Monday, October 7, 2013

U.S Manufacturing Competitiveness at a Critical Crossroads

In the past I have written about LEAN Manufacturing and its primary goals of streamlining and control various types of wastes.  I thought I would take a breather from that format and write about something else which has been on my mind for a long time.  Can and or will United States manufacturing recover and bring along with it the US economy?
I believe we are at a critical juncture where either the US manufacturing sector could either prosper or help the economy regain its’ health or continue to decline to the point where the US may never fully recover its former manufacturing prowess.
At present, the U.S. manufacturers provide about 75% of the products Americans consume (never mind for now where these products are made).  The percentage could rise to 90% if the private sector and government leaders make the right decisions.  Conversely, the percentages could fall if the wrong decisions are made. (The percentages are from study conducted by The University of Michigan’s Tauber Institute for Global Operations).  As labor costs continually play a smaller role in manufacturing processes, this is where the possibilities for opportunities to create new conditions that support manufacturing will arise.
If these conditions surface the most likely winners in each manufacturing segment will be the following:
1.      Global leaders: Aerospace, chemicals, machinery, medical equipment and semiconductors. These industries have a worldwide advantage that stems from their high investment scales, intellectual property, skilled workforce and ties to customers.
2.      Regional powers: Food, beverages, tobacco, mineral products, wood products and petroleum coating segments. These markets will benefit from the fact that the U.S. is their largest and primary markets.
3.      On The edge: Paper, plastics, electrical components and computer equipment: These industries are being attacked by low cost overseas competitors.  The idea is that they may be forced to globalize or see their operations displaced to other countries.
4.      Niche players:  Textiles, apparel, furniture and appliances: Service domestic operations though most production is outside of the U.S.
Regardless of which sector or sectors win out the access to talented workers capable of supporting innovation is the critical factor driving global competition in the manufacturing field.  This has become even more critical than the “classic” factors such as material and labor costs, energy policies and government investments.  If the U.S cannot access the right kind of talent, this will contribute to becoming less globally competitive in the near future.  A strong manufacturing sector is a crucial component of a country’s intellectual capital, innovation capacity and ability and economic prosperity. Manufacturing competiveness is driven by an empowered talent base, especially as manufacturers integrate technology and products into new platforms.
This comes down to this mantra: WE NEED TO NURTURE THE INDUSTRIES OF THE FUTURE.  Yes, this statement begs for an answer to two questions:
1.      What do competitive industries look like?
2.      What specifically do we need to nurture?
The answers should cause all of us to pause, take stock and formulate a new path.  While the U.S. is still the world leader in ‘share-of-manufacturing-value added’ we are no longer the most competitive location for manufacturing.  It won’t be a surprise to most of us that China is at the top of the most competitive list but it should concern us that the U.S. is losing ground and becoming increasingly less competitive. 
Though, Americans believe a strong manufacturing industry is critical to our economy and recovery, as this sector of the economy increasingly goes abroad the growth or creation of jobs will prove ever more difficult.   There are many characteristics that will be inherent to the leading manufacturers of the future and chief among them are the following:
1.      Global Orientation: Sustainable manufacturers will be global, even if they never produce products outside their nation.  They will need to open their business processes to from collaboration with partners around the world.
2.      Innovators: Innovation of products, processes, services and sales will be the most important competitive differentiators of the leading manufacturers around the world.
3.      Intersection Conductors: Innovation will occur at the intersection of intellectual capital, financial capital, human capital and physical capital.  Leaders will outpace competition by developing and deploying capital through superior leadership, collaboration and technology.
4.      Customer & Supplier Assets: Manufacturers will derive competitive advantage from the creation of assets in the form of networks of suppliers and customers.  These new suppliers and customers will play a huge role in creating new products, services and commercializing them.
5.      Supply Chain effectiveness: Effective global supply chains will become increasingly important. The definition of productivity will be inclusive of all facets of manufacturing and the business environment.
What we are seeing is the shared factors of leading manufacturers – especially given the increased competitiveness due to the Great Recession.  Are we looking at the formation of nation-states?
All of this brings us back to the original questions: How will we know what industries to nurture? How can the U.S. remain among the most competitive locations for manufacturing and the prosperity that arises from a strong industrial base?

