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Are You Stuck on The 50-Yard Line?

If your Kaizen events have not significantly decreased your lead times to customers, you may want to consider your designs. Even if you successfully reduced your time in the shop, in a pure Engineered-To-Order (ETO) setting, much of total order cycle is often in frontend processes. First, let’s revisit my original opening comments from my post “Are You Still Quilting?”

Regardless of company size, most products enter the game as a single idea. And, then, the quilting begins. Over time, some products become standard offerings with a select number of models. In other cases, products will remain Engineered-To-Order (ETO) and the quilting continues. It is this latter group we’ll talk about today.

Typical comments related to ETO Manufacturers:

  • We provide custom solutions to our clients.
  • Our business engineers products to meet unique customer specifications.
  • We don’t make more than 1 of anything.
  • Every client wants something different.
  • We distinguish ourselves from commodity suppliers.

I’m a big believer in naturally occurring patterns. If you are providing a product or service into a specific market, certain needs will recur and form dominant patterns. Design for Manufacturing & Assembly (DFMA) is all about determining the dominant patterns driving “80%” of the action. Once known, you can then go to work with DFMA tools to develop designs that provide late stage, mass customization of components, assemblies, & services.

Like Lean Manufacturing, the title is a bit misleading. It is more about creating highly configurable products with minimal unique designs, parts, & process steps. Each Lean tool you have in the box is designed to attack certain elements. Kaizen events target the 95% of the time no value is being added to an order resulting in incredible velocity. Single Minute Exchange of Dies (SMED) events focus on reducing the time equipment is down to change over from order to order resulting in exceptional agility & much lower inventories. DFMA events are focused on reducing activity drivers.

Specifically, there are 3 basic drivers DFMA is designed to dramatically reduce:

Number of Unique Designs – In a pure ETO environment where quilting is the norm, the opening count can almost be infinite. DFMA events initially focus on determining what the “80%” options/specs are. Once known, the team then focuses on coming up with designs that are very robust & configurable resulting in the ability to perform end of build customizations.

Number of Parts – For most plants, every individual part has a set of transactions attached to it that require human intervention of some kind. Purchasing requisitioning, PO create, receiving, ERP transactions, payables, material handling, inventory counting… Let’s not try to add all the steps if you then manufacture something with that item. Simply stated, part counts drive a lot of activity for most products. DFMA is focused on developing designs that use far less parts. For assemblies, hardware is typically a big part count. Consider self-registering mounting brackets that require few if any nuts, bolts, or washers.

Number of Manufacturing Steps – Most plants are still batch manufacturing & not yet doing single-piece flow, so each manufacturing step has an inbound queue & setup. DFMA teams develop designs that eliminate as many steps in the process as is practical. Think about a universal casting design with minimal machining steps versus several fabricated parts requiring weldments or hardware for example. If you’re already cast or forged, get closer to near net shape or consider additive manufacturing.

Goals — Once you know what product or service you want the teams to work on, it’s important to establish challenging, but achievable goals. Teams I have worked with over the years have achieved results as follows:

Reduce:

  • # of unique designs by 50%+ & make them configurable.
  • # of parts by 75%+
  • # of steps by 75%+
  • Footprint by 40%+
  • Costs by 30%+
  • Lead-times by 80%+

I realize that at first glance this may not seem possible. If you simply try to do a little bit less of what you’re currently doing, you are right! The faster your teams take out a clean sheet of paper & start fresh, the quicker they will come up with results along these lines.

Like most Lean tactics, DFMA is rooted in method & common sense. Once top-level goals are determined, it’s all about getting focused where it will count the most & then systematically applying tools to get to your objectives.

DFMA Process Steps

You may have to repeat the design steps until you achieve the targeted outcomes. It’s ok to send the teams back to the drawing board until they get that AHA! breakthrough.

Let’s briefly talk about a few what’s in it for you items!

Working Capital — There are only two dominant variables that drive an inventory investment – Customer Demand and Replenishment Lead-Time. If you’re able to compress time deeply, you will proportionately reduce inventory requirements. There are two parts to maximizing this benefit – Time & reduced safety stocks.

Let’s look at time reduction first. This may seem a bit counter-intuitive, but sometimes a minimal investment in semi-finished goods can buy a great deal of lead-time. This is particularly true if the designs of those items are universal or easily modified. For many companies, most of the working capital tie-up occurs towards the end of a products build:

Strategically positioning a supermarket with universal goods early in the value curve can buy a lot of calendar with a minimal investment. Of course, for purchased items, having a supplier stock the supermarket on a Vendor Managed Inventory (VMI) basis drops working capital needs a great deal more!


