out Ahrens, at Johnsonville Sausage. This can boost understanding back on the job when the company circulates its monthly P&L statement to the workforce, Ahrens notes.
“They saw a lot of numbers before, but now they understand where those numbers come from and how they affect those numbers.”
An added simulation advantage can come by providing employees a glimpse of the real-world competitive landscape that their top executives deal with daily. As part of its simulations, says Albert, Business Methodologies can produce simulation models that show how a client company compares to other companies. During Manufacturing Reality, for example, facilitators show a model of what Chrysler’s business structure looks like today compared to the current business structure of Toyota, based on competitive intelligence. The simulation participants can then use that information to not only compete with each other in running their simulated businesses, but also to devise strategies to help close the gap against real-world global competition, Albert says.
Not surprisingly, perhaps, the competition among simulation participants can get intense. The action can be fast-paced, sometimes with “unexpected events” that can intervene, such as a market upturn, an unhappy customer or an explosion at a plant. “Our board simulations are kind of like Monopoly on steroids,” quips Joel Reed, senior consultant in the San Francisco office of BTS USA Inc., part of the Stockholm, Sweden-based BTS Group AB, a major provider of both computer- and board-based business simulations.
BTS simulation revenues amount to about $80 million annually, says Reed. Manufacturing clients include big names such as Cisco Systems, Ford, General Motors, Hewlett-Packard, Honda, Honeywell, IBM, Ingersoll Rand, Motorola, Texas Instruments, Toyota, Weyerhauser and Xerox, among others. BTS develops around 100 new simulations per year, Reed estimates.
Business simulations can be company-wide or targeted at particular groups or departments, or particular metrics that the sponsoring company wants to improve. For example, BTS provides one simulation that focuses only on gross margin, covering “all the small, hidden components of manufacturing costs,” says Reed. A simulation done for another company targets design for manufacturability, and is presented only to personnel in manufacturing, and in research and development, with an eye toward fostering more effective product collaboration between those departments.
Computer business simulations tend to be more complex than board-based simulations, more often involve management-level employees, and may require up to a week to complete. Board-based simulations are typically one-day or two-day affairs. Some companies use a range of both types.
“We have a number of different simulations that exist for Weyerhauser, from the high-level executive level all the way through the front-line managers and individual contributors,” says Reed. “All of them have the same KPIs (key performance indicators), but cover very different behaviors that contribute,” he notes. “At the high level, it’s about getting teams organized, gaining communication and implementing company-wide strategic initiatives. At the low level, it’s understanding what the guy at the machine next to me is doing, and how I can help him and how he can help me.”
Reed says the trend among manufacturing companies today is to start with business simulations that “come in at the director and executive level, and then cascade downward.” Top-level simulations for management may provide a look at the entire company, followed later by simulations for lower-level employees that may cover specific focus areas, such as line management or Six Sigma, he notes.
One case in point is Butler Manufacturing Co., a Kansas City, Mo.-based producer of pre-engineered metal buildings. When internal needs assessment surveys showed a need to improve “business acumen” among Butler’s 2,000 employees, the company turned to business simulations to provide the appropriate training, says Gigi Lane, Butler’s manager of organizational development and training.
The company started in 2005 with a week-long computer simulation for its top 40 leadership team, including the president and his direct reports. That was provided by BTS, which had done earlier work for Butler’s
Australia-based parent, BlueScope Steel Limited. Butler is following that up this year with two-day board-based business simulations for an additional 200 employees, says Lane, along with one-day board-based “cash flow” simulations for the rest of the workforce. The two-day and one-day simulations are provided by Business Methodologies.
Know your impact
The simulations are customized for Butler’s business, and are designed to enable all employees to understand the financial metrics used by the company, as a way to enable better decision making, says Lane. “Even for employees like welders and office staff who don’t deal in high-level decisions, we still want them to understand how they’re connected to those decisions,” says Lane. “We want them to understand conversion costs and overhead costs, and their individual impact on productivity and performance.”
Butler is still rolling out the simulations, and will likely require another 18 months to present the training to its entire workforce across all of the company’s seven North American plants. But Butler is already seeing benefits from the simulations, says Lane. Every participant is tested on his or her business acumen before and after participating in a simulation, she notes, and the average improvement in business knowledge is between 60 percent and 80 percent.
Further, Lane believes that employees are applying that knowledge in their individual jobs in ways that are having an impact on Butler’s business. “We’re seeing it in the bottom line in an increase in EBIT (earnings before income taxes),” she says. “We’ll take credit for that, absolutely. What we’re finding is that especially out in the plant locations, people are much more engaged. We have a huge challenge right now on improving costs, and people now understand what they need to do to do that.”
For the simulations, Lane says she looked at offerings from several vendors, but selected Business Methodologies for the board-based simulations in part because of the company’s willingness to provide a “train the trainer” program. “For cost effectiveness, I want to be able to train my internal staff to go out and deliver this, so I don’t have to keep using their trainers all the time,” she explains. Some other business simulation providers don’t offer that option, Lane notes.
In creating a customized business simulation for a manufacturing company, the providers first spend significant time with the client’s executives and other personnel.
At BTS, Reed says a typical simulation development may begin with about 20 hours of BTS interviews with key subject matter experts at the client company. That may be followed by about 50 hours of additional interviews over the course of the simulation development, which usually takes several months.
What’s the price?
Business simulation pricing can depend on both the level of customization and the number of employees that ultimately participate. “What you have is a development cost and a delivery expense, so if that development cost is rolled over just 30 people, obviously, the cost could be very high,” Reed explains. The price of a highly customized, computer-based simulation presented only one time to a small group of employees could go as high as $2,000 per person, he says.
But most manufacturing clients spread the cost over larger employee groups, Reed indicates. “A typical rollout will be anywhere from three to 20 programs of 25 to 30 people each,” he says. “In addition, a simulation may be used at big events like an annual conference. For example, we did a simulation at IBM one time for 1,400 people in one day. So obviously, the per-participant fee comes way down with something like that.” Reed puts the low-end pricing for an “e-learning” simulation at about $30 per head.
Board-based simulations, though customized, are typically less expensive than their computer-based counterparts. Industry sources put the price at anywhere from $175 to $300 per person per day for a group of 24 to 30 participants.
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