Controlling the Chaos that’s Killing your Profits
This is article is part of a series of monthly articles produced by Harbour Results for PMA’s MetalForming Business Edge e-newsletter. Click here to view the full collection of articles.
It’s Time to Say “Yes, BUT”
Are you being squeezed between erratic, spiking demand and constrained supply? Are you on the phone daily with one customer or another offering explanations? Are you calling your material suppliers for hour-by-hour updates? Are your operations frantically working to make something to put on the customers’ truck arriving at your dock today?
Some industries, such as automotive, are inundating their suppliers with orders to refill inventories only to cancel or change the orders days later due to issues with other suppliers. Those issues often stem from part manufacturers unable to receive sufficient raw materials in a timely fashion or lacking sufficient labor to produce the parts. As a result, part suppliers are running very inefficiently: short-runs with too many changeovers, maintenance crews putting band-aids on problems instead of permanent fixes, idle machines waiting to be changed over, excessive overtime to keep people on the weekends only to pay them for being idle during the week –those are just some of the symptoms of the chaos. It should be no surprise that revenues are up, but profitability is down.
Stop the chaos before it starts
The solution to the lost profitability is to return to good manufacturing practices that drive up utilization and throughput. Utilizing labor and equipment to its fullest requires a stable schedule around which direct and indirect labor needs can be planned. A stable schedule makes the priorities clear for support services such as maintenance and the tool room to keep critical presses running. Jobs with long, expensive changeovers need to run long to get a payback on the changeover. Short-run jobs need to be staggered so presses aren’t idle waiting for change-over crews to finish at another press. But the schedule isn’t stable when it’s being disrupted by yet another “hot” job, thanks to a last-minute release or increase in the quantities. Introducing chaos into the schedule introduces chaos into the plant, which results in inefficiencies and lost profitability. Therefore, keeping the schedule stable for a reasonable period, such as several days or a week or weeks, should be a priority for the organization. That means planning a schedule around the labor and materials you have on hand. And it means not letting your customers interfere in your schedule during that reasonable period.
If you can’t say ‘no,’ say ‘yes but’
“I can’t say ‘no’ to my customer!” is the excuse for letting your customers armchair quarterback your plant with demands for parts now. If your customer had a better alternative for your parts right now, they wouldn’t be hounding you, they’d be buying from the alternative. Building a bank right now to move the work isn’t feasible given the demand. Your customers are probably already unhappy, as they aren’t getting everything they want when they want it. And it probably isn’t just your company that is short-shipping them. So maybe an outright ‘no’ wouldn’t be good for long-term business. But right now, both you and your customer need each other to cooperate to get through this, as there isn’t much choice. This is why it is time to say, “Yes, BUT…” to your customers when they introduce chaos into your operations with sporadic releases that change day-to-day.
Before you say, “Yes, BUT…” evaluate your situation with all of your customers to decide which ones you can disappoint more than others. Not all customers deserve the same treatment: Which customers have shut-down payment provisions in the terms and conditions? Which customers have dual-sourced your products? Which customers’ scorecard a short-shipped the same as a late shipment? Which customers reward going the extra mile with new business and which customers take it for granted? In order for you to get the chaos under control, some customers are going to be disappointed. Which ones represent the greatest cost for disappointment?
Saying “Yes, BUT…” means to agree to your customers’ wants but inform them of the constraints or consequences for your agreement. Phrases such as:
“Yes I can increase your order, but I can only ship this week the amount that you ordered last week due to lead times on raw materials. The balance can be shipped with the next order.”
“Yes I can get your parts out sooner than our agreed-upon lead time, but there are additional material surcharges for spot-buying material.”
“Yes I can take an additional order, but there is a minimum run size that you would first have to agree to take.”
Whatever your situation is, communicate the facts of the constraints or consequences to the customer. Be reasonable and attentive to their problem and negotiate in good faith. But introducing chaos into your plant isn’t a solution because it quickly creates problems for all of your customers. The customer should prefer a negotiated solution to the alternative of being stuck with tooling in need of a new supplier instead of parts.
Then what - plan your work, work your plan
Drive the communication with your customers instead of reacting to impromptu meetings and phone calls. Proactively communicate the status of the supply chain to your customer, such as the availability of raw materials, timing of runs, and the status of parts at outside vendors. And if necessary, inform the customer to not send the next truck if it is going to pull away empty anyway. Continuous communication reduces apprehension and enables your customers to keep their customers informed.
Set a schedule around the availability of machines, materials, --and labor. Balance high-labor jobs with low-labor jobs when labor is the constraint to keep as many machines running as possible. Schedule changeovers like you would schedule a run: identifying the labor, and the expected start and stop times. Group products and processes in families of high-runners and low-runners, or “swim-lanes,” to organize direct and indirect labor to the needs of each. And, if it makes economic sense based on raw material units, change-over costs, and future demand, it’s okay to run some inventory before switching to the next job. Now is not the time to put your continuous improvement efforts on the backburner. Just the opposite. Now is the time when efficiency gains from identifying and eliminating wasted time and wasted effort are needed.
Winning the battle but losing the war
Accepting chaos into the shop to please every customer may seem like a win when each customer’s truck pulls away with something. But at a tremendous cost to the organization in inefficiencies, lost morale, lost disciplines, and risk of quality spills that all of the customers must bear. Manufacturers have closed from too little work, and too much. Win the long-term war by maintaining manufacturing disciplines and proactively managing customer expectations through communication, and an honest “Yes, BUT.”
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About the authors:
Jason C. Brewer, a Director at Harbour Results, helps clients drive profitable growth through strategic direction and matching their operations to the strategy. He has extensive experience consulting and working within metals manufacturing companies in roles from engineering to sales to executive team management.
Scott Walton, COO at Harbour Results, advises clients from operations improvement to manufacturing leadership, based upon his experiences from engineering to leading a multi-plant plastics manufacturing enterprise, and consulting with various manufacturers for over a decade.
