Every large ship is an engineering marvel that requires the combined efforts of an entire shipyard ecosystem to produce. The complexity of each vessel is topped only by the complexity of the shipbuilding operation, which requires significant resources—teams of skilled welders, fitters, electricians, engineers, inspectors, and schedulers, to name a few—working in unison across acres of waterfront and on the deckplates to produce a seaworthy vessel. Across the global commercial and defense shipbuilding industry, producers must manage competing constraints, complicated and intersecting value streams, and dynamic critical paths for multiple products to deliver on schedule and on budget.
Recent growth in demand for ships has created even greater delivery challenges. Multiple factors contribute to these delays, including a surge in employee retirements, the unmatched complexity of new vessels, aging shipyard infrastructure, and operational challenges.1 Faced with relatively low and stable demand over the past 30 years, the global commercial and defense shipbuilding industry has streamlined costs by implementing efficient, process-focused operations in which people, equipment, and other assets are consolidated based on the tasks that they perform. This model allows shipyards to create specialized centers of shared resources, but it also has some downsides for yards that are trying to increase throughput: reduced visibility into complex value streams and constraints, and suboptimal cross-functional coordination.
To meet rising demand and eliminate delivery backlogs, shipbuilders and their suppliers must quickly increase their manufacturing velocity. One successful approach involves pivoting to an operating model that focuses on products, rather than processes, for targeted, critical components. In product-focused operations, overall end-product throughput is prioritized over traditional functional area performance metrics. Employees are assigned to a dedicated product or product group, working as a single, multidisciplinary team. Physical assets are similarly allocated, ensuring that work in process (WIP) does not queue while waiting for shared equipment. For rapid implementation, maritime producers have reserved this model for only the most constrained or complex components for critical products, for which the cost of delays outweighs the cost efficiencies of the process-focused model.
Although product-focused operating models are common in many industries, they remain rare in shipbuilding. But some leading shipbuilders are rapidly deploying this model with dramatic results. One shipbuilder doubled throughput of critical, bottlenecked components less than six months after making the shift from process to product focus. Such experiences make a compelling case for targeted deployment of product-focused operations to accelerate shipyard velocity.
Old systems, new challenges
Process-focused operations were a logical strategy across the maritime industry for many years. The shift of commercial building to Asian shipyards combined with limited demand for naval vessels to create an environment in which shipyards and suppliers manufactured relatively small quantities of custom-made (often one-off) parts and components. By emphasizing process-focused production with shared-service functions (including production facilities and their support organizations), global shipbuilders and suppliers could maximize cost and physical capacity efficiency.
However, cost and capacity efficiency often come at the expense of velocity. In a process-focused operation, functional leaders set group-specific budgets, metrics, and incentives. Although these targets may increase functional productivity at the shop level, they often create or exacerbate operational complications that slow throughput at the product level. Product cycle times tend to increase, driven largely by several commonly observed pitfalls:
- Focusing on a small segment of the value chain. When all leaders are vertically focused on their functional shops, no single leader or team is horizontally focused on the entire value stream or empowered to improve cross-cutting inefficiencies. There is often no centralized authority to rebalance priorities and modify targets to support program-level delivery objectives.
- Prioritizing low-hanging fruit. Functional leaders may decide to meet shop targets by cherry-picking the parts they manufacture. They may decide to prioritize less complex parts or those for which all required material is on hand, regardless of downstream need.
- Creating footprint constraints with excess WIP. When one function concentrates on its own cherry-picked targets and fails to consider downstream needs or delays, internal congestion in the value stream can result as WIP builds up. Without excess capacity in the yard to absorb this disruption, yards can quickly become constrained by their footprints and lose the ability to move material quickly and efficiently.
- Creating excessive loss, damage, and rework. Idle WIP must be handled and stored properly to avoid damage from corrosion and material deflection, but without centralized management among functions, maritime players may overlook such requirements as excess material accumulates and WIP is stored in overflow areas. When WIP is predictably missing or damaged when downstream customers are ready for it, shipyards must undertake rework, resulting in lost productivity and velocity.
