Monthly Archives: September 2010

If You Want to Survive as a Manufacturer, Just Get Efficient

Industry Week recently ran a lengthy article on how “the manufacturer’s world has changed forever” which purported to provide advice on how manufacturers could learn from other’s successes and mistakes and gain a greater share of customer preference, the key to success in today’s everyone-is-an-expert marketplace.

The article had seven tips, which were good, but generic and just as applicable to retailers and distributors as they are to manufacturers. The reality is that the key to success for a manufacturer is efficiency. An efficient manufacturer has a high rate of production, produces minimal waste, maintains high quality, and is very cost efficient — to the point where its total cost per unit is lower than that of its competitor. That’s the ultimate key to survival in this economy — being more competitive than your competitors.

Thinking like today’s buyer is for the designer.

Getting rid of the dead wood is implied.

Anticipating change is a fact of life.

Determination is a timeless key to success.

Urgency is the normal state of affairs today.

Inspiration is the sign of every true leader.

Alignment is the first step to getting efficient, but …

until a manufacturer is efficient, it’s chances of survival are slim. So just get efficient.

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Seven Things Manufacturers Should Be Able To Do With S&OP Data

A recent article in Industry Week summarized “five things manufacturers should be able to do with S&OP data” that were quite good. So good, in fact, that this post is going to summarize them before adding two more things that manufacturers should be able to do with S&OP data.

Minimize SurprisesAn effective S&OP process that focuses on collecting and understanding demand data from internal stakeholders and trade partners is essential if you want to minimize surprises such as a delayed shipment, insufficient supply, or raw material shortage.
Optimally Manage InventoriesHaving the right amount of product, at the right time, in the right place is key to increasing margins, cash to order cycles, and customer satisfaction, among other benefits.
Improve MarginsImproving margins is often an area that’s under-emphasized in an S&OP process, and yet [it] is ultimately the most important factor in the health of a company. Making sure the relevant S&OP data, such as average product unit cost, inventory levels, logistics costs, anticipated margins, customer satisfaction rates, etc. is shared across marketing, finance, supply chain and the executive suite is critical because input and shared data amongst all functional groups is what drives margin improvements.
Improve Customer Satisfaction RatesImproved customer satisfaction gives you the ability to build stickiness with customers, which leads to profitable relationships. Knowing what your customers need, when they need it, and delivering on that need in a timely fashion is key to increased customer satisfaction — and good visibility will allow you to do just that.
Better Resource UtilizationEach part of the S&OP process should leverage the data as fuel for the decision making process as this allows for fact-based resource allocation which enables significantly greater resource utilization.

These are great starting points, but don’t stop there when you can also use S&OP data to:

Decrease CostsOnce you have an effective handle on demand across all product lines, you can use that knowledge to negotiate the best prices on parts against true volume levels. No more lowball estimates to be safe or missed rebates due to overly aggressive estimates.
Effectively Prioritize NPDOnce you have an effective handle on sales across product lines, you can determine which types of products sell the best, and which products in the pipeline are the most likely to be successful. Focussing on these products should allow the company to most effectively utilize its resources.

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Is a 45,000 fine in your future?

Any UK organization with half-hourly metered electricity that used more than 6,000 MWh in 2008 that does not register for the UK-wide CRC Energy Efficiency Scheme before September 30, 2010 could be fined as much as £45,000!

Previously known simply as the Carbon Reduction Commitment, the CRC Energy Efficiency Scheme is an emissions trading scheme introduced by the UK government to cut greenhouse gases by 1.2 million tonnes of carbon per year by 2020. Organizations are now required to monitor their emissions, and if they exceed this threshold, they need to purchase allowances to emit additional tonnes of CO₂ or face a hefty fine.

The government estimates that as many as 5,000 organizations exceed the threshold, but only 1,229 have registered to date. Eligible private and public sector organizations that don’t meet the registration deadline will be immediately fined £5,000 plus an additional £500 penalty for every subsequent working day the company fails to register, to a maximum of 80 days. Is your company one of the roughly 3,800 that hasn’t registered yet? Are you sure?

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Supplier Audits Must Be Surprise To Be Effective

As per this recent article in CPO Agenda by Meryl Bushell on why “ethical audits aren’t the final word on supplier standards”, in the past few years, audits have been shown to be ineffective for workers and also to be increasingly affected by fraud, double bookkeeping and coaching for workers so that they give “the right answer”.

If a supplier who knowingly violates common standards on child labour, health, safety, and hygiene, working hours, and wages (among other things) knows that they are going to be audited on a given day, they are going to be prepared. They’ll send the child labour home. They’ll reduce the work force on that day to “safe” numbers (which is whatever number they have enough “show” protective equipment for and / or whatever number fits in the factory without overcrowding). They’ll make sure to give the staff that will be present that day some “time off” the previous two days (i.e. they’ll only work them 8 hours instead of 16) so they don’t look dog dead tired. And they’ll fix all the books so that everyone makes a “living wage”.

But if you show up unannounced, you’ll see how things really run. You’ll see whether or not they (regularly) use child labour. (In some situations, child labour is okay. We let our children work part time at McDonalds when they turn 13. If they only employ children part time for light work in safe situations, in struggling economies, that’s a good thing because it boosts the family income, teaches them responsibility, and gives them a better quality of life. But if they work the child labour 80 hours a week in the mines or on the shop floor, that’s a different story. In this situation, they should all get life in work-camp prison doing the same job.) You’ll also see how “safe” working conditions really are and whether or not their people are not overworked simply by counting the number of employees with bags under their eyes and lifeless faces. (And if you get to the office fast enough, you might even catch them with the real books on the table!)

In addition, as Meryl recommends, you should also make sure that the surprise audit includes a detailed forensic assessment and unsupervised off-site interviews with random workers. This type of audit can quickly reveal a range of serious problems including child labour, below-minimum wages, faked records and protective equipment provide only during audits even when the standard on-site audit reveals only minor issues.

Now it’s true that regular surprise audits can pose quite a resource strain on your suppliers, and a financial strain on the suppliers that aren’t committing ethical atrocities in particular, and that your average supplier shouldn’t be subjected to more than a couple of surprise audits each year, but this problem is easily rectified if you cooperate with other major customers of the supplier and hire a reputable third-party that specializes in ethical audits to perform the extended surprise audits (with forensics and off-site interviews) on your behalf. This way, the supplier knows that they won’t be overburdened with too many resource and productivity draining audits, without knowing when the semi-annual audits will actually happen. It’s a win for everyone.

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