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How Project Management Can Help Manufacturers

Written By: Aleksey Osintsev
Published On: May 26 2009

Recently there were two great articles published on our Website touching the interesting problem of interactions between traditional manufacturing management and project management: The Business Model for the 21st Century Is Project-centric and Weather the Recession with Project ERP. I agree with the respective authors that the project-driven management approach can help companies improve their businesses in any kind of economic situation, whether during a recession or a booming economy. But in this blog post I would like to share some thoughts with you on other aspects of how project management can help manufacturing.
1. Project management has been—and still is—a useful methodology to run and manage standalone projects, such as new product development or the selection and implementation of a new enterprise resource planning (ERP) system. In this type of project, the project’s targets, scopes, resources, and other parameters are quite obvious and defined by the substance of the project itself. In my examples, they are to develop a new product and to prepare the necessary documentation and equipment for manufacturing; and to have a new ERP system deployed and running where well-trained users are successfully dealing with it and the managers are receiving the information needed in a timely and convenient manner.

Usually, organizations have no problems with this type of project management use—everyone understands it clearly and the methodology is well defined. In addition to engineer-to-order (ETO) manufacturers creating unique custom-made products and usually managing those customer orders as projects, project-driven activities can also be beneficial for assemble-to-order and make-to-order types of manufacturing businesses. For example, an internal customer order fulfilment policy can be created where some orders are segregated as projects, and business processes are defined based on project management knowledge.

2. Project management methodology can also be used in managing internal company changes which, at a first glance, might not seem like a “traditional” project, or might not seem to be a project at all. Here are two examples: a) due to market requirements, a manufacturer has to reduce a cost of a particular product; b) a manufacturer must identify and eliminate supplier-related bottlenecks in the purchasing of key components for the production. In these cases, it is not that easy to recognize project targets, scope, and work breakdown tasks. However, I do believe that this type of business challenge can be characterized as a project, and standard project management techniques can be successfully applied in this case. A company might have multiple projects running simultaneously: special project management software or an ERP system that includes a project management module can be used for these types of projects as well as for standalone projects.

3. And finally, a few words about the matrix structure of a company as an area of project management knowledge and application of methods. As the term suggests, there should be "horizontals" and "verticals," as in a matrix. Let’s say there are traditional functional or department managers, and at the same time there are product managers assigned for for the development and management of particular products or product families. The functional chain of “purchasing, planning, manufacturing, packaging, and shipping” will be our "horizontals", and product managers with their teams will be the "verticals". Our matrix is the intersection of the horizontals and verticals (see fig.1). A product manager can assign different people for the different projects (employees working on the same project are highlighted with blue).

 matrix-structure.jpg

Figure 1. Matrix structure [click thumbnail to enlarge]

Companies with a matrix structure type of management, as mentioned in Weather the Recession with Project ERP, should be able to track and manage costs by products or by product groups throughout the entire product lifecycle. This is only possible when using ERP systems that are smart enough to distinguish those costs and associate them with a corresponding product, or even with a product component. With all the seeming simplicity of this structure, in reality it is not that easy to implement, or to achieve the expected level of effectiveness.

The major problem businesses face when implementing a matrix structure within a company is a potential conflict of interests between functional and product managers and their employees—especially when they make diametrically opposed business decisions. Here is an example to demonstrate this:

Say you are a material buyer and you are required to purchase either material A or material B this week, but you are limited in your budget. You might get a very good deal and save lots of money on material A because the supplier is offering a discount this particular week only, but at the same time, a product manager insists on purchasing material B according to his own priorities. In addition to this, your boss is not a product manager but a purchasing director, and she is going to appraise your performance based on how effectively you spend the company’s funds. So what would be your choice as a buyer? Tough question, isn’t it?

As you can see, a matrix structure implementation is very challenging and it involves huge structural changes at all levels of the employee hierarchy. More importantly, a psychological shift in people’s approaches and working habits is essential. On the other hand, many companies have been able to overcome these hardships to elevate their businesses into the next level.

I know of a manufacturing company that was implementing an ERP system for the first time, implementing ISO quality standards, and changing its organizational structure into a matrix at the same time. In fact, I was the ERP implementation project manager at that company and I must say, it was an interesting and challenging time.

To sum up: the project management approach can be beneficial for manufacturers in many situations. And now is probably a good time to rethink and revise your fundamental approaches, current business processes, and internal procedures—and perhaps initiate cost-reduction projects and project-driven improvements to your business.
 
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