The road to operational excellence

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Your organization exists to create and deliver value to someone. Value and longevity are key, whether your aim is to provide a living to members of a small family-owned business, provide a product or service to end users or to deliver dividends to shareholders.

Value is directly proportional to your company’s operational effectiveness and it encompasses all disciplines and departments within the organization. Therefore, to maximize your value, you must understand and optimize your operations. As optimization improves, the gap increases between the cost of goods and price, thereby improving asset utilization, profitability and business value.

Today we will take a high-level look at one of the many critical parts that constitute your operations: manufacturing. We will focus on two key factors, capability and workflow, with emphasis on reducing waste and nonvalue-added activities.

“Operators are the lifeblood of a manufacturing facility, and their
knowledge and ability to apply it are the ‘tribal knowledge’ that
makes each company unique
.”

CAPABILITY

Capability can be defined by several variables: the hard assets, or equipment, on the shop floor; the ability of adequately skilled personnel to operate that equipment effectively; and the capacity of that equipment, given its level of technology. Let’s look at each in more detail.

To start with, ask yourself a few questions. Is the equipment you are using best suited for the job? Is your equipment state-of-the-art? Are you doing the work that adds the most value?

For example, if you are running manual lathes for high-volume turning operations, you are most likely using a lot of labor in the setup of parts and tooling and in the handling of parts. Chances are that your work in process (WIP) inventory is also higher than needed, and the machine time per part is eroding machine open time, thereby reducing capacity. All of these add to the cost and reduce value. When looking at what you should run in-house, ask yourself what your core competence is.
Challenge what you should keep in-house and then outsource the work that is better suited for others. In most cases you can outsource what you are not good at (not cost-effective) and free-up resources (personnel and assets) to concentrate on what you do best.

Operators are the lifeblood of a manufacturing facility, and their knowledge and ability to apply it are the “tribal knowledge” that makes each company unique. These operators must gain and demonstrate proficiency in their work. Inadequate training, the lack of mentoring and the absence of experience can grossly reduce your throughput. If left unchallenged long enough, it becomes the norm — adding to cost, reduced volume, quality problems and, possibly, unneeded purchases of equipment —as you chase capacity. Technology can have a deep impact on the cost of goods, on throughput and on capacity. A recent client bought a gear grinder that was the same model but eight years newer than the one right next to it. The new machine was able to run the same part 10 times faster than its counterpart. The effect on throughput, cost, labor and quality was dramatic.

Be deliberate in your asset-purchase analysis and always consider how new equipment will affect your throughput, debt load, payback period and cash flow.

WORK FLOW

Workflow, simply defined, is a series of actions by numerous resources governed by repeatable processes to convert materials or provide services.

In our manufacturing example, it would start with the receipt of raw materials and end with the product being shipped. Throughout this cycle, cost is added at all operations or stop points, but value is added at only some.

In differentiating value from cost, a good rule is to consider value as anything that the customer will pay for. A worthwhile exercise is to value-stream-map your current process. This is a well-known lean tool that, when applied effectively, can help you identify anything that adds no value to your operation. You will need to challenge all sacred cows, procedures, policies, workflow processes, work-cell configurations, floor-plan layouts, staffing, plant location, logistics, warehousing practices, purchased services, etc. Be sure to also analyze the management and information systems that support the process. Look for all waste, then reduce and remove it.

If done correctly, value stream mapping will yield reductions in lead time, cost, labor, inventory (raw and finished goods) and WIP. And that will improve your availability of cash, floor space, capacity, business value and profitability.

A complementary exercise is the implementation of the 5 S’s:

  • Sort: Eliminate anything you don’t need (if you haven’t used it in a year, it is a candidate to be thrown out).
  • Straighten: Organize the work areas.
  • Shine: Clean the work areas.
  • Standardize: Same-size work cells, tool boards, setup areas, etc. Also, schedule regular cleaning events.
  • Sustain: Make it part of the culture.

Among the benefits of this exercise are better safety, less scrap, more capacity, shorter setup times and improved asset utilization. Each has a direct impact on value.

SUMMARY

The road to operational effectiveness has no end. The improvements you made yesterday can be easily outpaced by changing technologies, new competition, geopolitical events, weather, raw material shortages, trade agreements, etc. The unforeseen is limitless. A company that can return an increasing amount of value from its assets will build value. However, if the company cannot demonstrate an ability to sustain this its future value is at risk.

Stay the course, challenge yourself, your management team, your employees, all facets of the business and foster a continuous drive for sustainable operational improvement.

Matt Mondek is president of Mondek Solutions, a proactive and hands-on business-consulting firm that focuses on mentoring executive leadership, operational efficiency, and bottom-line improvements. He has over 43 years of experience in P&L, executive-level leadership, operational effectiveness, quality and product design. For more information, contact him at mmondek@mondeksolutions.com or 815-382-1987, or visit mondeksolutions.com.