If you have gained velocity thru Kaizen & DFMA events, you won’t require near the amount of Work in Process or Finished Goods inventories as they are time based.

A reduction of safety stocks is also possible as you convert unique designs into more universal, configurable products. This is due to a pyramiding effect:

The individual item safety stocks tend to offset when their demands are combined into a universal product. On average, I see 40% to 50% reductions in required safety stock investments at a 1.64 service factor (95% Fill-Rate). For the real -world demands shown in the preceding graphic, a 42% reduction was achieved.

Soft Cost Reductions – For most companies I work with, I like to look at Accounts Payable (AP) data. In almost every case, when I Pareto AP data, I find that 50%+ of the transactions are tied to 5% of the money flowing thru the business. Simply stated, 50%+ of the team in these processes are focused on 5% of the money flowing through purchasing. I also use a similar approach for manufactured goods & get the same results!

I’m sure nobody designed products & processes to intentionally tie up over half the team to manage 5% of the money. By substantially reducing design & part counts, you can materially reduce your soft costs. You are also in a better position to negotiate VMI arrangements with your supply chain. Once in place, your teams can now be deployed on much more meaningful tasks or to take on growth with no additional folks.


Technology — Following a successful DFMA in which the 80% case has been determined, it is relatively straightforward to automate design & product configuration. Many firms have made the leap from paper to CAD generated prints. Some have even moved to providing shop packets digitally to the floor.

Some teams have moved to using automation tools for frontend processes like Inventor’s Ilogic. I’m familiar with Inventor, so I’m using them as an example… If you’re already using iLogic, it’s a relatively small step to move to a cloud-based product configurator such as Inventor’s Configurator 360: https://www.autodesk.com/products/configurator-360/overview
For your “80%” case, your sales team can then perform product configuration while at the customers’ site & then deploy directly into your systems.

There are so many benefits associated with this capability, I could write an entire post on this topic alone!

Summary – This is a big topic with a lot of elements. I thought about breaking it down into a few posts but decided to go for it… Look at your own situation & see if you have designed yourself into a corner that prohibits you from making great strides in becoming the company who sets market expectations. You will take share if you do!

Best Wishes for a successful 2019!

Mike

Is your Service Team part of your Product Development Strategy?

As I have mentioned in other posts, I’m pretty hands on. I still do a lot of my own remodeling in my house & I tackle selective repairs on my vehicles. It is this last item I want to write about today.

You really have to wonder if the folks who have designed cars have ever tried servicing what they came up with. Let me give you a great example. I had a 2008 Cadillac CTS that eventually needed a headlight replaced. The dealer told me it was going to be around a $500 repair. I won’t repeat my response… I figured how hard could this be? It’s only a headlight! After you’ve removed most of the front nose of the car to get to it, you know why they charged this much. Surely, LPPD (Lean Product & Process Development) was not in play for this part of the car. If it were, the service department wasn’t invited!

When I heard it was going to cost me between $400 & $500 to change spark plugs on my 2015 Wrangler JK, I thought that’s crazy & decided to go for it. You’d think I would have learned my lesson. Now I know why it was that much! You basically have to take off the top of the engine! Ok, maybe I’m exaggerating a little…

The plugs on the passenger side are to the left of the pic above were fairly easy to work on. To get to the ones on the driver side, you must remove the upper air plenum. It is not easy to remove! I’ll leave it at that. Again, was anyone from the service group involved in this lovely design? Assuming there was nowhere else to put the plenum, there are a lot of things that could have been done to make it easier. Since you only have to change them every 100K, I guess it’s no big deal, right?

Having started in engineering many moons ago, I made it a point to get on the floor & talk to the guys fabricating & assembling what I had come up with. Many of these folks had seen just about everything imaginable over their decades on the job. Their input on both what I had done & what I was thinking about on new designs was invaluable to me! This was well in advance of knowing how to even spell Gemba. This led me to also talking to our service people along the way.

If you want to know where your designs are failing or how serviceable they are, make a point of regularly visiting your service team. If it’s a 3rd party, go see them! If you aren’t including them in your product development efforts, you should start doing so. Even better, regardless of your title, put on some jeans & get out on the floor & help build the next prototype! You are guaranteed to learn a great deal more than what you might in your conference room.