While individual functions may meet their cost and efficiency targets under a process-focused model, overall product throughput is suboptimal (Exhibit 1). Complex production systems such as shipyards may also struggle to adjust their highly specialized operations—for instance, deploying employees to different tasks—in response to demand shifts. With functions operating in silos, transparency across the value chain is limited and teams may have difficulty working in sync because they have different incentives. The extremely complex value chains may also mask technical constraints that cause bottlenecks with an outsize effect on manufacturing velocity.
Amid a backdrop of complex functions optimized for cost, the recent rise in demand is exposing the inherent risks of process-focused operations.
Although the global commercial and defense shipbuilding industry has recently made major investments in workforce attraction and development programs alongside major facility infrastructure upgrades, these additional costs have not always translated to throughput; many programs remain behind production targets. In many cases, entrenched process-oriented operations stand in the way of efficiently deploying these new people and assets. With order volumes remaining high, the cost and schedule impacts of process-driven delays will likely be further magnified.
A product-focused approach to operations
A shift to product-focused operations can help global shipyards and suppliers rapidly and efficiently accelerate throughput. For speed and simplicity of implementation, product-focused operations are best reserved for shipbuilders’ most critical components: those with the greatest impact on schedule and cost along key programs’ critical paths. Maritime players have successfully deployed this model in two ways: by implementing product-focused management systems within their existing shipyards, or—if they need even more improvement—by combining those management systems with enhanced physical layouts.
Product-focused management systems
In product-focused management systems, the primary goal is to optimize end-product output rather than functional performance. In addition to better illuminating bottlenecks across the value stream, these systems facilitate decision making and problem resolution, allowing maritime producers to maximize value stream efficiency (instead of local, functional efficiencies).
Central to every product-focused management system is a multidisciplinary team comprising stakeholders from relevant functional shops and support organizations such as quality, material handling, procurement, and facilities. The teams, which are empowered to break down organizational barriers, work toward a common goal and create a sense of shared purpose (in contrast to process-driven operations, in which numerous individuals in separate organizations work toward different targets).
The multidisciplinary product teams oversee both daily production and continuous-improvement activities. The most effective teams emphasize the following:
- Speed and visibility. High-performing teams hold daily stand-up meetings with daily progress plans to ensure that tactical constraints are quickly identified, tracked, and resolved. Ideally, meetings occur in a central command center, furnished with visual management tools to build shared situational awareness, and have strictly defined issue escalation criteria to ensure no constraint festers without resolution.
- Shipyard-level success. Product-focused teams replace function-specific KPIs with new metrics related to tangible end-product throughput—such as the number of units completed—and incremental, lower-level metrics, such as milestone progress and bottleneck utilization. In addition to increasing product throughput, this shift helps teams create greater transparency into the flow of critical WIP from one step to the next.2
- Enhanced product flow. Product-focused teams avoid WIP accumulation and enhance flow by creating dedicated storage and queuing lanes for parts and by strictly enforcing footprint capacity limits. If inventory reaches its limit, stop-work signals can automatically flow to upstream stations. In addition to freeing up space, controlling the amount of WIP in the system enables faster, more accurate diagnoses of often-moving bottlenecks.
One leading shipbuilder’s recent experience illustrates the benefits of product-focused management systems. One particularly complex product, requiring numerous jobs to be completed in sequence by multiple functions, was falling behind as demand grew. The builder had historically concentrated on functional metrics and measured “job counts,” often numbering dozens, at the shop level. When job counts fell below the target, efforts to increase completion rate proved counterproductive; inventory soared, creating gridlock within the facility and slowing throughput. Moreover, overcoming roadblocks was challenged by low visibility into bottlenecks that were slowing downstream production and a strong focus on disconnected functional metrics.
