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Automation with Labor Constraints

April 8, 2022 by stevebeeler

Automation with Labor Constraints

The financial justification for automation with labor constraints now has an additional component: contribution margin. Historically, automation investments have been primarily justified by reducing people. Retiring baby boomers and COVID-19 have created labor shortages. Here’s the new math:

Automation is a broad term for any technology that reduces human input. While the terminology may be relatively new (believed to be circa 1940’s from the auto industry), the concept is hundreds of years old. Water powered spinning mills from the late 1700’s are early examples. In today’s world, automation is everywhere from the robots that weld cars to the ERP systems that manage supply chains.

Labor savings have been the primary driver for automation. Other benefits can also be considered: safety, quality, scrap, energy, and more recently, flexibility. Return on investment (ROI) is determined by dividing total savings by the cost of the project. If the ROI is sufficient, the automation investment can move forward.

But what if you can’t find enough people?

In a client’s foundry, I noticed robots are now de-flashing large castings. This is hot, dirty, nasty work that few want any part of. There was significant turnover and the operation was always undermanned. While labor savings alone could not justify the automation, lost contribution margin from production shortfalls more than made up the difference.

This suggests a new ROI math for automation with labor constraints.

Add lost contribution margin to the numerator in the ROI calculation. How much money are you not making because you can’t find enough people? If labor is limiting output, then lost contribution margin is a quantifiable benefit of an automation investment.

This new ROI math is not just for manufacturing. It also applies to business processes like the sales funnel. That CRM module may not save many heads today, but will it allow the company to grow without adding hard to find sales professionals tomorrow?

A word of caution. The new automation ROI math is somewhat subjective and, therefore, the possibility of mischief exists. Labor must truly be a long-term constraint limiting output. Other options to attract and retain employees (wages, benefits, working conditions) must be considered.

An understanding of constraints is essential. Goldratt’s The Goal is the definitive primer on systemic thinking and Theory of Constraints. This new math is a logical extension of the Goldratt 5-Step throughput improvement model when the availability of labor is the constraint.

Consider hard automation as first step. Simple examples of hard automation are all around us. In manufacturing, these include tables with multiple drilling fixtures and conveyors or slides between operations. That Excel macro generating the monthly sales report is another example of hard automation.

So that’s the new math. Adding lost contribution margin to your ROI calculation is the key to finding the best automation projects and growing your business in a labor constrained world.

McGuffins

March 17, 2021 by stevebeeler

Alfred Hitchcock collage in a blog post about using McGuffins to build out your network

My business has recovered after the very slow year of COVID-19. Most of the project management and operations engineering work that I do is through a fractional leadership model so relationships are of utmost importance. I used McGuffins to keep my network alive during the lockdowns. Here’s how this networking method works:

A McGuffin is a term attributed to Alfred Hitchcock. There must be a reason for a character to enter a scene. For a maid, it might be a tray of dishes to pick up.

In networking, a McGuffin is a reason to be in somebody’s in-box. Collect interesting articles in your field of work. Type up your notes from a conference or webinar. Better yet, blog or write LinkedIn posts. Build out an inventory of relevant content to share with your network.

Rotate your inventory of McGuffins regularly. Most McGuffins have a short shelf life although some topics are more evergreen than others.

McGuffins often can be recycled or repurposed. This blog is an expansion (embellishment?) of a LinkedIn post. In that post, I predicted that the content would eventually end up in a blog on my website…and here it is!

Send McGuffins out to your network at a respectful frequency. Your contacts may or may not respond every time but you will be building professional relationships.

Here are three examples of effective McGuffins:

Hot Topic

In October of 2008, I attended an Association for Corporate Growth luncheon in New York. Of course, I took good notes and organized them in an easy-to-read outline format. In the dark time after the credit crunch, these topics were of great interest to the financial types in my network. This trip was booked months in advance…I got lucky!

Steve Beeler's ACG New York conference notes example of using McGuffins

Evergreen Content

This McGuffin is unusual in that it seems to have an unlimited shelf life. Jon Gertner wrote a prescient article in the New York Times on clean tech commercialization hurdles. Thirteen years later, these hurdles remain so the McGuffin is still relevant. I continue to share this well written article with my network. If you are interested, “Capitalism to the Rescue” is still a good read. Here is the link: http://www.nytimes.com/2008/10/05/magazine/05Green-t.html

Famous Speaker

Years ago, I attended an MIT alumni event and the speaker was the prominent and outspoken economist Lester Thurow! Professor Thurow did not disappoint with his thought provoking perspectives on China, economic growth, and global warming. These notes were a welcome McGuffin.