Thanks & Good Wishes for a successful 2019!

Mike

Will this Candidate Succeed?

I want to move away from Lean discussions for this posting to talk about leadership. Specifically, I want to discuss hiring and promotions. As leaders, to a degree, we’re all faced with a roll of the dice when it comes to hiring or promoting someone. Will the person succeed or not? I can head in several directions with this topic, but consistent with 8020 & 6-Sigma, I like to get down to a significant few determinants for success. Before I get into what I use to assess candidates, let’s talk about some basics.

Basics: First, have you established a job spec that provides clarity on your desired qualifications & your goals for this position? Everything else in this discussion relies on this first step, so it deserves your time & attention.

In addition to assessing a candidate’s alignment with your spec, keep in mind that because someone is a great individual contributor doesn’t mean they’ll be good at supervision or leadership. Remember, almost every business needs a solid bench of “A” level individual contributors to succeed over time. I’m interested in knowing if the individual has displayed initiative to recognize and solve problems on their own. Do their peers seek them out for advice? Are they already respected as informal leaders? Are they leaders in their communities?

Second, let’s talk briefly about “A”, “B”, & “C” players. I think we’ve all been challenged to identify who’s who on our bench at some point. There’s an expectation you will have a normally distributed histogram. Usually, these ratings drive rewards, promotions, and future employment. In general, I agree with the underlying idea behind this thinking.

Some organizations apply this approach universally. Future leaders are “A” players, while individual contributors can only be strong “B” members. Since “A” level individual contributors are equally important to a company’s success, I prefer a tiered ABC approach. I like to see one tier for individual contributors & one for managers/leaders.

I have heard many definitions for each level over the years. The ones I liked the best came from Nish Teshoian, a key executive at Coltec Industries while I was there. He suggested that “A” players represented your ‘go-to’ folks on the bench. You knew that no matter what you asked them to take care of, you could move forward without having to circle back. Their work was so good, you rarely felt the need to review it. His definition for “C” players was equally straightforward.

As a leader, any time you found yourself dropping down a few levels to take care of something because you couldn’t trust someone’s work, you were dealing with a “C” player. He felt that you should waste no more dealing with them. “B” players were the most complex class. Solid “B” or “B+” folks provide teams with reliable execution of day-to-day needs. They may be consummate pros in their fields with no desire to get into leadership or to come up with the next great idea. However, in many ways they are the backbone of a company.

So, if you are impressed with a “B” or “A” player, should you promote them into bigger, more responsible roles? I use a “3-pronged fork” to consider a candidate. Each of the 3 tines represent a specific value.

My 3-Pronged Fork: Of all the variables you must consider, I have found 3 that are highly predictive of success – Vision, Heart, & Knowledge. Let’s talk about each one individually.

Vision – When I ask people the question, “If you could choose anything to do in life that would make you incredibly happy 2-5 years down the road, what would that be?” In 90% of the cases, I get no immediate answer. They have no clarity on what constitutes success or happiness. Even when I come back to them a few weeks later, they still have not established a clear picture on what that destination is or looks like. At the risk of asking the obvious, how do you start a journey with no clarity on destination? I’ve come to believe that a lot of people are so caught up in their daily challenges, they rarely go to the balcony & look at the path they’re on by default. Almost like a rudderless ship that will wash up on some shore some day provided they don’t capsize.

Even if you think the destination will likely evolve or change, pick one! The knowledge & experience you gain will pay forward in some way even if your path changes significantly.

From a selection point-of-view, moving forward with a candidate who is weak in this area, will likely be a disappointing choice down the road.

Heart – I want to know two things related to this second tine. Why do you want to pursue this destination & what have you done on your own to prepare/pursue this goal? In my experience, the more significant the “Why” is, the more folks will have invested personal time & effort towards their goals. I have found that when people are strong in the 1st tine related to clarity; they usually have a good sense of “Why” they want to pursue a goal. If this is weak, then the personal effort they invest tends to also be weak.

If you’re not excited about pursuing the destination you picked enough to really go for it, you may want to reconsider the goal you picked. The amount of Heart you have starting your journey is critical to sustaining your commitment over time & through challenges.

As to selection, demonstrated Heart is a very good determinant for success. I look for anecdotal examples of what the candidate has done on their own initiative versus what they are saying to me.

