Category Archives: Manufacturing

Analytics is for Industrial Manufacturers Too

I’ve written dozens, sorry, dozens upon dozens of posts on Analysis and why every organization should be using it. So I’m not going to go into the details again in this post, but make it crystal clear for you business types who have yet to sign the cheque:

High-performance businesses — those that substantially outperform competitors over the long-term and across economic cycles — are five times more likely to use analytics strategically compared to their peers.
“Using More Analytics Can Help Industrial Manufacturers”, Industry Week.

Now, it’s true that correlation is not causation, as Pinky and the Brain skillfully informed you in their lesson in statistics, but a multiplier of five is very significant. It means that the use of advanced analytics tools is definitely a common trait of industry leaders and if you’re not sure how to become an industry leader, the best way to start is to emulate what the leaders do.

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Is It Really APS If It Uses EOQ?

While I’m not an expert in MPS, I am an expert in optimization, so, needless to say I was taken aback by a statement in this recent TEC bog post on “Sorting Through the ERP, Lean MFG, APS, and MES Clutter” that quoted experts as saying that ERP and APS systems force companies to make runners in EOQs. Now, while I am quite sure that your average ERP will apply EOQ to production scheduling, even though it’s often dead wrong to do so, I would think that a true APS would not be so foolish.

For those of you who aren’t manufacturing experts, here’s a brief guide to the terminology:

  • APS: Advanced Planning and Scheduling – a system or methodology designed to plan plant floor operations to maximize throughput and resource utilization
  • EOQ: Economic Order Quantity – the inventory level expected to minimize total inventory holding and ordering costs
  • ERP: Enterprise Resource Planning – a system used to coordinate all planning and production processes
  • Lean MFG: Lean Manufacturing – a production practice that attempts to eliminate all waste from the production process
  • MES: Manufacturing Execution Systems – a set of systems used to control the manufacturing process on the shop floor
  • MPS: Manufacturing Planning Systems – a set of systems used to plan the manufacturing process with the intent of creating a manageable schedule
  • runner: a product that accounts for the majority of manufacturing workload; on average, 6% of products create 50% of the work
  • WIP: Work in Process – refers to all (raw material) inventory that is currently in the production process

Given that so few products account for so much workload, you would think that these systems would recognize that

  • it’s a must that each production run produce enough of a runner product to meet the total demand for the production period, but
  • producing more runner product adds no relevant value unless enough product is produced to cover the next set of orders (as the line would need to be set up again anyway and it takes time to set up and tear down a production line) and
  • EOQ, which is a measure designed for buyers, is not guaranteed to produce a number anywhere close to an appropriate value, even when order costs are replaced with production-line set-up costs.

As the article states, runners must be produced in optimal order quantities, as this is the only way to maximize the amount of time free to produce the remaining 94% of product. Other products can be scheduled based on a modified EOQ, as order quantities in any given period might not be sufficient to guarantee a profitable run otherwise, but runners and other high-volume runs must be treated differently. And if an “APS” system cannot differentiate between the two types of products, and optimize the run for each type appropriately, I’d argue it’s not an APS at all!

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Sustainable Manufacturing is the Future, But It’s Further Away Than You Think

A recent article in Industry Week on sustainable manufacturing indicated that there are “only a few bumps in the road before a smooth, green ride”. In fact, immediately after noting that while, as a concept, sustainability in manufacturing is easy to define, it is far harder to practically interpret and adopt, the article immediately diverges into how to design an effective sustainability roadmap.

While the advice is good, I think it does a great disservice by completely skipping over a discussion of the bumps in the road, how big they are, and how long it’s going to take to get around them, especially in North America. In North America, we’re facing the following bumps, and they are all biggies:

  • marketing
  • mindset
  • money

Specifically,

  • How do you market the benefits of sustainable manufacturing? Most people care about the end product, not the plant. And the last thing you want to do is be another greenwasher!
  • Most people are not of a sustainable mindset. They’re of a profit mindset, and they still see sustainable as a cost and not a savings.
  • Even those that understand that sustainable is not a cost but a benefit don’t want to spend the money it costs to upgrade production lines and factories to use more sustainable production methods. And this is the real kicker. Until this changes, it’s a long road ahead to sustainable manufacturing in North America.

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Does Your Supply Chain [Still] Have [A] Manufacturing Myopia

Manufacturing Myopia can be defined as a narrow vision of future potential, [generally] leading to formulaic cost-cutting, layoffs, loss of competence, and decline. It’s a state of affairs that is becoming more and more common in North American manufacturers, but it doesn’t have to be in your future.