Steve Beeler's MIT Club notes example of using McGuffins

Original Content

Original content is still the best. It is hard to pick my favorite blog post but the one that I share most often is on applying two manufacturing concepts, Theory of Constraints and Lean Thinking, to the sales funnel. Who doesn’t want to convert more leads into more money faster? Click HERE for the rest of that story.

Sales Funnel

I did not invent the McGuffin. I learned of the technique in “Rain Making” by Ford Harding. I have had this book on my bookshelf for 25+ years and it has taught me much of what I know about building a network and developing business relationships.

Steve Beeler's book shelf

And if you are wondering, yes, this blog is a McGuffin. 🙂

A Plan for Every Part

March 8, 2021 by stevebeeler

A manufacturing marketplace organized through A Plan for Every Part A Plan for Every Part drives waste out of inventory and warehousing operations. It is the foundation for the continuous improvement of your procurement and material handling activities. Here’s how to get started:

A Plan for Every Part is exactly as named: a compilation of facts and figures about all of your part numbers. While there is specialized software for this purpose, an Excel spreadsheet works fine, too, in many situations.

Typical dimensions include:

Part number
Part description
Supplier
Annual usage
Container type
Container size (length x width x height)
Part Weight
Container capacity
Storage method
Location
Transport method

Compiling all of this data is messy and people intensive. Designing a data collection template for each part will increase accuracy, standardize units of measure, and generally speed things along. A change process will be needed to maintain the integrity of the data.

As this database takes shape, opportunities to reduce complexity (and subsequent waste) in containers, racks, and material handling equipment will appear. There are great benefits in standardization! Defined locations improve inventory control and reduce if not eliminate the time wasted looking for parts. An overall reduction in inventory can also be expected through less overproduction and increased inventory turns.

Set up length, width, and height as separate fields so that they can be sorted separately. Ask me how I know this. 🙂

There may be a temptation to limit A Plant for Every Part to the highest usage or most expensive parts. Don’t go there. Any part, even a small bolt, can halt production if it is missing when needed.

Thinking about warehouse automation? A Plan for Every Part is a necessary prerequisite.

Market Place Design Checklist incorporating A Plan For Every Part

On my capacity expansion project, we are combining A Plan for Every Part with this material handling checklist to design and size the new plant’s marketplaces. Not only will the marketplaces be better both operationally and financially today, but we are building a bridge to automation opportunities tomorrow.

Ice Racing

January 29, 2021 by stevebeeler

My annual Minnesota ice racing adventure is trip into a parallel universe. A front-wheel drive modified street car with studded tires on ice drives nothing like a Formula Ford with slicks on pavement. Inside out, upside down. For one weekend, I must relearn how to drive a race car.

Tire characteristics explain most of the difference (see chart below). On pavement, a racing slick’s cornering force increases linearly with slip angle before a soft peak at about 6 degrees. A studded ice racing tire generates far less cornering force and, because of stud geometry, builds up slowly to a relatively sharp peak…at 30 degrees!

On ice, straight line stability is frighteningly absent. Since ice racing tires don’t generate much cornering force at low slip angles, the back of the car wanders around at yaw angles that scream “crash” in my pavement racer head. This feedback loop must be turned off. It usually takes a couple of sessions to turn the scream down to a whisper.

A “Scandinavian flick” initiates the corner sequence. On approach, the car is briefly steered away from the turn before simultaneously braking and turning into the corner. In combination, the weight transfer and pendulum effect quickly rotate the car to that magic 30 degree slip angle.

On a short corner, the Scandinavian flick is an easy technique to master. Slide in and squirt off with snow flying. Beautiful.

ice racing local aces vs visiting tourise — Aces…and a tourist

Long corners separate the local ice racing aces from visiting tourists like me. The drag from the sliding rear tires can overslow the car. What follows is a futile series of understeering wobbles. Not fast and not pretty.