Knowledge – Some of the most disappointing choices I have witnessed involved people with incredible pedigrees & training related to the position in question. If you are weak in the 1st two tines, pedigree alone will only get you so far. Spend some time on the 1st tine to fix that happy place in your mind. Then the “Why” gets straightforward & the decision to invest time & effort becomes more exciting & less of a chore. If you’re a bit weak in this tine, but strong in the 1st two, I have seen a lot of folks succeed very well. They’ll find a way to fill in the blanks!

On selection, I know you must filter candidates somehow particularly when you’re looking at a large stack of resumes. You may want to make sure your job spec clearly defines demonstrated capabilities & clarity on what your expectations are for the role over the 1st year. Rather than try to connect the dots between a CV & your goals for the position, why not ask them to directly respond? How will they help you succeed? My 1st two questions would be tied to tines 1 & 2 & then I would want to see their responses to the specifics. Again, if you find the candidate strong in the 1st two tines, unless we’re talking about a role requiring a great deal of technical training, you will likely succeed with the choice.

Summary: Even if you follow this to a tee, there still isn’t a guarantee that you’ll have a great success story to tell. All you can do is stack the deck as much as possible in your favor & then commit yourself to helping the individual succeed.

In addition to the preceding thoughts, I also like using assessment tools like Caliper to look at how well a candidate lines up with the position’s requirements & how well the individual fits the team. When you’re down to your short list, these tools can be incredibly helpful.

Thanks & Good Wishes for a successful 2019!

Mike

Organic Growth

Since my last post, I’ve had the opportunity to work with various PE firm and company leadership teams. With most firms paying higher and higher multiples, it’s becoming increasingly obvious that financial engineering alone will not produce satisfactory returns.

Besides considering longer hold periods, most teams are also concluding that they can’t save their way to prosperity. They understand that profitable growth is key to creating value. There are several ways to generate growth within organic and acquisitive strategies. For this post, I’m going to focus on organic growth.

Many teams I work with create growth on a reactive basis. Although you can produce growth this way, it may not be with your most successful and profitable products. Sources for these opportunities may include Internet inquiries, trade shows, channel partners, etc. In several cases, I have found companies working on new projects and products centered on their least profitable business.

I like to start with 8020 first to focus on the products and customers that represent the company’s core success – Quad 1. If you’re not familiar with 8020, please see my post on this topic: https://sensiblemfg.com/2018/05/08/what-exactly-is-8020/ Hopefully, Quad 1 is also where most of your margin exists. Simply stated, Quad 1 is where the market has embraced you as a supplier or partner. You already have credibility here, so why not leverage this position as much as possible?

When looking at organic growth for Quad 1, I like to use a 4-tier approach. Each tier typically takes more time and needs more investment.

Organic Growth Tiers

Tier 1: This tier is one of the most overlooked opportunities I see. Let’s sell more products to an existing Quad 1 customer. Obviously, this takes the least amount of time and investment. You already have mindshare! Believe it or not, there are only a handful of cases where I found a customer aware of all a company’s products and services.

They started doing business with the company with a certain product line and continued down that well-trodden path. When I have shown them other lines the company offers, the standard response is, “I didn’t know you guys did that!” The other lines may involve different commodities or buyers, engineering teams, operations folks…

You already have the best inside introduction and recommendation in hand that you could dream of. Your current contact can help you navigate the organization and help you set up an introductory meeting. It takes less time and effort compared with cold calling from the lobby. Also, the conversion rate is usually much higher.

Tier 2: This tier is like Tier 1 but may take a little more time and investment. Again, assuming the company is well regarded by a customer, getting them to introduce you to key players at other locations accelerates success. The most cited reason for opportunities in this Tier is the other locations are in different territories that involve different channel partners. If the customer uses central purchasing, the number of opportunities may be limited.

I like to use Hoover family trees to tee up targets for sales channel partners. Once you have identified and qualified new targets in other locations, you may have to set up some form of compensation for the incumbent channel partner to help with introductions. There’s always a perceived risk and some investment of their time to get things going to include joint calls.

Tier 3: In this Tier, you’re interested in leveraging your industry and application savvy to chase your customers’ competitors. Much like Tier 2, The most cited reason for opportunities in this Tier is the customers’ competitors are in different territories that involve different channel partners. If the company is well known and regarded in the industry, getting past the lobby to meet key players is better than a pure cold call. Remember that given all the efforts to optimize supply chains, breaking into any new account takes time and investment. They often need a good reason to consider adding you to the AVL (Approved Vendor List).