The fundamental problem, as pointed out in a now classic Strategy + Business article on Manufacturing Myopia is that manufacturing strategies — decisions related to siting, designing, and running factories — are often the same as they were 10 or 20 years ago. Despite all of the so-called program advancements — such as “TQM” (Total Quality Management), “lean production”, and “Six Sigma” — manufacturing, for the most part, has not kept up with the times. Strategies have been contained to the functional or plant level, disjoint from the enterprise-wide strategy and cut-off from the executive decision makers, and, as a result, the manufacturing focus has narrowed over time to the point where competence has atrophied with respect to the rest of the business. This has compelled many companies to focus on cost cutting to the point of irresponsibility instead of (fundamental) process innovation.

So how do you prevent manufacturing myopia? According to the authors, you start by building awareness as the only “cure” is 20/20 vision that ties together an understanding of manufacturing costs and means. Companies have to sharpen their own ability to see their operations more clearly and redesign them more flexibly as they need to acquire the ability to produce higher-quality goods at lower prices in a flexible manner as this is a key component of their long-term competitive strategy and a central, dependable part of their identify.

In order to build this awareness, a company needs to master the following four dimensions:

  • technological distinctiveness
    a company that relies on machine builders and other vendors to fill the gap is simply buying solutions that are available to the mass-market; this will not give them a distinctive advantage over their competition
  • network sophistication
    the company has to progress to a global, flexible supply chain network that can be reconfigured anywhere in the world as market conditions change; plants have to be designed with “flexible footprints” so that they can be enlarged, shrunk, or reconfigured based on the business landscape because it can take two years to close down a factory — and that’s typically after several years of wavering over the decision
  • in-plant transformation across-the-board
    in order for plant processes to truly be transformed, an initiative has to be initiated at the executive decision making level as part of an overall strategy; otherwise, adoption of new processes will be haphazard and results will be across the board (and even include a loss of efficiency in some cases)
  • labor modernization
    even the shop-floor technicians have to become modern knowledge-workers (using the best tools and techniques for the job) who take pride in their job and strive to produce the best product they can; hours of work and compensation must also be modernized so that people are not driven to overtime (where they work themselves sick and lose productivity instead of gaining it)

And, most importantly, as per the article, the company needs to have patience. While the benefits of a manufacturing transformation should start to materialize within eighteen (18) to twenty-four (24) months, as the article indicates, after production technology is replaced it could take two-to-three (2-3) years before the capital investment bears fruit in the the semiconductor sector, five (5) years in major manufacturing, and as much as twenty (20) years in process industries such as petrochemicals and electricity production. Additionally, to improve processes, companies have to train entire plant communities in dozens of different tools and techniques and completely different ways of working. All of that consumes time and resources.

It’s a tall order when you think back to the classic Ford production line that most plants still work on — one path, one job, and one product — but it’s what is needed if plants are to truly enter the 21st century. I highly recommend that you check out the Strategy + Business article [again] on Manufacturing Myopia. I bet your supply chain could use it.

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There Are No Hard Choices in Software Spending, Just Hard Heads

A recent Industry Week article on “hard choices for software spending”, quotes John Lovelock of Gartner who says that, if you’re an organization, either you’re viewing IT as a way of making money, saving money or increasing your profitability; or you’re viewing it as an expense to be trimmed. The implication, both of the analyst and the author, is that you fall into two camps, the spenders or the savers, and you have to make a hard choice as to what camp you fall in.

Well, I disagree. There are no hard choices when it comes to software spending, only hard heads. Like Procurement, properly approached and managed, IT investments always increases profits (by lowering costs and/or increasing revenue) — especially in the supply chain. Pick an area. Any area. The right systems will always increase efficiency, transparency, and productivity. And if they impact spending, they will help to contain costs and optimize spending, resulting in savings the first time they are used. And anyone who can’t see beyond the up-front costs to the long term savings has a hard head, especially after all of the successful case studies that have been published by the analysts, research firms, and publications over the last ten years.

Unfortunately, it looks like it’s going to be a while before IT spending reaches the level it should be at and companies replace their antiquated systems and/or acquire systems that they should have had years ago, as Gartner is only projecting total worldwide IT spend in the manufacturing sector to grow by 2.6% this year. That means that while one third of CIOs may go forward with software and hardware upgrades that were deferred due to the recession, as per a study conducted by Robert Half Technology earlier this year, it will likely be a while before the other two thirds of CIOs do the same.

As a result, manufacturers will continue to struggle with increasing complexity, global competition, rapidly changing business environments, and volatile raw material prices for no good reason. And the pressure to reduce costs, improve productivity, and deliver greater customer satisfaction while continue unabated. All because they have a hard head.

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