To improve operations, the shipbuilder began measuring end-product throughput rather than focusing on the volume of jobs completed for each function. It empowered a cross-functional team, which created a command center adjacent to the shop floor to manage all production tasks, including material controls, WIP monitoring, and bottleneck mitigation. In addition to deploying simple but effective performance management tools, the team introduced standard work protocols to create and sustain consistent processes, regardless of shift change or personnel turnover. The result: throughput doubled without any capital expense while freeing up 20 percent more floor space by reducing idle inventory.
Throughput maximization via changing physical layouts
For some in the global commercial and defense maritime industries, deploying product-driven management systems for critical components may be enough to reach target throughput levels. Others, however, may also require physical layout changes to their facilities to eliminate structural problems that hamper productivity and coordination. For instance, workers may need to transport products between two facilities that are far apart, slowing production, or WIP may require excessive routings between work cells for iterative processes.
When making layout changes, maritime players can look first to create a single location, staffed with a dedicated team and containing all necessary equipment, focused on production of a single critical product or product group (Exhibit 2). Consolidating all product-related activities under one roof—“factories within factories”—can create better transparency and facilitate coordination among functions. Highly complex producers, such as shipyards, should make layout changes only for select products; this will allow them to address targeted constraints without affecting operations in the rest of the production system.
Optimizing physical layouts typically takes more time than implementing product-focused management systems. It also requires a change in mindset. Many in the global shipbuilding industry focus on one-for-one replacement of select equipment or concentrate on footprint expansion to solve capacity challenges. Instead, they should undertake a more targeted optimization of selected product value streams. While additional space and more equipment are sometimes helpful, maritime players can often achieve greater gains by building in a product focus to the layout changes they make—for instance, explicitly simplifying product routings instead of reinforcing existing process centers.
Product-focused layout optimizations succeed only when accompanied by management system changes. Otherwise, managers and employees retain process-focused mindsets and incentives that tend to diminish efficiency in a system designed for throughput. For example, in a process-focused system, it’s easy for employees to let other work “creep” into assets that are supposed to be dedicated to certain products. Although this would increase equipment utilization, it could also cause critical components to wait in queues. The cost of time lost to queuing for a shared asset can very quickly exceed the purchase price of the machine itself.
To ensure a product-focused layout change achieves its intended goals, maritime players can observe three important design principles. End-to-end visibility along the value stream is important, and most yards and suppliers will achieve it if they reach their goal of housing all product-related activities under one roof. (Even if cohousing is not feasible, product-focused management systems still produce some improvement.) Maritime players should also attempt to compress cycle times by relying on a simple, single-piece flow. This practice can involve creating separate production lines for individual components, putting commonly used assets close to each other, or creating dedicated space for inventory and WIP. Single-piece flow reduces batching and movement losses while improving quality, repeatability, and rate. Last, any layout changes should focus on optimizing product throughput rather than on increasing asset utilization.
Product-focused physical layout changes can have a dramatic effect on throughput. One leading shipbuilder, facing a significant increase in demand, adopted a product-focused approach for its most challenging product group. The manufacturing process for the product involved more than 15 functional teams and routings across a dozen facilities. Without accountability or transparency, these products spent more than 90 percent of their time in production waiting in queues for shared assets or teams.
To improve performance, the shipbuilder implemented a product-focused operating system and changed its physical layout. The new layouts embodied the design principles discussed above: single-piece flow, end-to-end visibility, and a focus on product throughput. Among other benefits, the physical-layout changes alone reduced the number of routings by 50 percent and the distance traveled by 95 percent, creating an accelerated path to meet demand.
Across the global commercial and defense shipbuilding industry, today’s modern ships contain more sophisticated technologies and components than their predecessors, but many of the processes and approaches to building them have remained relatively unchanged for decades. With increasing order backlogs and a tidal wave of growing demand, the industry must make bold changes to stay on track. By using a product-focused production model for the most challenging and important components of critical products, the global maritime industry can accelerate production velocity and increase throughput with minimal time and cost. Companies in other high-complexity, low-volume industries have already found success with this approach, and maritime players that emulate them may be the first to resolve the mismatch between demand and delivery that is now challenging the industry.