Again, I use Hoover’s to set up an initial target list. NAICS & SIC codes get you a broad listing. If you’re a paying customer, you can download the results with a great deal of information. From here, you can begin filtering the data and get to a solid target list. Just remember that since many of the firms are privately held, the detailed data may not be perfect.

Tier 4: Tier 4 typically takes more time and investment. In this Tier, you are likely attempting to apply your core competencies into new applications in new markets with new customers. This Tier may also reflect brand new product and process development launches. If you’re using LPPD (Lean Product and Process Development), required time & money can be reduced significantly.

Summary: This is a quick summary of the basic tactics within an organic growth strategy that I thought you might find informative and useful. First, use 8020 to focus in on your areas of success and then leverage this through all 4 Tiers.

The most successful firms I meet have something going on in all 4 Tiers at any given time. This ensures a continuous flow of opportunities in their sales funnel that are centered in their most successful competencies.

Thanks & Good Wishes for a successful 2019!

Mike

Takt Time ≠ Tact Time…

There remain many folks who think Takt Time is the same as Tact or Touch Time. Takt Time and single-piece flow are core drivers in Kaizen events. They are what connects you to the customer and drives speed. Let’s start with Takt Time first.

Takt Time — I like to think of Takt Time as the customer’s pulse. It is the rate your line must produce. Simply stated, every so many seconds or minutes, your line needs to produce a ready to ship product to satisfy your customer.  The math is simple – Divide your available work minutes for a day by the number of units the customer wants a day. You can move the units to hours or seconds. You can also use weekly averages if it makes more sense.

As I have mentioned in other postings, much of my career has been in high-mix, ETO businesses. Because of this, I have used weekly averages to gain a blended or smoothed view of the variety of items going through a process. To get to “available” time, you need to eliminate any paid lunches, breaks, daily toolbox meetings, etc.

From this Table, if you have a 1-shift operation with 2 paid breaks, your “available” time is 2,300 minutes a week. If the total average units flowing through the line was 1,140 units, your Takt Time equals 2.02 minutes. Simply stated in single-piece terms, we need to have a line that produces a part every 2.02 minutes to satisfy customer’s rate of demand.  The next element that we need to evaluate is whether the process sequences violate TAKT time.

If you have a process family that is continually delinquent, working overtime, and/or using premium freight, you probably have a TAKT time violation.  The sequence that takes the longest to complete sets the pace for the rest of the sequences.  As shown below, operation sequence “A” violates Takt Time of 2.02 minutes by a wide margin.

It really doesn’t matter how fast the other sequences are. If you happen to be a fan of Theory of Constraints, Sequence “A” is your Herbie or pacing item in this line. To serve the customer, the first thing you must address is this violation.

Ideally, all sequences should equal our TAKT time.  Since customer demand is rarely consistent, I like to position sequences below Takt Time by at least 10% – 15%. Before we worry about the lack of rhythm among these sequences, we need to reduce the time in sequence “A.”  The two most obvious strategies are:

1-     Add capacity to sequence “A”.  You might consider adding a second machine or an additional shift.  You have to be careful with the latter idea in a continuous flow environment.  If sequence “A” were to become a two-shift operation while sequences “B” through “D” remained one-shift operations, you would find continuous flow very difficult to implement.

2-     Reduce the work content in sequence “A” through process redesign or by moving tasks to one of the other sequences.

Single-Piece or Continuous Flow — Once you have resolved the violation of TAKT time, you begin to assess the balance of sequences.  Your goal is to achieve a balanced flow throughout the process such that a single piece is processed without delays or storage times.  In a batch environment, you start each sequence separately. When that sequence is finished, you move the goods in line for the next sequence. In single-piece or continuous flow, you deploy an entire process of sequences. My favorite tag line has been, “Decide to Start – Decide to Finish!” Anything short of this, doesn’t serve the customer, nor any other stakeholder in the business.

In our example, you might consider combining sequences “B” and “D” to create one sequence that takes 1.80 minutes to complete.  Your TAKT time and rhythmical capacity chart would now look like this.

Sequence “A” was redesigned to take 1.90 minutes and sequences “B” and “D” were combined to create sequence into “B”.

Once you have your sequences lined up and combined properly, you can relocate equipment based on the new combination of tasks. This final step is crucial to flowing the goods through the line on a continuous basis, while minimizing material handling costs and times.

