45 Seconds = $25,000 in Savings

May 1, 2012 by Leave a comment

Really? 45 seconds.  I can’t even brush my teeth in 45 seconds, boil an egg or sing the ABC’s.  But I can save $25,000 – how?

We all know time is equal to money.  Workforces are paid based on the amount of time spent working, and therefore a monetary value is placed on time.  A strategy then to save money in this difficult economy, is to save time and that is exactly what process improvement does – saves time and consequently, saves money.

The depth of savings is of course, dependent on how time is valued.  In the model below, we illustrate how saving 45 seconds in process time equates to saving money.

Seconds Saved

Fully Burdened Labor Rate

Project Run 5 times/year

45

$20

$2,500.00

$12,500.00

45

$25

$3,125.00

$15,625.00

45

$30

$3,750.00

$18,750.00

45

$35

$4,375.00

$21,875.00

45

$40

$5,000.00

$25,000.00

The beautiful thing about making process improvements is that the savings are not a one-time event, but rather an ongoing return on investment earned each time the process repeats.

For More Information

Check out this video to learn more
about how small process modifications can make large improvements to profitability.

Click Here to learn more about how
ASAP can help you increase your process efficiencies.

Imagine the opportunities – what would happen if I could save 45 seconds on, 2, 3 ,4 different processes?  How could this affect my capacity to grow my client base?  How could this affect my ability to invest in new products? How could this affect my ability earn that promotion? How does this affect whatever it is, that is important to me?

45 seconds. It’s less than the time it takes to brush my teeth!

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Performance Problem Solving 101: Moving Beyond The Pointy Finger

March 27, 2012 by 1 Comment

Performance evaluation can be a messy topic. Often it is difficult to understand why performance output does not match expectations.  Part of the complexity is separating out personality conflicts and learning to focus on the situation.  However, focusing on the situation requires us to unravel or peel back the layers to uncover the inputs to performance.  Three important inputs include:

  • Process – the work instructions to perform functions
  • Tools – the equipment, machinery, jigs, computers, etc used to enhance performance
  • People – those who perform processes/functions

Taking time to focus on each of these inputs provides insight into how they effect performance and measures the degree to which each is aligned and leveraged for optimal performance.

The next step is how to evaluate each input.  A great way to begin an evaluation process is to gain an understanding of the current state by asking questions about each input.  Beginning with process, process questions might sound like this:

  • Is the process written
  • Does the process support the desired outcome
  • Are there redundancies
  • What quality level is the process capable of producing
  • Are tasks combined to reduce motion and waste
  • What are the cycle times

Once the process is defined and validated for quality and productivity performance goals, we can evaluate the tools.  Tool evaluation questions might sound like:

  • Do the existing tools support quality goals – what tools could be incorporated
  • Do the tools proper enhance productivity and decrease cycle times
  • Are the tools easily accessible
  • Are the tools well cared for and maintained
  • Do the tools allow for self correcting behaviors

Now that the process and tools questions are resolved, we can move to an evaluation of the people engaged in the process.  People questions might sound like:

  • What physical skills are necessary
  • What intellectual/emotional skills are necessary
  • What problem solving skills are necessary
  • What leadership attributes are needed
  • What training is necessary

After exploring,  problem solving each component can begin.  Knowing how to measure each input helps to untangle and align each for the best possible outcome – And it could lead to a happier work force too!

What have been your challenges in performance evaluation?

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Revealing The Hidden Costs Of Manufacturing

March 14, 2012 by 2 Comments

I recently wrote a blog article about achieving a target product cost through design and process improvements.  A fellow colleague wrote a great comment regarding total cost vs. unit cost as a method for supply chain decisions.

Yes, total cost is different from unit cost.  This begs the questions: what is total cost? An economic definition includes variable cost, fixed cost, capital expended and the total opportunity costs of each production input.  While this definition is accurate and makes sense in theoretical economics, it is not very helpful to those of us charged with making complex supply chain decisions.

