By Ben Hershey, CEO, 4Ward Solutions Group
Does this conversation sound familiar?
“How fast can we reliably supply that component job to our customer?” asks the sales manager. “And don’t make us look like fools by telling me a date that will never be met or is too far out!”
“I will tell you how fast,” says the manufacturing manager, “just as soon as you look in your crystal ball and give me a forecast that predicts how many components all of you will sell over the next 12 months!”
Recalling the several operations I have owned and operated, I know I’m not alone in being able to relate to this, because this scenario is a constant battle that exists in our industry. Sometimes we can liken a component operation (and almost any building operation) to an hour glass with demand on one end and supply on the other. In between, we have sales, design, and manufacturing – and often design seems to be just a small opening between the other two. It is the constant tension that usually puts up big thick silo walls between sales, design, and manufacturing, so that the three groups have an impact on either side of the demand/capacity equation.
If your sales manager asked the question above, would your manufacturing team be able to give a straight answer? Would the response begin with all of the reasons why an answer is not possible (model mix, seasonality, labor, unpredictable downtime, quality issues, etc.)? Or, maybe the answer is a theoretical maximum output. (“One day, last decade, we produced X number of components, so that is my answer.”) This response will cause great frustration if the sales folks think “X” is a real number and start planning to try to create that much demand. The more likely answer probably will be something with the word “average” in the mix (“We average making Y components per day/week/month.”). Of course, the problem with driving demand to an average is that, roughly 50% of the time, the output will be too low to meet the expectations
The better answer would be a range based on an analysis of the data related to the actual output: “We can reliably produce somewhere between A and B with an average of C, where A and B are the upper and lower limits.” If the salesmanager pushes hard enough (“How many units can we reliably supply and let’s assume our jobs are on the line?”), then the only number that can be used is the lower limit (B) – which in some cases may be close to zero.
This tension between the various operating groups can cause great damage to your customers’ experience with you and eventually drive the company out of business. How would things be different if this were not the case? What would happen if there were no silos and each group worked as a team to try to balance capacity with demand?
If your organization is experiencing some of these difficulties, then you should consider using these steps toward improvement. A combination of changes, including business intelligence/data analytics, lean and Six Sigma principles of visual management systems, employee engagement, quality improvement, level loading scheduling systems, etc., can help your team achieve a stable and predictable system of manufacturing. This can lead to market share growth (with happier customers) and a significant improvement in profit margin. Constant communications (weekly sales and operations planning meetings, for example) and a team effort to smooth demand (spot sales, customer incentives, making off-seasons products to balance seasonality, etc.) are essential to not let this happen.
So where do you start? Here is a summary of investments you can use.
Eliminate Chaos and Complexity
What would happen if manufacturing could smooth the output line by building robust systems? By making the process more predictable because you understand your capacity, and you have good data to back it up, it becomes easier to see the bottlenecks. This even relates to a current group babbling about how many saws are needed versus the setups at a gantry table. You need to understand the data including mix of work, demand, etc. to actually determine what you need. This gives your teams an opportunity to figure out ways to increase overall capacity by smashing these constraints.
Break Bottlenecks to Increase Capacity
Once output increases, your teams can work together to sell this additional capacity. Think about the profit margins of these additional sales. Since the costs of labor, overhead, and facilities have already been absorbed by the existing output, every additional unit (component, etc.) has fantastic profit margins. This assumes little to no additions to achieve this new level of output (this is more realistic than one might think when large amounts of waste are removed from the system using the lean principles). If this is the case, the only increase in cost would be the materials and utilities needed to produce these additional units.
Sell Demand for a Fraction of the Cost
Implementing lean, Six Sigma, and collaborative teamwork takes real dedication at every level in the organization. This can be a significant investment (time, training, coaching, etc.). However, the return on this investment will be enormous. For example, at one organization with which I have had the privilege to work, after a little more than two years on their lean journey, manufacturing reached the point of sharing real-time demand of their bottleneck operations with their sales teams (who had also gone through all of the same lean training and participated on improvement teams). This allowed for a more robust and dynamic pricing system based on how much capacity was currently available. This system resulted in higher customer satisfaction, an increase in sales, and profits went up significantly.
Those organizations that have embedded these concepts and philosophies into their culture know the enormous potential this creates. And remember, lean is not just for manufacturing; all parts of the company must be involved in order to balance demand with capacity and break down the silos. If any of us at the 4Ward Solutions Team can be of assistance to you and your business, please let us know. Our team has assisted companies with change management hundreds of times to help leaders understand the importance of listening.
Best Practice Tip
Most of the building industry organizations have always looked at safety, quality, and productivity, in that order, and we expect all others to follow suit. But in today’s post COVID-19 lockdown, it is evident that our operations will have restrictions on manpower density per square foot to adhere to the social distancing norms laid out by local and state authorities. Some manufacturing sites may be operating with 30‒50% less workforce than usual. As we operate in this manner, it is always good to follow best practice guidelines. You can find many of those best practices at the SBCA website on Coronavirus resources. Even the 4Ward team has been following best practices as we work with clients by asking ahead of time what requirements are in place and using our own PPE equipment including masks. Check out the resources on the SBCA website and make sure you are following good best practices.
Ben Hershey is CEO of the 4Ward Solutions Group including Consulting, Labor, Offsite, Design, Software Programming, and Back Office Solutions. When the industry needs an actual expert, they turn to 4Ward team with more than 150 years of experience. 4Ward Consulting Group is the leading provider of Management and Manufacturing Solutions to the Structural Component and Lumber Industry. A Past President of SBCA, Ben has owned and managed several manufacturing and distribution companies and is Six Sigma Black Belt Certified. Ben has provided consulting to hundreds of Component Manufacturers, Lumber Dealers, and Millwork Operations in the past ten years. You can reach Ben at ben@4WardConsult.com or 623-512-6770.
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