Summary – First, using Takt Time, make sure your process is aligned with your customers’ needs. Second, make sure your process steps are well-balanced and co-located to support single-piece or continuous flow. These 2 steps will resolve chronic delivery issues, reduce premium costs, and position your plant to out-execute your competition!

As you explore some of these ideas in your own facilities, I hope to hear from you. If you have questions, feel free to reach out to me by email or through the Contact Me button or page. Please post your own success stories in response so other readers will benefit from your experiences.

Thanks & Good Wishes for a successful 2018!

Mike

 

 

 

Are You Still Quilting?

Regardless of company size, most products enter the game as a single idea. And, then, the quilting begins. Over time, some products become standard offerings with a select number of models. In other cases, products will remain Engineered-To-Order (ETO) and the quilting continues. It is this latter group we’ll talk about today.

  • Typical comments related to ETO Manufacturers:
    • We provide custom solutions to our clients.
    • Our business engineers products to meet unique customer specifications.
    • We don’t make more than 1 of anything.
    • Every client wants something different.
    • We distinguish ourselves from commodity suppliers.

If the preceding comments describe your business, then read on. I think you will discover some interesting opportunities to speed up and improve customer service. By cutting out recurring frontend costs, you will also improve drop through to EBITDA. Finally, you may reset market expectations and generate profitable market share gains.

Before I get into specifics, I want to let you know that I have spent several years in ETO businesses and I like them! However, I experienced profitable growth by converting recurring ETO combinations into Configure-To-Order (CTO) products. Customers still receive an ‘engineered’ solution, while, internally, the product is built using standard kits. Ultimately, we enjoyed a blend of ETO and CTO business.

I’m a big believer in naturally occurring patterns. If you are providing a product or service into a specific market, certain needs will recur and form dominant patterns. You don’t need to perform a market study to discover this. Since you provided customers whatever they asked for, your recent history will tell you most of what you need to know.

Database Your Quilt — First create a database to include key performance related needs, options, quantities, revenues, and gross margins. This must be performed from your customers’ point-of-view, not on what your internal team decided to do. For example, I have seen different engineers create minor design differences in response to identical customer asks. Your historical quilt includes some personal preference, so it is important to concentrate on the customers’ asks.

I need to get in the weeds for a minute here… I like to create a code for each offering related item. For example, a high temperature pressure switch = HTPS, a low temperature pressure switch = LTPS and a vertical inlet connection = VINC. You use Concatenate in Excel to combine these options into a single name, which you can use to sort complex combinations. In this example, the name would be HTPSLTPSVINC. Imagine hundreds or thousands of items sold with a large variety of options…

Once you set up the name and sort by it, you will be surprised to see some dominant patterns emerge. You will also see some offerings that only differ by 1 or 2 options. I usually up feature a dominant pattern to include these items provided it isn’t cost prohibitive. This provides a manageable list to work with.

Run 8020 — Using Revenue, perform a mini 8020 to identify the most dominant patterns. Use these dominant groups to develop your kits or modules for configuration. The balance of items in your quilt will remain ETO for now unless you decide to obsolete the minor offerings. Once you have the dominant patterns nailed own, it’s a great time to bring your field salespeople, channel partners, and/or key customers into the process. They can confirm the dominant patterns you discovered as well as help you address emerging needs that are not yet part of the quilt.

Optimize Design — Use DFMA (Design For Manufacturing and Assembly) tools with the team you assemble. DFMA is a Lean concurrent engineering tactic designed to lessen the number of unique designs, number of parts, and/or number of manufacturing steps in product design. Simply stated, the more robust you make a product or process design, the fewer of them you need. For example, use slotted holes to mount various sizes of a component instead of unique mounting plates. If you haven’t been exposed to DFMA before, it is well worth your time to get someone on your team capable with this tool!

Once the team has come to consensus on design, it is time to talk automation. I’ll use references that I’m familiar with that you can use to research options.

  • There are 3 basic automation topics involved:
    • Customer Documentation.
    • Product Design.
    • ERP Configuration & Release Tools.

Automate — Use a package like Inventor 3D for design efforts. Should you go this route, consult your local reps about your design vault. It makes a big difference when you begin using automation tools. Once you you’re your vault, consider using a module like Inventor iLogic to automate product design and configuration. Basically, your team first creates a logic tree based on the “80%” case. This is then used to create a list of questions and answers to drive drop down menus. The output from iLogic includes a full drawing package from top assemblies down to flat patterns.

