Hadley Associates, Inc - Business Consultants

Generate More Profit From Operations
Drew Hill, Principal - Hadley Associates, Inc.

In the 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.

This certainly 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.

Analytical Techniques Available

Process 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.

Value 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.

When process 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.

Some Operating Areas to Consider

· Order Entry Processing

A group 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 manpower dollars.

With 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

A production 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.

The 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

A small 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 areas.

Several 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.

Finally, 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 center.

· Physical Assembly Production Flow

A combination 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.

Involving 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

After 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.

A shop 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

A building 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.

The success of this cost reduction project led management to examine "excessive package specifications". Realigning package specifications lowered overall packaging costs.

Customer 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

A process 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 claims.

The 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 product claims.

It was 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.

The 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" situation.

To summarize, 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.


Hadley 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)


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