In this period of economic contraction, companies are losing faith in their own IT initiatives, which they’d begun in order to remove operating inefficiencies, improve Value Chain communication, or integrate their own multiple platforms. Many of these carried a high price tag, and a long horizon, and are now vulnerable to either delay or de-funding.

I’d like to focus on a few topics which, while always relevant to improved margins, are more important in this age of Value Chain velocity, and rapid change notifications, thanks to B2B and XML initiatives speeding up requirements adjustments.

REDUCING LEAD OR CYCLE TIME

It’s a never-ending challenge, typical of a Continuous Improvement agenda. There are several sub-definitions:

The CUSTOMER sees lead-time as the time span between THEIR ordering and the receipt of goods. MANUFACTURING sees lead-time as the span of time required to perform a process, or series of operations. PURCHASING sees lead-time as the time span between P.O. transmission, and receipt of goods. This should include dock-to-stock time; time required to unload, unpack, inspect, and put-away, or prepare for the line. The TOTAL MANUFACTURING LEAD TIME would be the time span from picking the first operation through completing the last operation. This could vary based on quantity of Lot Size, yield, availability of labor and machines, and many other factors.

Unfortunately, it’s not unusual to find less than 10% of MANUFACTURING lead time spent in actual manufacturing – the rest in setup, wait, queue, rework, and other areas, including inspections and quality checks. Likewise, only a small fraction of CUSTOMER lead-time is spent doing actual production. Time not spent in DIRECT production is lost time.

For MANUFACTURING, the keys lie in reduced lot sizes, and some form of planning and control that leads to improved workflow, or synchronization thereof.

Things you can do:

Measure actual production lead-times, and set a target percentage rate for improvement. Follow the product though production, and see where the delays are. Materials short? Backed up work cells? Unscheduled maintenance? Is a specific supplier always late? Can the supplier pre-inspect and pre-pack the materials to reduce your dock-to-stock factors?

Empower the local work centers (cells) to take ownership for the entire product. Force accountability for cost, delivery on time, and quality towards the direct labor.

Reduce lot sizes, and batch sizes moving between work centers. Redoing the shop floor is a larger job, in order to facilitate production, but in the meanwhile, don’t overload the next work center blindly. This is echoed in Goldratt’s drum-buffer-rope concepts, but in the end, it’s common sense – find the bottlenecks, and try to remove them – and when you do, expect different bottlenecks to appear.

REDUCING EXCESS AND OBSOLETE INVENTORY

In my experience, there’s a lot of politics mixed into this. No Materials manager wants to hear that his/her precious inventory is no longer needed. Accounting does not want to take the write-offs. Mostly, no one wants to own up to the problem.

Inventory, which will not be used, or sold, distorts inventory turns, and can be a major hit on revenues. Inventory costs money, just sitting there, to store, count, and finance. It’s called an "asset" on the balance sheet, and that may be deceptive.

Determine why an inventory is "excess", through various methods of determining months on hand, ABC Stratification, and analysis. Why are slow-moving Finished Goods piling up? Should they be offered at discount? (Some companies make them "B" goods, just to move them). At times like this, sales channels are overloaded with merchandise being "pushed" on them, making the problem worse. By all means, stop producing high-level products with increasing on-hand, or an order falloff. Likely, overhead gets added at each level of production, no matter what form of Cost Accounting you use. Check blanket P.O.’s to see that parts are really needed, due to production cutbacks of parent assemblies. Check Work Orders, particularly Past-Due, against the MPS, the MPS to the Forecast, and that to Sales Orders booked.