Depending on your systems, you may also be able to push the resulting data directly into your ERP package. If this is not possible, find out whether your ERP system has its own product configurator. If nothing is available, you may have to load BOM’s manually.

Once you have created iLogic routines for your CTO offerings, it is a relatively small step to extend this ability to your salespeople using Autodesk Configurator 360. This is a cloud-based approach your field people and/or customers can use to configure product. Outputs consist of various drawing formats to include 3D blobs. Once you have consensus in the field, you can skip most of the normal frontend time delays and costs.

Summary — Your customer can still enjoy a custom designed solution in a fraction of the time it used to take. Also, through DFMA, you will have likely up-featured the product at a lower sell price adding even more competitive differentiation. In parallel, you can also launch a Kaizen Event based on the designs and kits you created during the DFMA. It is not unusual to realize 80%+ decreases in total order lead time using this combination of tactics.

  • To wrap it up:
    • Use your ETO History (quilt) to come up with market data.
    • Create unique names that reflect the combinations of specs and options customers sought.
    • Sort this list to discover the “80%” case.
    • Use DFMA to optimize designs and kits.
    • Use configuration software to automate designs, develop quotations, and release to operations.

As you explore some of these ideas in your own facilities, I hope to hear from you. If you have questions, feel free to reach out to me by email or through the Contact Me button or page. Please post your own success stories in response so other readers will benefit from your experiences.

Thanks & Good Wishes for a successful 2018!

Mike

 

Sensible Quality – Really?

I’ve been posting on 8020, Lean, & Kaizen thus far. I want to shift to quality for this discussion.

I don’t know about you, but my eyes start to get glassy when the conversation gets into details related to quality practices. The list of acronyms and supporting math has grown exponentially. I’ll cover some basic approaches that will help you resolve most of what you may experience. As always, I’ll try to keep it sensible. Tall order for this topic!

I have often reminded folks to make sure they use a cure that’s suitable for the problem. If a light bulb burns out, just replace it. You don’t need a 6-sigma project to take care of it. If it burns out in a fraction of the time other bulbs do, then use more sophisticated tools. For the record, I championed several 6-sigma projects, so I am a fan. Let the problem seek an appropriate level of solution. Be sensible!

Measurements — Regardless of company size or complexity, everyone wants to leap to solutions. It gets even more interesting when it involves multiple levels in the supply chain. I’ll use a measurement example for this discussion. Do not skip this step! Make sure everyone is using the same tools to measure; make sure they know how to use the tools; and make sure the tool is suitable for the tolerance.

For example, if your team is measuring a machined part with a +/- 0.0001 tolerance, it would be better to use calipers than pi tapes. We’ll discuss how to evaluate your alternatives objectively in a minute.

This may seem obvious to you, but I have witnessed this one first hand. The supplier was using a basic pi tape for their final inspection, while the customer was using a caliper for incoming inspection. As you might imagine, the supplier was not accepting the customer’s non-conformance. The debate went on for the better part of a month. At a minimum, make sure everyone uses the same tool! If the tolerances are tight, they should measure at the same room temperatures.

To find out if you are using the right tool, you need to make sure the tool’s measurement variation isn’t excessive. To be ridiculous about it, imagine giving 5 people a yardstick to measure the diameter of this part to 4 decimal places. Clearly, you would have 5 very different results and they would vary well beyond a +/- 0.0001 tolerance. The best way to find out if a tool is suitable is to conduct a gage R&R evaluation.

The first “R” is repeatability — How much variation exists when the same operator measures a part multiple times with the same tool in the same location. The second “R” is reproducibility – How much variation occurs among operators. There is good software available to calculate the statistics and provide you with the result. What’s important is that you know the tool in use is capable.

Let’s argue that you have confirmed that all parties are using the same tool and the tool is suitable.  And, you still have a problem. Before we get into a discussion on process capability, we need to visit product design for a moment. Are tolerances on drawings sensible? Has anyone looked at them recently? Before you consider more expensive tooling or process designs, make sure you ask the 5-Why’s! Assuming you agree with the tolerances, it’s time to discuss process capability and control.

Process Capability – Recall my earlier comment about leaping to solutions? It will happen again at this stage. There are 2 basic indices related to Process Capability – Cp and Cpk. There is a significant difference between the 2 metrics. It is equally important that you focus on them in the right order. Cp is focused on how much variation exists versus the spec without regard for position to target. Cpk includes position to the mean or the target.

