Author: David Dehne

Smart Capital Investing in a Recovering Economy

Earlier this year, the MAPI Foundation increased their projection for manufacturing sector growth for 2018 – 2021 from 1.5% to 2.8%. We haven’t seen overall growth like that in a long time, and it should spell a welcome relief for many manufacturers.

Capital Spending: A Leading or Lagging Indicator of Profitability?

One of the metrics that MAPI points to for their increased optimism is the pace of capital equipment spending. According to the statement on their website:

“After growing by a sluggish 3.5% during 2015 and then contracting by 3.4% during 2016, equipment investment growth accelerated to 4.8% during 2017. Capital spending growth for the third and fourth quarters of 2017 averaged a strong 11.1%.”

MAPI also calls capital equipment spending a key driver of manufacturing profitability.

While it might signal profitable times ahead, calling capital investments a driver of future profitability may be simplifying things a bit too much. Sometimes, capital equipment spending is simply a lagging indicator of an increase in business. Orders go up, so manufacturers have greater cash flow and more money to spend. At other times, capital spending is indicative of the anticipation of an increase in future demand.

But either way, capital investment doesn’t do much to drive manufacturing profitability unless it is linked directly to either: 1/attracting new business (e.g., with lower lead times) or 2/filling existing orders more efficiently. Even in the best of economic times, capital investment can eat into profits if it isn’t synchronized to demand. Consider the following scenario…

Should You Buy That New Equipment?

There’s a new metal stamping machine on the market that can produce parts at twice the rate of the one you have now. It takes less time to set up a run, tolerances are tighter, and it works on a broader range of materials than your existing equipment. It even has built-in alerts that help predict when it will need maintenance, so you can better reduce downtime and schedule around it when it isn’t preventable. The new model is expensive, but business was good last year and is tracking even better this year. Should you buy it?

There are many reasons this equipment might be a good investment. For example, the tighter tolerances and broader range of materials might help you attract new business you wouldn’t get otherwise (Reason #1). However, if you’re basing your decision solely on being able to produce more faster through reduced setup times and a faster run rate (Reason #2), it may not be a good investment if the older equipment isn’t a constraint in your system. (Note that, in this scenario, we’re assuming the older equipment is reliable even if it is slow.)

According to the Theory of Constraints (TOC), a constraint is anything that limits a facility from reaching its performance objectives. There are several types of constraints, but in this case, we’re just looking at a resource constraint. If the new stamping machine replaces older equipment that is a constraint, that’s a mark in favor of making the investment. With the current constraint sped up, the facility will be able to produce more. (And, since we’re talking about a Demand-Driven Manufacturing scenario, that “more” will be based on customer demand.)

Investing in equipment that allows the manufacturer to fill an unmet customer need can be a good decision. However, money invested in equipment that simply speeds up a process that isn’t a constraint is often money wasted – and that definitely does NOT lead to future profitability.

Synchronizing Flow to the Constraint

Now that you’ve decided to invest (or not), you need to synchronize production flow to your constraints. SyncManufacturing has helped manufacturers increase flow – and capacity -without adding equipment and has even helped some put off an investment in factory expansion.

One of the ways we accomplish this is through our proprietary scheduling engine called CONLOAD (short for “consistent load”). The CONLOAD algorithm sets the optimal rate for releasing work into production to achieve a consistent level of work flow. Here’s how that happens:

CONLOAD™ allows the user to establish a level of work-in-process (WIP) inventory to achieve optimal flow through the production process. Those who are familiar with the Theory of Constraints (TOC) will recognize this as the amount of WIP necessary to avoid starving the constraint.

The standard unit of measure for setting the optimal WIP level is the number of hours that a job takes on the constraint(s). If this level is 20 hours for a constraint, your CONLOAD™ is 20 for that constraint and the system will ensure that only 20 hours of work is in process for that constraint at a given time. Note, this is not 20 hours’ worth of work at the constraint – it is 20 hours’ worth of work between the release of work and the constraint.

By gating the release of work into production in this way, you are only releasing the work necessary to optimize flow and velocity through production. All other work is gated into the system at the rate the system can handle, based on CONLOAD™.

SyncManufacturing software monitors all activity in real-time and makes dynamic adjustments based on the pace of the constraint. If it is running faster than expected, the software will speed up the release of work into production. Conversely, if the constraint is running slower, SyncManufacturing will scale down the CONLOAD rate, always maintaining the proper level of WIP.