To unravel the more essential question: “what are the components of total cost relative to my product, my company, my manufacturing facility?”, me and my team, have created the following model:

This model, revealing the total cost of manufacturing, can seem overwhelming.  However, studying the model does give us an insight into just how complex costing can be.  And while there are barriers to accurate information, the model can be used as a begining point to drill down into each component and then re-assemble or roll up into a total cost, creating a more robust decision making platform.

What have been your challenges in determining total and unit costs?

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Brand Loyalty – What Is The Cost Of Disappointment?

February 22, 2012 by Leave a comment

You know how if feels, last minute purchasing, ordering the product too late, rushed delivery, hurry to the store – all to receive a less than attractive product package.  Maybe the package is dented, torn or crushed; or it could have been previously opened or it is missing critical components.  Maybe you are a manufacturer waiting for inputs to your process and half of the product is lying on the floor of the truck.  This is disappointment.  Disappointing experiences are remembered, repeated and attached to our brands.

To those of us familiar with the concept of brand loyalty, we understand that when brand loyalty is damaged, there are consequences.  Yet, the concept and its ramifications seem to be intangible, emotional and difficult to express in mathematical terms.  When this is the case, it becomes challenging to create a business case for investing and improving processes that directly influence brand loyalty.

Interestingly, I recently came across a study on consumer behavior when presented with damaged packaging.  The information I found most fascinating include:

  • Perception of a product as a “brand you trust” dropped from 73% to 41% when packages were even slightly damaged
  • 25% of the most brand-loyal shoppers question the safety of the product when the package is damaged
  • Up to 55% of shoppers discarded the brand, and 36% opted to purchase another brand

These numbers presented are eye opening, but what, then is the financial impact of these data? Taking the information in the study, we applied a hypothetical percentage of damaged packaging into the model and based on the following assumptions, we arrive at the model below.

Sales price = $5
Percent of users switching brands = 36%
Annual Revenue = one $100,000 project per month

Revenue Quantity Percent Damaged Product Packaging QTY Damaged Return Cost Customers Lost Due to Brand Switch Revenue Lost Due to Brand Switch Annual Revenue Lost Due to Brand Switch
$100,000 20,000 1% 200 $1,000.00 72 $360.00 $4,320.00
$100,000 20,000 2% 400 $2,000.00 144 $720.00 $8,640.00
$100,000 20,000 3% 600 $3,000.00 216 $1,080.00 $12,960.00
$100,000 20,000 4% 800 $4,000.00 288 $1,440.00 $17,280.00
$100,000 20,000 5% 1,000 $5,000.00 360 $1,800.00 $21,600.00
$100,000 20,000 10% 2,000 $10,000.00 720 $3,600.00 $43,200.00

 

Reviewing this model, I notice at the 1% defect rate, my damage is only costing $4,320 per year.  While the observation is correct from a GAAP accounting perspective, it does not take into account the costs to acquire new customers, the lifetime value of customers, and attrition rates.  Additionally, the perspective does not count the number of people with whom the 72 lost customers discuss their disappointment.

For More Information

Check out this video to learn more
about how to prevent product damage within the supply chain.

Click Here to learn more about how
ASAP can help you with your damaged product issues.

So, what is the total cost of disappointment?  It seems to me, the answer lies more in our approach to the question, than the articulated dollar amount.  When we engage in a process that allows us to explore different perspectives including, sales and marketing data, operational data and the experiences our customers are having, we might then obtain an accurate account of the cost of disappointment.

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B2B Relationships: Trust, Transparency & Commitment; Revenue, Profit & Cash Flow

February 9, 2012 by Leave a comment

Defining what a successful B2B relationship entails may differ depending on many factors. Some of those factors can include corporate mission, vision and values. Other influences might be determined by our particular role within our organizations. For me, I notice I feel and perform best when trust, transparency and commitment are present in the relationship.

