Steve Beeler

You have a goal…I have a way to get you there.

operational excellence

Automation with Labor Constraints

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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.

 

A Plan for Every Part

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A manufacturing marketplace organized through A Plan for Every PartA 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
  • Supplier
  • 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.

 

Supply Chain Risk

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Supply Chain Risk

Supply chain risk is readily evident with COVID-19 related plant shutdowns across the country and across the globe. Outsourcing and off-shoring have increased the length of supply chains. Lean Manufacturing has reduced inventories. Just-In-Time / Just-In-Sequence deliveries leave little time for the unexpected.  Here is a simple method to assess supply chain risk.

The method is based on the work of Professor David Simichi-Levi of MIT’s Sloan School of Business. While his risk exposure model was developed in the context of global manufacturers with complex networks of suppliers, the concepts are applicable to domestic manufacturers with a single tier of suppliers.

The supply chain risk analysis starts with three basic questions:

(1) How many days will it take a supplier to re-fill the supply chain after a disruption? In the Simichi-Levi model, this factor is Time to Recover (TTR). TTR is driven by the length of the supply chain and on availability of alternative sources.

(2) How many days can production continue without deliveries from that supplier? This is Time to Survive (TTS). TTS is strongly dependent on inventory.

(3) What are the operational and financial costs per day of while waiting for deliveries from that supplier? This is Performance Impact (PI).

The key to the model is the difference between Time to Recover and Time to Survive. If TTR is less than TTS, the supply chain will be re-filled without losing production. If TTR is greater than TTS, then the supply chain will run dry and production will be lost. If TTR and TTS are approximately equal, a supplier disruption can be managed through expediting.

This bubble chart is a visualization of supply chain risk, with the size of the bubble proportional to supplier spend.

Supply Chain Risk Bubble Chart

There is no risk of a production loss due to a disruption at Supplier C. Even with the largest spend, Supplier A is not at risk for a production loss. Through expediting, the risk of a Supplier E can be mitigated. Supplier B is low risk but with the greatest financial pain. The greatest risk for a production loss is Supplier D, even with the lowest spend.

No one knows how and for how long COVID-19 will be disrupting global and domestic supply chains. Regional peaks and multiple waves could lead to repeated closures and re-openings at key suppliers. This supply chain risk analysis can, at least qualitatively, identify your highest risk suppliers. Actions taken now can reduce risk and minimize the effects on operational and financial performance.

Professor Simichi-Levi has written extensively on supply chains and operations. For more on these topics, his most recent book “Operations Rules: Delivering Customer Value through Flexible Operations” is available through Amazon.

To adapt your business to today’s new operational challenges, click HERE for a post COVID-19 toolkit rolled up from six of my blog posts.

SQDCME

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Organization and focus are essential elements in achieving operational excellence. There is just so much to do and it is easy to fall into the “work on everything, accomplish nothing” trap. In automotive, objectives commonly fall into five categories: Safety, Quality, Delivery, Cost, Morale, and Environment. SQDCME is much more than a format for annual performance reviews: the six dimensions target improvement actions and prioritize competing objectives.

SQDCME

Safety is the first priority. The first questions to ask are around employee and customer safety. What processes are in place to ensure employees are working safely and that products are safe for their intended use? Who is responsible for managing these processes? What metrics measure employee and customer safety? Corrective actions to ensure employee and customer safety will be the first line items on the action plan matrix.

Customer satisfaction must be ensured. Unhappy customers do not stay customers so the quality system is the second area of interest. What processes are in place to ensure finished products meet customer requirements before they are shipped? What processes ensure internal quality between manufacturing processes? Who is responsible for managing these processes? What are the key internal and external quality metrics? Gaps in the quality system will drive the second set of line items on the action plan matrix.

Production schedules must be met. Customers waiting for products are almost as unhappy as those with defects. What processes are in place to align production schedules with customer demand and plant capacity? How are engineering changes coordinated? What processes are in place to successfully launch new products? How are supplier and production bottlenecks managed? What processes are in place to maintain production equipment? Who is responsible for managing these processes? What metrics are used to measure delivery performance? These questions will lead to a third set of action plan line items related to on time delivery.

Waste (and cost) must continuously be attacked. Cost and quality together drive value…and loyal, repeat customers. Does everything have a place? Are materials delivered directly to the point of use? Does the plant layout facilitate single piece flow? Is there a problem-solving methodology that facilitates continuous improvement? Who is responsible for identifying and reducing waste? What metrics are used to track progress? As above, these questions will generate actions to reduce waste and cost.

Engaged employees are critical to success. It is hard to imagine a successful plant full of unhappy, disinterested employees. What processes are in place to ensure effective two-way communication with employees? Is the plant clean and bright? Are restrooms spotless? Are break rooms and cafeterias pleasant places to hang out? Are offices and cubicles functional and professional? What processes ensure employees are properly trained? Who is responsible for employee involvement? The answers (or missing answers) will lead to action plans to increase employee involvement and satisfaction.

The plant must be a responsible member of the community. It is equally hard to imagine a successful plant that pollutes and is an eyesore. What are the processes to monitor air and water standards? Is refuse minimized and disposed of responsibly? Are the plant grounds appropriately maintained? How do the plant and its employees contribute to the community? From these questions will follow action plan line items related the plant’s place in the community.

Plan-Do-Check-Act continuous improvement model

Is SQDCME all that there is to operational excellence? Certainly not. However, in short order the SQDCME approach will form a half dozen or so teams focused on specific actions towards operational excellence.  Couple SQDCME with a continuous improvement model (Plan-Do-Check-Act is a perfect choice), and you are on your way.

I use SQDCME on my day job as a Professional Engineer to focus my operations engineering projects on the vital few things that really matter.

Please click HERE with your questions and comments.