3 Ways CONLOAD Accelerates Flow

Managing to the constraints increases flow and maximizes throughput in a variety of ways. Here are three examples:

Reduce WIP – You only have in the system what you need to maximize throughput.

Minimize delays – You stabilize the in-process queues, so when an order is released, it can flow through the process.

Reduce waste – You reduce the waste caused by undesirable behavior associated with too much work in the system, including unclear work priorities, choosing to work on easier setups, or handling materials more than necessary.

Sumiden Wire, Rex Materials Group, GIW Industries, Orbital ATK, and Pyrotek are all manufactures that implemented constraints management using SyncManufacturing to increase flow. Read their case studies to learn more and then watch the CONLOAD demo on YouTube.

We’ve also released a brand new on demand demonstration of SyncManufacturing software that shows how all the pieces fit together to synchronize resources (people, equipment, materials, method and data) to customer demand. As always, if you have questions or comments, leave them below or reach out to us directly.

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April 30, 2018
Synchrono® Sponsors Manufacturing Technology Strategies Track at IndustryWeek

Synchrono^® Sponsors Manufacturing Technology Strategies Track at IndustryWeek

Demand-driven manufacturing software leader supports sessions highlighting the latest technology tools and strategies…MORE

April 25, 2018
Thought Leadership: 4 Ways SyncKanban® eKanban Technology Drives Continuous Improvement

Every year, right-sizing inventory tops the list of strategic goals for many manufacturers. But right-sizing inventory is never a “once and done” initiative. Even in demand-driven manufacturing environments where replenishment is linked to demand, there is room for continuous improvement. This paper focuses on how you can use several features within SyncKanban^® eKanban Software to continuously improve inventory management in your organization.

Download

April 23, 2018
Fast Results Using TOC for Demand-Driven Manufacturing – Part Two
Manufacturers use constraints management first to gain the most demand-driven change

Last time, we talked about focusing on enterprise improvements rather than local efficiencies using constraints management (TOC). We discussed that continuous improvement tools such as TOC, Lean and Six Sigma work like “sandpaper” on an organization’s processes, smoothing various stages of their demand-driven journey.

I likened TOC to the “coarse” grit of sandpaper—the one to use first to get the best results–faster. Before discussing the other tools (which I’ll address in future articles), I wanted to share how the TOC principles we discussed last time have brought real results to two manufacturers.

Constraints management improves throughput, on-time delivery, more

My first example, a discrete manufacturer of test equipment for semi-conductors, decided that they could do better and that TOC was going to be the philosophy they utilized to do it. They had a lot of difficulty in production and in meeting their client requirements. They began by implementing drum buffer rope (DBR) scheduling. As part of this, they identified a drum for the organization and began managing it as the constraint. It is important to note that TOC people do not regard constraints as bad things per se, instead, they look at them as leverage or control points that allow you to simplify management of your system. There are many people that I come across who think TOC is about identifying and eliminating constraints. However, Goldratt viewed constraints as a positive item in that in an interconnected environment, the constraints provided the leverage points that greatly simplified management of the system. Goldratt once told me that the constraint within an organization should not move any more than once every two to three years.

Once the drum was identified, the next steps were to exploit the constraint and subordinate all other resources to the constraint. As part of this, the company identified a number of policy and process changes. First, they changed what they did when a constraint resource needed a first-article inspection before continuing to run. They began moving the parts requiring inspection to the front of the queue and, in some cases, removing parts from the test equipment in the middle of the test, in order to service the constraint faster. Soon, the team carried this first-in-line mentality throughout the organization with a laser-like focus on clearing anything that got in the way of the constraint producing to current customer demand. Here are their results:
- Increased constraint throughput by 120%.
- Increased on-time delivery from low 70% to 95%+.
- Cut cycle time and lead-time in half.
Before this change, the company was outsourcing 50% of the work for the constraint. They have since brought it all in house where the yields were much higher, plus, they added another 20% of throughput.