Trust, transparency and commitment may not be viewed as typical ingredients to successful B2B relationships and often characteristics such as revenue, profit and cash flow are the rule of measure. Revenue, profit and cash flow are essential. A Business’ survival depends on the presence of these elements earned through its relationships with client companies. Since business survival depends on the presence of the revenue, profit and cash flow, what difference, if any, does it make if trust, transparency and commitment are not a component of the relationship?

I believe the difference lies in two things, choice and the human element. Organizations and businesses are more than a series of automated systems and processes converting and conducting transactions – every business possesses a human element. Next, there is the issue of choice. Today, businesses have more choices than ever to have their needs met – and ultimately, it is people who make business decisions from a myriad of choices.

If people, working inside businesses, do not have a sense of trust, transparency or commitment from our relationship with them, how can revenue, profit and cash flow be sustained? What prevents businesses from making a different choice?

Perhaps the best answer is that both sets of three: revenue, profit and cash flow and trust, transparency, and commitment are equally important ingredients of a successful B2B relationship.

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Achieve Target Price and Earn Profits Too!

January 25, 2012 by 3 Comments

Whether launching a new product or expanding capabilities to accommodate our clients growing needs, meeting the target price is a significant barrier to earning new revenue streams and potential profits. Sometimes we take on new business opportunities as a way to gain market share, deepen relationships or to gain an advantage over the competition. While these strategies for new business serve their purposes well, it remains essential not only to meet the target price, but also to be profitable at the target price.

Fortunately, approaching target price challenges from both a design improvement and process improvement perspective allows us to open ourselves to a path toward meeting our objectives. A design and process improvement course can make taking risks less emotional and bring us into the realm of rational decision making. What if a design and process improvement method was consistently employed, and the data collected from these efforts demonstrated that a 10%, 15% or even 30% gain in profitability is likely.

One step in achieving a data driven decision-making model is to create processes that deliver reliable data needed to incorporate into an existing decision making and forecasting model. A process that generates and delivers this kind of information is presented below. It is an iterative process that synergizes with a well known Six Sigma concept, Define, Measure, Analyze, Improve, Control (DMAIC).

Step One: Define Base Process

  • Define base process
  • Create value stream map
  • Delineate sub-processes and assign cycle times to each
  • Identify and document opportunities for improvement
  • Present per product price and improvement opportunities

Step Two: Perform Project, Provide performance Feedback and Improvement Opportunities

  • Actual cycle times
  • Yield reporting
  • Constraint analysis
  • Feasibility study
    • Incorporate actual data to engineer design for manufacturability model
    • Material & equipment suitability
    • Yield and process time optimization

Step Three: Adopt New Process

  • Define new process
  • Create new value stream map
  • Delineate sub-processes and assign cycle times to each
  • Identify and document opportunities for improvement
  • Present per product price and improvement opportunities

Step Four: Perform New Process, Provide performance Feedback and Improvement Opportunities

  • Actual cycle times
  • Yield reporting
  • Constraint analysis
  • Feasibility study
    • Incorporate actual data to engineer design for manufacturability model
    • Material & equipment suitability
    • Yield and process time optimization

This iterative process continues to deepen, creating an improvement perspective and can continue until all potential waste is removed, or can be finished when a desired target price and profit is met.  The data gathered from the process can then be integrated into our decision-making models.

While the decision-making model currently in use may not be well structured and documented, we are making decisions and are therefore using some sort of model. Enhancing our awareness regarding how we go about making decisions and adding a rational perspective to our new business strategies can support our efforts to increase revenues and profits.

Click Here to download a case study supporting this model.

Click Here to begin a conversation on how ASAP can help meet your target price initiatives.

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Reducing Variations In Assembly And Packaging Processes – A 3-Step Guide

January 9, 2012 by 4 Comments

Assembly and packaging processes, sometimes referred to as secondary processes, can be difficult to define, measure, analyze and control. Labor-intensive, secondary processes performed by us humans seem to present the most challenges. The unpredictable nature of human performance can be overwhelming, making it seem impossible to feel confident about the accuracy and consistency of our processing methods.