Tuesday, October 1, 2013

Waste of Talent & Creativity

In studying the seven wastes - inappropriate processing, waste of overproduction, waste of transportation, waste of motion, waste of waiting, waste of unnecessary inventory, waste of defects - in a manufacturing environment we constantly disregard or give short change the ‘waste of talent’. 
If your employees are a company’s most valuable asset to ensure that the business runs smoothly, efficiently and constantly improves then why do we continuously fail to put people to good use? 
Without the total involvement and loyalty of employees any company will fail to compete efficiently in this global marketplace. In today’s global market with all of its uncertainty companies need every advantage that they can get to maintain, sustain and improve the business.
The primary cost of waste for talent within any firm is found in time wasted to make improvements and meeting customer requirements. Improvements will be much slower to take affect if your reliance is solely on the “experts” as opposed to engaging the engineers, supervisors and managers.  Though they may be small in numbers they are highly skilled people.  If improvements are not steady your competitors will eventually outpace you, move ahead of you and lead the way in margin and market gains. Your competitors will capture the business from you as they will offer enhanced service and lower costs.
Your employee’s creativity and talent is wasted due to due to a number of reasons but the central one is: having the wrong culture that fails to recognize the strengths and contributions that are made.  Many companies are not that type – they have managers who manage and employees who follow instructions. 
There are a few companies that try to recognize employee contributions but too often it fails. The failure is based in the lack of time and resources allocated to employees to enable them to meet and make improvements.  Company policies are inappropriate to meet employee recognition and too often stifle improvements due to layers of bureaucracy.  Part of this stems from fear: if their employees are well trained and overly involved they will expect higher salaries and or move to other companies.
The remedy for this type of waste is a simple prescription; but one that many companies fail to embrace.  Team working, training and leadership are all that is required to involve all of the employees with your companies. Follow these three and the drive towards perfection and continuous improvement will result.  Performance measures and compensation packages should reflect the companies need for people to work together.  Encourage your employees to take ownership of their areas, processes and products.  This will promote an “air” of pride and involvement.   Your people are your biggest asset, use them wisely and you will reap the rewards.

Tuesday, September 3, 2013

Performance indicators are measures of a company’s strengths and weaknesses of the business. They should be used in comparison to the external competition and internal customers to improve company’s economic standing.  In Supply Chain the warehouse is a critical function.  Should products not move effortlessly within the warehouse a business could come to face serious challenges to its welfare.  The warehouse must be continually measured by key performance indicators.  In this age of continuous improvements, it is vital to compare against industry standards, and if none to set the tone.
This narrative of a company’s well being is called benchmarking. It is the process by which to measure a business’s internal processes against the competition. The narrative includes productivity, quality, time and cost. The idea is to discover weaknesses, learn from them and to execute better and more cost effective manner.
Warehouse costs are driven by people, cost, space and systems.  Thus KPI’s in a warehouse are based on these drivers and supposed to be tied directly to these usual activities:
1.      Receiving
2.      Put-Away
3.      Storage
4.      Pick-n-pack
5.      Shipping
We shall discuss each activity in detail below.
The receiving activity is basic to any warehousing function. If the merchandise is not properly received, it will be difficult to handle subsequent operations. Merchandise is received against a purchase order and posted to the Warehouse Management System (WMS) through Electronic Data Interchange (EDI).  The most important performance indicators to be ascertained are: cost of receiving per receiving line, volume received per man hour, receiving dock utilization expressed in a percentage, accurate receipts expressed in percentages and time taken to process a receipt.
After properly receiving the goods, it has to be stored in a location that is convenient for retrieval.  This is the put-away process.  The following indicators are needed at this stage: cost per put away line, put-away per man hour, utilization of labor and equipment, quality of the put-away and cycle time for put-away.
At this point is becomes a bit more complex as there are two possible storage systems a warehouse can use: manual storage or automated storage / retrieval system.  If use a manual type of system there are a number of types.
1.      Block Stacking – Units’ loads stacked on top of each other and stored in the lanes.
2.      Stacking frames – self contained units made up of decks and posts. These are portable and can stack several layers upon each other.
3.      Single-deep selective pallet rack – a combination of metal uprights and cross bars allowing for quick picks.
4.      Drive-in racks – merely extend the reduction of aisle space
5.      Drive-thru racks – rack accessible from either side.
The key performance indicators for measuring shipping process are: storage cost per item, inventory per square feet, percentage location without inventory discrepancies and inventory days on hand.
Order picking is the most expensive part of warehouse operations as it is very labor intensive and it is estimated to be 50% of all warehouse costs.  Not to mention this is tied directly to customer satisfaction.  Usually broken into two parts – case picking and then small item picking.  Relevant key performance indicators for Pick-n-Pack operations are cost of picking per line order, order lines picked per hour, picking labor and equipment usage shown as a percentage, the percentage of perfect picking lines and cycle time per order.  Remember, any incorrect pick could lead to an unhappy customer – something we want to avoid if at all possible.
Shipping is not just the goods to the customer. It can be internal shipping between departments, functions, workstations and stock transfers.  The latter being the origin for moving product from point to point to point.  Important performance indicators, but by no means all of them, are cost of each shipping order, labor or man hour for each order, utilization of shipping docks, percentage of perfect shipping and the time order is picked till it actually leaves the dock.
These are general guidelines. The volume of labor used the costs of the operations and equipment earmarked for warehouse activity depends upon the products handled.  Therefore, key performance indicators should be adapted to the product type. The warehouse is the busiest place in any business and the potential in productivity, costs and safety improvements is huge.
To most of us involved in Inventory and or Warehouse operations these may seem obvious measurements to engage.  However, too often they are seen as superfluous to the overall business operation.  This is an error organizations can ill afford (dollar value and inventory issues) to make.