All of this was accomplished within four months and without making one physical alteration to production. No 5S, no kaizen events, no SMED, no value-stream maps, no re-laying out of the production process, no Six-Sigma projects. Also, no additional people or capital equipment were needed. The tools of Lean and Six-Sigma were critical to continuous improvement and refinement of the process, but Constraints Management (harkening back to the sandpaper analogy) served as the coarse sandpaper, taking a rough board and making the dramatic change of smoothing it out.

60% on-time delivery to 90+

Another example – During my work with a discrete manufacturer of capital equipment, with hundreds of parts needed to move through a spaghetti-type flow and meet up in final assembly. Chaos and stress reigned throughout this organization, with the head of final assembly serving as chief expediter. Our aim was to increase their on-time delivery rate which was in the low 60% range and their replacement part fill rate which was less than 50%.

We turned it around by focusing on synchronization and the pacemakers of production. We began by “choking work” into production at the rate the system could handle and subordinated all other resources to the constraints and to final assembly. Soon parts were delivered on time to final assembly, and, ultimately the customer. The results?
- On-time delivery up to 95%+
- Increased fill rate to the upper 90% range
- Returned profitability to the organization for first time in four years
- The head of assembly spent time managing assembly rather than expediting parts.
All of this happened in less than six months. Again, not a resource was added, not a single resource was moved; the physical flow of material was unaltered– yet these were the results.

In both of these cases, it was still critical to employ the tools of Lean and Six Sigma to continue the path of continuous improvement, and we’ll talk about that the next time I write to you. However, these cases prove that nothing gets results as fast as the use of Constraints Management. The board will never get as smooth as when Lean and Six Sigma are used after TOC– but to take a really coarse board and make it relatively smooth quickly and efficiently, you need the coarse sandpaper (TOC) –and then the medium (Lean) –and then the fine (Six Sigma)– to make it as smooth as glass.

This is part two of a three-part series. Here are the links to the entire series.
- Part 1, What Sandpaper Will You Use?
- Part 2, Fast Results Using TOC for Demand-Driven Manufacturing
- Coming soon
-John Maher

John’s passion for demand-driven manufacturing is equal to his interest in how this method improves the lives of employees within these environments. “I’m here to help, not to judge” comments John whose posts reflect why demand-driven matters and are based on his experience working in manufacturing environments and expertise in ERP, MRP, APS, supply chain, manufacturing planning and scheduling systems and constraints management.
April 23, 2018
Turn Your Gemba Walk into a Power Walk

Gemba is a term that is increasingly familiar in the manufacturing world. Loosely translated from Japanese, it means “the place where the work is done.” The originators of the Gemba Walk – the practice of walking the shop floor to identify waste – knew that manufacturing process issues could not be identified or solved in the conference room or behind a desk. Management needs to visit where work is done to get a true sense of what actually happens.

Say, for example, you want to reduce changeover time in a particular work center to increase flow velocity. You know what the average changeover time is based on data collected from the shop floor. You can also see that there is a wide variance between minimum and maximum changeovers. What you don’t know is WHY. The only way to get that information is to head out to the shop floor to watch what happens during changeover and talk to the individuals involved.

Information is Power

The purpose of a Gemba Walk is not to confront employees about their performance, but to learn from them, and there are plenty of sources for information on the best way to conduct an effective walk. Unfortunately, many workers have learned to expect criticism every time management shows up on the shop floor. If your organization has a poor history of management/employee relations, you’re probably going to need to put some extra effort into training your managers on the best way to create an environment where employees feel safe about being open and honest about what happens on the floor.

The other trick is to know, ahead of time, something about what is happening as well as what is possible – and that requires data. In the example I gave above, management had collected actual data from the process, so they had a pretty good idea of how long changeovers took and what could conceivably be possible with the right process improvements.

Having system-gathered data is important for two reasons. First, like eye-witnesses to an accident, employees on the front lines may not be the best source of information because their focus was elsewhere. It’s not that they are purposefully deceptive, it’s just tough to recall details of an incident you didn’t anticipate. If you’re tracking something like changeover time manually, your perception of how long the process takes may be wildly off. Even if you write down the start and end time, manual recording processes are prone to error and misrepresentation.

Having data is also important because it gives you a purpose for your walk. Even though it’s not held in a conference room, a walk with no purpose can feel a lot like attending a meeting with no stated purpose or goal. We’ve all been to one of those. The meeting takes up the allotted time, nothing is decided, and everyone leaves wishing they could get that time back.