The studs carve up the ice and snow collects on the outside of the turns. This “cushion” of snow can be used to turn the car…a very clever solution to the long turn problem. But if you jump the cushion the snow will pull you right into the larger snow banks that line the course. Ouch!

ice racing hard ice — Perfect conditions…hard ice and a soft cushion

In ice racing, the track is changing constantly. Ideal conditions for ice racing are cloudy and 20 degrees F. The studs grip the ice and the cushion is snowy, soft, and friendly. Below zero F, the ice becomes too hard for the studs. If it is a sunny day around freezing, the cushion will be slushy, heavy, and eager to punish the smallest misstep.

ice racing soft ice — Soft ice with a heavy cushion and standing water

Late in the season, the cushion can melt forming huge puddles around the course. These “sippi holes” are treacherous. The best way drive through them is as straight as possible. Otherwise, the standing water will almost bring a car to a complete stop. Here’s a 30 second sippi hole sampler…try not to flinch!

The great Danny Ongais has a simple driving philosophy: you are only going fast when going forward. The “Flyin’ Hawaiian” would do just fine out on the ice.

For a more complete ice racing experience, here are links to two of my YouTube videos:

Rush Lake 2018

Pokegama Lake 2019

Visit the International Ice Racing Association (IIRA) website for schedules, rules, and more on this wacky form of motorsport.

Capacity Expansion

November 4, 2020 by stevebeeler

I am providing fractional leadership on a capacity expansion project. What are the key deliverables in the initial workplan?

Capacity Expansion

The project is likely to have a 12 to 18 month timeline. Therefore, it is essential to build a solid foundation with basic project management tools: a project plan, a Gantt chart, and a punch list. For a capacity expansion project, there are a few additional early deliverables.

Project Plan

A project blueprint to fully define what must be accomplished is an absolute requirement. What are the must haves and nice to haves? What are the strategic considerations? Who is on the project team? What are the success metrics? What are the volume and mix forecasts? When must the added capacity come on-stream? What is the investment budget?

I like to outline my project plans in Word. Outlines are fast. 🙂

Current State Analysis

In addition to adding capacity, it would be a great thing to improve operationally. A current state analysis will find waste reduction opportunities that can be incorporated into the capacity expansion. The two primary analysis tools are process maps and spaghetti diagrams.

Capacity Model

Future demand is uncertain. How do machine and labor hours scale across volume and product mix scenarios? What is the best location for the production constraint?

capacity model

These clearly are very important questions. Building a capacity model is another essential step towards a robust capacity plan…and a successful capacity expansion. Now before the first shovel is in the ground is the time to properly size machines and strategically locate the production constraint.

Blue Sky Plant Layout

What does the ideal plant look like? It is far too early for a detailed CAD drawing but not too soon to be thinking about orientation and location of major plant elements: receiving, production departments, maintenance, shipping, etc. If there are “monuments” that must be worked around, now is a great time to know.

The blue sky plant layout should be covered in notes. What are the assumptions behind this “ideal” plant? Use it to capture process improvement and automation opportunities and any other operational changes to reduce incremental headcount.

Resource / Skills Gaps

As the scope of the capacity expansion begins to come into focus, assess skills and resources. What gaps need to be filled?

Most likely there will be a need for fractional leadership to manage the capacity expansion work bubble. If there is new technology in the blue sky plant layout, it will take time to get the organization ready for it.

Milestones and Deliverables

Big projects benefit from careful design. Pull decisions and “risky” tasks (anything requiring an invention, regulatory approvals, etc) as far forward as possible. Establish milestone reviews with defined deliverables to keep things moving forward. Ideally, the second half of the project will be all about execution.

Gantt Chart

A Gantt chart is a picture of the project. What are the key events? What independent activities can be done in parallel? What dependent activities must be done in sequence? When are key events due?

Punch List

Right from the start of the initial workplan, there will be a growing list of assignments across the organization. A punch list captures assignments, due dates, and outcomes.

capacity expansion

In total, these initial actions will deliver a solid project plan and will prevent many headaches going forward. For more on the basic project management tools (including how to build a Gantt chart and set up a punch list), click HERE.

Managing projects, big and small, is a big part of my day job as a Professional Engineer. Visit my Project Management page for methods and case studies.

Steve Beeler on forklift