Uncertainty feels risky and is frustrating to deal with. Blaming the people performing the process seems like an appropriate behavior, however, I have found it is more productive to take a curious approach and understand what drives this unpredictability.

So the then the question becomes how. What course of action can be taken to understand what causes variation and unpredictable outcomes? Broadly speaking, we need to look at the system inputs, such as, process, people and tools. The first input to become curious about is the process. Some questions to consider include:

  • Is the process defined?
  • Are process tasks defined?
  • Are tasks and sub-process measurable in terms of quality and quantity?

Once the process is defined and measurable, move to a review of the tools needed to perform the tasks and sub-processes. Some questions to consider about tools include:

  • Are the tools widely available
  • What training is available for tool use
  • How are tools calibrated and maintained to ensure consistent performance.

Finally, we can review what specific skill sets are needed to use the tools and perform processes. Some questions to ask about skill sets include:

  • What types of motor skills are needed, fine, gross or a combination of both?
  • Are hand strength and dexterity needed?
  • Are detailed math skills needed for measuring and counting?

After negotiating this adventure in curiosity, we can start inserting humans into a well designed, measurable process where variations can be analyzed and controlled.

While this 3-step guide may seem time consuming, the benefit of doing this work is an ability to create fantastic training programs to further our goal to offer great products to our customers.

Speaking of great training programs, check out this sample video, highlighting ASAP’s performance training video production capabilities.  We have also included the corresponding Shrink Wrap Quality Training Test.

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Productivity Affects Sales – How?

December 15, 2011 by 2 Comments

Meeting sales goals is one of our highest priorities, and productivity is a determining factor in whether or not we meet those goals. The degree to which our manufacturing processes are productive affects our capacity to generate revenue. Since our organizations exist to serve the demands of our customers, measuring productivity and understanding the degree to which productivity affects sales performance is worth exploring.

One of the difficulties in measuring productivity is that often our manufacturing environments have high-speed, automated equipment to produce our core processes, and secondary process are semi-automated requiring a labor component. While it may be a fairly simple equation to determine cycle times of our equipment-based primary processes, methods to determine cycle times in secondary processes requires a different approach, especially if customization is a requirement.

Although it may be difficult to measure, monitor and improve productivity, it is an important component to capacity and ultimately sales. This model demonstrates how productivity affects our ability to generate sales revenues.

Productivity 100% 50% 60% 70%
Budgeted Hours (at capacity) 2,000 2,000 2,000 2,000
Actual Hours 2,000 4,000 3,333 2,857
Lost Capacity (hr) 0 2,000 1,333 857
Lost Revenue ($50/hr) $0 $100,000 $66,650 $42,850

Looking at this model in terms of meeting sales goals shows how important it is to know what capacity issues may sprout up if productivity levels are less than expected. If I am planning to achieve a 15% increase in sales, do I have the capacity to meet the goals? Are the capacity issues due to productivity or a lack of available resources?

Theses are ideas and questions are integral components in planning for successful organizational growth and meeting customer expectations.

Generating sales opportunities, closing sales, increasing demand and developing long-lasting client relationships is only half of the equation. The other half is actualizing these efforts through our manufacturing environments. Productivity has a big impact on whether or not we fully leverage our sales efforts.

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The Painful Truth about the Temporary Labor Industry’s Business Model

December 5, 2011 by 5 Comments

Most of us use temporary labor agencies.  It seems like a pretty easy solution to managing variable demand.  And it is.  I just make a call and ask for laborers. An agency could have an office right in my building.  I just walk down the hall, or have them attend my production meeting, send an internal email or phone call.

Except that often, when I ask for 8 folks, I get 5. I ask for people with specific skills and 3 of the 5 actually possess the skill.  The other 2 folks, not the 3 as asked for, are coming soon and those people don’t have the skill set either.  Not only is the skill set absent, but the temps don’t really want to be here anyway.  Several of the people selected are not interested in productivity or quality and we hear about it in a very loud fashion.

