More Profit From Operations
Hill, Principal - Hadley Associates, Inc.
National Football League (NFL), it is a statistical fact that
defense wins games, not the offense which logic would lead
you to conclude. Transitioning this to the manufacturing world,
operations generate earnings, not sales and marketing.
does not mean to minimize the importance of sales; without
sales, manufacturers would not have orders to produce. This
article discusses profit opportunities from "within"
your company. It presents the wisdom that "do not"
count on sales to dramatically change your profitability in
the short term.
mapping is a technique that deserves deeper understanding.
Carried out, process mapping reduces manufacturing activities
onto a piece of paper so it can be seen in its entirety. It
identifies operating issues (constraints, bottlenecks, physical
barriers, etc) that, when addressed, will lead to improved
efficiencies, hence reducing costs. These improvements can
be "direct" or "indirect", but the savings
are all real.
stream mapping adds the dimension of economic gain. Does the
activity produce value (profit) or cost money (expense)? It
can include "on the shop floor" or "in the
backroom" activities. These latter activities include
order processing, customer service, handling claims, quality
assurance, processing payments and so forth. They have purpose
and value, but there are costs associated to the processes
that should be reexamined periodically.
mapping is used, improvement areas become very visible. Linked
with operating data, cost savings opportunities jump out at
you. Without data, you are not managing based on facts, but
on "management feel". While experience is valuable,
it is a dangerous practice when not corroborated.
Operating Areas to Consider
Order Entry Processing
of distributors used process mapping to document the realities
of day-to-day order entry. It revealed that their supplier's
order processing procedures was non-responsive. In fact,
the process created a negative impression. All quotes were
hand written and faxed for price approval, re-entered for
order entry and finally required order confirmation. Turnaround
time, errors and the need for intervention created needless
the specific problems pinpointed, a pre-formatted e-mail
system was implemented. This allowed three order entry positions
to be eliminated.
Scheduling and Personnel Assignments
machine shop was ready to drop 30% of their work because
an item was losing money. Before doing so, it was suggested
modeling six months of actual production (castings machined)
by individual semi-automated machining center, machine operator,
production day, shift, part number, scheduled and actual
output in a time series fashion could be beneficial. After
sorting the data in various ways, no pattern was apparent.
production supervisor kept reviewing the data and finally
saw a pattern. After three consecutive days of repetitive
work, yield fell off dramatically. By simply alternating
the operators' machine center assignment every two days,
the yield increased 20% with lower unit labor costs. By
using process mapping, operating data and analysis, a "loser"
became a "winner". As a side benefit, set-up times
were re-evaluated and lowered by operator training.
First Article Quality Approvals
parts supplier to the connector industry felt they could
improve their manufacturing efficiencies. In interviewing
shop floor personnel, a number of immediate improvement
areas were identified. A strategy to capture operating data
was developed to confirm the suspicions and target improvement
interesting results occurred. First, the response time to
get a first article inspection from Quality Assurance at
a machining center was taking 15 minutes. Putting a flashing
light and visible digital timer at each work center solved
this. Second, it was discovered that two-person teams could
serve three machining centers if the machining centers were
placed closer together in a semi-circle. By reconfiguring
the shop floor, this was accomplished.
operating data (parts/hour by sku) revealed a pattern of
different yield by individual. As a result, two-person machine
center were established by product category. Yield improved
17%, hence lowering manufacturing costs. The teams were
also given the responsibility of scheduling their own machining
Physical Assembly Production Flow
of a two-day kaizan event, process mapping and analyzing
production output identified over $280k in cost savings
in an assembly line environment. The manufacturer had three
identical lines in the plant, which increased the potential
saving four times.
line personnel and process mapping, twenty-three improvements
were identified; half were implemented within a week and
the remainder within three months. The exercise found simple
improvements yielded the greatest results: time waiting
for parts, poor lighting caused mistakes, uneven surfaces
damaged parts, WIP buildup due to different process speeds,
not keeping fresh solder paste, poorly regulated ovens and
excessive hand work.
Monitoring Product Package Weights
years of not addressing a drop feed packaging operation,
a manufacturer decided to monitor the weight of one filling
station. The conventional wisdom was that everything was
within tolerance and it was not worth pursuing.
floor supervisor sampled the station over a week. The sampling
consistently found that the manufacturer was giving away
one ounce of product per package. By spending $2k on controls,
they saved over $25k per year. Assuming a 5% pretax profit,
this was the equivalent of $500k in new sales.
Packaging and Product Damage
products manufacturer was searching for cost reduction projects.
Management decided to focus on products "returned for
damage". Each sku was carefully examined for total
units shipped versus returned for damage claims. The Pareto
Principle (80/20 rule) was readily apparent. In fact, two
skus produced the greatest returns. Heavier protective packaging
was added in high stress areas on the two skus; product
claims were reduced dramatically.
success of this cost reduction project led management to
examine "excessive package specifications". Realigning
package specifications lowered overall packaging costs.
service indices were not negatively impacted. In fact, customers
were informed of the ongoing changes. They saw them as controlling
costs and improving product quality.
Handling Product Claims
review on handling product claims in the auto parts industry
led to major changes. The manufacturer developed a process
map of the physical return, the document flow and the costs
associated with each activity. Returns by sku (units, costs,
margins) and customer were sorted high-to-low by actual
data revealed management was spending more for the routine
claim procedures than the value of product. There were exceptions,
of course. It also discovered that a few customers accounted
for most the return claims. A simple rule for field adjustments,
with no physical product returns, was adopted; if the customer's
return rate was less than X% of sales and occurred less
than X times in a period, the customer did not need to return
concluded, however, that the company needed to capture field
performance failures to improve manufacturing processes
and manage outside vendors. As a result, statistics were
regularly submitted and specific skus were returned, as
needed, for failure analysis.
process review allowed two people to be reassigned from
the product claims department. One administrative person
was retuned to serving customers. The area allocated for
physical returns was turned into needed manufacturing space.
Customer satisfaction went up accordingly. It was a "win-win"
there are tremendous cost reduction opportunities in every
manufacturing operation. Some sources are very visible, while
others require some digging and discovery. By using the processes
of value stream mapping and analyzing operating data, the
opportunities can become tangible. If you are not challenging
your operations people to reduce costs, or increase productivity,
by 3-to-5% per year, then they are not being challenged.
Associates is a consulting firm located in Birdsboro, PA that
focuses on strategic business management, industrial market
development and facilitating management change. Drew Hill
is a certified focus group leader and management consultant.
He can be contacted at 610 370 1991 (www.hadleyassociates.com)