Monday, August 5, 2013


Viable Alternative to Standard Costing

In the past few years there has been a drive to move the cost methodology of manufacturing from standard costing to other more viable alternatives which lends itself to a more detail, layered and truer picture of the costs of making a product. Prior to the continuous improvement ‘revolution’ where the standard cost of a product would not be outdated in an extremely short period of time standard costing was a viable method. 

However, since this revolution took hold and with the advent of other manufacturing theories – Just-in-Time, Kanban, Theory of Constraints and Lean Manufacturing – a standard cost can be invalid in a month’s time.  Then ensues the time consuming formulation of another short lived standard. 

In many circles the consensus has been that standard costing has too many weaknesses which finally can not be overlooked.   Below is a list of those drawbacks:

1- Useless in a continuous improvement environment:  Standard costs were designed to be the expected cost of a product for a period of time into the future, usually one year.  But in this rapidly and ever changing environment a standard cost becomes outdated and irrelevant within a very short time span.

2- Does not result in rapid feedback of cost information: Accumulating data for standard cost is time consuming and could take an entire month before this information is fed back to production supervisors.  With many manufacturers who implemented one of the above manufacturing theories or methodologies the timing is much too slow.  This information is needed before their production runs are completed.  To first review standard cost variance a month or more after the fact is a waste of time.

3- Does not yield information at the batch level:  Most, if not all, standard costing systems accumulate costs and issue variances based on the total manufacturing process.  This yields little or no information at the batch production level where most of the process issues arise.

4. Contrary purchasing behavior:  One of the month end variance that is a result of standard costing is the price variance.  This is the amount of excess materials cost a company incurred in producing the product.  Through the presence of this variance the purchasing department is charged with lowering the price of materials.  This unto itself is a logical next step but it can and has been taken too far – purchasing does not wish to show an unfavorable purchase price variance.

5. Labor standards are inaccurate:  The inaccuracy of labor costs/variances is worse than those of material costs/variances.  In too many instances the designer of the standards – the engineer – fails to include several pertinent and much too often overlooked factors such as; downtime, break time and training.
6. Contrary production scheduling behavior:  The labor efficiency variances are another outgrowth of standard costing.  Prior to continuous improvement this was closely watched variance for it provided production managers incentives to push for long operating runs that were cost-effective on a per unit basis.  Post continuous improvement era production operations tend to follow just-in-time principles which are all about short production operations.  Thus, improving labor efficiency should no longer be an organization target.

These are in my opinion the six major faults of using standard cost systems.  There are others which are on the surface more benign but once uncovered contribute to standard cost problems – contrary labor scheduling behavior, shifts focus to labor variances, short product lives and perpetuates inefficiencies. 

However, many companies still employ standard costing.  Their argument is that it creates a benchmark against which comparisons can be made even if the standard has the possibility of inaccuracies.