You can ask work center personnel open-ended questions about their daily challenges and ideas for process improvement. If you watch them work, you may even identify areas for improvement that they didn’t see. But having a purpose for the walk – in this case, reducing changeovers – gives the discussion structure and direction and helps workers feel like the time is well spent and makes them more likely to get into the spirit of the Gemba process.

Orbital ATK Uses Synchrono to Power Up Their Gemba Walk

The Synchrono Demand-Driven Manufacturing Platform has a number of tools that increase visibility to the shop floor. At the Industry Week Technology Conference and Expo, the Aerospace Structures Division of Orbital ATK, a manufacturer of composite parts for the aerospace industry, spoke to how they use the dashboards made possible by SyncView to support their Gemba Walk process. You can access that video on YouTube.

Screen used in a Gemba Walk at Orbital ATK

The Gemba Walk segment is about nine minutes into the overall video, but if you have the time, the rest of the presentation by Paul Hardy, Orbital ATK’s Application Architect, is really informative as well – especially for those of you looking to leverage the IIoT in your operations. Also, in the second half of the presentation, John Maher, Vice President of Product Strategy at Synchrono, talks about the metrics manufacturers will be using in the factory of the future.

We’ve also posted an on-demand demo of SyncView on our website so you can take a closer look for yourself. Or reach out to us, and one of our Demand-Driven Manufacturing specialists would be happy to give you a personal tour and answer your questions.

April 16, 2018
What Sandpaper Will You Use? – Part One
What to Use to Get the Most of Your Demand-Driven Changes

Demand-driven manufacturing leaders are always refining their tools and tactics to ensure they’re spending their time wisely. This blog marks the first in a three-part series about using the tools of TOC, Six Sigma and Lean to help manufacturing leaders gain the most benefit from their demand-driven transformation.

Three in One

TOC, Lean, and Six-Sigma should all be part of the continuous improvement (CI) journey at your company – and knowing which tools are right for the job will help you realize your CI goals faster. And even though these three methodologies are not the end all, be all of continuous improvement, they offer proven frameworks and tool sets that are very effective at improving organizations.

During this discussion, I want to explain how the methodologies of TOC, Lean, and Six-Sigma work like sandpaper. TOC is the coarse, Lean is the medium, and Six-Sigma is the fine-grit sandpaper. The company is the board –or piece of wood in a particular state of roughness – and you have to know which paper to use, based on the state of the board. At Synchrono, we use all of these methodologies together—leveraging the right tools at the right time —and apply them strategically in our customers’ demand-driven transformation.

TOC to Start

I have never seen a more effective approach when you are just starting out than TOC. The methodology is all about understanding the entirety of the system and based on that, knowing where the leverage points are in the organization that, if affected, will bring about a rapid change to the entire system. It recognizes the interconnectedness and cause and effect of organizations, their people, resources, processes, and most important, policies.

When you first start a continuous improvement journey, the opportunities for improvement are great. They are everywhere within the organization and once the workers in the system have approval and the tools to change the system; they will do so with great effort. However, if we want to get the most out of these efforts, we need to focus these improvement efforts on the constraints/ leverage points of the organization to yield global results, not just localized effects. Said differently, we need to focus on the areas inhibiting enterprise performance, and I have not seen a more effective approach at doing this – and doing this quickly – than the TOC methodology.

Next time, I’ll talk about how to use TOC to pinpoint the changes necessary to get the most out of your continuous improvement efforts. Then, I’ll address the role of kaizen events and drill down into how Six Sigma – the finest grit of sandpaper – can refine your process change and ensure that each moving part works harmoniously together. Like many jobs, having the right tools makes all the difference in the world. The right methodologies, along with ongoing refinement, will steer your demand-driven environment towards embodying the best in form and function.

This is part one of a three-part series. Here are the links to the entire series.
- Part 1, What Sandpaper Will You Use?
- Part 2, Fast Results Using TOC for Demand-Driven Manufacturing
- Coming soon
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-John Maher

John’s passion for demand-driven manufacturing is equal to his interest in how this method improves the lives of employees within these environments. “I’m here to help, not to judge” comments John whose posts reflect why demand-driven matters and are based on his experience working in manufacturing environments and expertise in ERP, MRP, APS, supply chain, manufacturing planning and scheduling systems and constraints management.
April 9, 2018

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