These are just some of the frustrations we experience when contracting with temporary agencies, and we can’t really blame the people because the painful truth is that the industry itself benefits when their staff is unproductive.

I know this sounds harsh, but consider this: if my customer is expecting a turn time/delivery in 5 days, I need to plan and staff my project for this expectation.  If I plan the project as if it will run at 100% of productivity, then I need 5 people and I staff my project with temporary labor.  After the project gets started, I notice that productivity is at 60%.  Now I need 2 more laborers, or do I?  Since the 5 people I have are producing at 60%, what output can I expect from the additional 2 laborers and how will this affect my commitment to my customer?

This is a complex mathematical question.  First, I have to calculate lost time/productivity from Monday and if the crew continues at 60%, I have another calculation to make.  I figure I actually need 9.167 people working for the next 4 days.  Consequently, a project that should have taken 5 people 5 days, or 200 production hours to complete, now becomes a 333.33-hour, stress-filled project.  Not to mention the extra management costs working to avert disaster.

Whew, I avoided disaster with my customer and that feels great, but now I have a responsibility to my company to be profitable.  Let’s look at how this project performed:

Project

Budget

Actual
Hours

200

333.33
Revenue  ($30)

$6,000

$6,000
Labor Cost  ($15)

$3,000

$5,000
Gross Profit

$3,000

$1,000

This model demonstrates the actual labor cost due to an unproductive crew.  My company just lost $2,000 of gross profit.  In fact, I gave it to the temporary agency because instead of researching other alternatives, improving my process and or asking folks to be productive, I continued to add unproductive labor costs to the project.

Additionally, the temporary labor industry does not help me  improve my processes; offer fixed per project costs, or guarantee quality and yet the agency gains $2,000 in revenue.  The logical conclusion, painful as it may be, is that the temporary labor industry benefits from providing unproductive labor hours.

I’m thinking there is a better way to manage my variable demand and that now is the time to check into alternatives, especially before my next project is due.

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Damaged Product – A 6-Step Process to Resolution

October 31, 2011 by Leave a comment

Damaged product is simply not acceptable. Whether our products are OEM or retail, customer interaction with product packaging and the product is critical. Retail customers, like you and me, do not buy products that have dents, broken shrink-wrap, or torn labels. Likewise, OEM customers do not want to deal with fallen over pallets, banged-up outer cartons or ripped open bags. This kind of damage greatly reduces an OEM’s ability to be efficient and creates questions about the quality of the goods received.

Damaged product packaging and products has negative consequences, both from a brand loyalty perspective and from an internal costing perspective. The cost associated with brand loyalty is decreased revenue opportunity. Often customers do not tell us their problems; they simply quit buying our products. The internal product costs are bit easier to determine through cost modeling. With consequences such as these, it leads us to wonder how product packaging and product damage occurs and how can these issues get resolved?

For More Information

Check out this video to learn more
about how to prevent product damage within the supply chain.

Click Here to learn more about how
ASAP can help you with your
damaged product issues.

The following is a comprehensive process to resolve damaged product.

1.  Document the actual damage that is occurring through samples and photos.

2.  Evaluate the frequency, assign costs and create cost model to understand the financial impact and establish a budget for improvements.

3.  Map distribution channel, noting the various conditions the product experiences as it travels to the end-user.

4.  Examine manufacturing systems to insure products are safely transitioned from operation to operation.

5.  Examine the packaging system including:

    • Primary packaging practices
    • Secondary packaging practices
    • Tertiary packaging practices
    • Pallet patterns
    • Pallet protection materials

6.  Document findings and create an action plan incorporating root cause and budgetary factors.

Naturally, executing and earning the ROI on this 6-step process takes deep commitment from corporate leadership and cross-functional staff members alike. However, embracing a curious approach to problem solving and establishing budgets can make all the difference in resolving issues surrounding damaged product.

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