Let’s use a sport analogy to explain Cp. Picture a struggling field goal kicker, who is spraying the ball from sideline to sideline. In this case, there would be a very low Cp reflecting almost no control. Ask yourself if it matters all that much which way you pointed him. A leap to using Cpk is futile until you achieve acceptable control. To keep this posting brief, I’ve skipped over tools to get to root cause and corrective actions. Your quality and operations folks are probably familiar with many of these. Use them as needed to get your Cp to a minimum value of 1.75 to 2.0. The higher, the better!

Until you achieve numbers in this range, I would avoid looking at Cpk. Again, with no little or no process control, you’re probably not going to reach a sustainable gain. If you get to a 1.75 to 2.0 Cp that looks like this, it’s time to work adjustments to target Cpk. Pivoting the kicker will now have an impact.

Make your adjustments to achieve a minimum Cpk 0f 1.33. Some clients may require a minimum Cpk of 1.6.

Let’s say that despite everything you’ve tried, you can’t seem to get a Cp to break 1.0. This is where it may be appropriate to consider a 6-sigma project.

6-Sigma – This is a powerful approach to solving problems that have defied all prior attempts. This is because certain processes are not controlled by a single variable. In another words, you can’t simply turn 1 dial to bring it back into control. Simply stated, to me, 6-sigma is a decoder ring that helps you discover the 2 or 3 variables interacting together to impact a process. Once you know this information, you can set up a set of controls to manage these variables.

I championed a 6-sigma project focused on extruded blank weights for high-dollar fluorocarbon compounds used to mold automotive parts. Since a low blank weight would result in unfills and scrap product, operators would simply produce heavier blanks. Remember our field goal kicker? Well, in this case, we told him that we would give him points for anything to the right of the left post…

This would remove the scrap because of unfills but result in excessive flash that you paid to landfill. In rough numbers, we were throwing away about $100K in compound every year due to this practice.

The fishbone diagram the team assembled for this project showed there were dozens of variables impacting extruded blank sizes and weights. They discovered there were only 2 that were significant. They developed and set up autonomous controls to manage these variables and saved the $100K. Cp and Cpk values were on target and the products were in spec.

In sum, I go to 6-sigma level tools when the basics haven’t produced acceptable results. If you are experiencing a condition along these lines, you should consider using this problem as an opportunity to certify one of your folks.

Summary — To wrap it up:

  • Use Common Sense!
  • Make sure everyone involved – from suppliers to customers – are using the same measurement tools.
  • Ensure the tools being used can do the measurement on a reliable basis.
  • Confirm that the tolerances are sensible.
  • First establish control of the process.
  • Once in control, adjust to target.
  • Elevate to 6-Sigma if your traditional approaches haven’t solved the issue.

As you explore some of these ideas in your own facilities, I hope to hear from you. If you have questions, feel free to reach out to me by email or through the Contact Me button or page. Please post your own success stories in response so other readers will benefit from your experiences.

Thanks & Good Wishes for a successful 2018!

Mike

 

 

Speed & Agility — Predator or Prey

The Lean toolbox contains a large variety of tools. It’s a long and growing list of acronyms. Which tools do you use where and for what purpose? If you haven’t engaged in any corporate Lean academies, it can be confusing. Most leadership in small to medium manufacturers I see have not had the opportunity to gain experience in Lean tactics. For this group, I’ll focus on speed and agility related tools. As always, I’ll do my best to keep it sensible.

I want to start this topic with a quick story from my past…

If you wanted your career to advance into VP/GM levels at Garlock, you had to gain field sales experience. As an engineering and operations person, I didn’t understand this requirement, but it wasn’t optional. So, when I heard that our long-term salesperson covering Arizona, New Mexico, and El Paso decided to retire, I jumped at the opportunity to go for it. My wife’s family lived in and around Phoenix. Since much of my career took place far from any family, we were happy to see this change.

Let me set the stage for you. Road warriors will recall these days all too well. We moved in the late 80’s. There were no cell phones or computers. If you needed to assemble a presentation, you found a Kinko’s. If you wanted to research what was in your territory, you went to the library, Chamber of Commerce, and local association meetings. Since power generation, copper mining, and cotton processing dominated my territory, my call density was poor most times. These facilities were not close to tourist destinations and my Regional Manager didn’t believe it was possible to do business at 30,000 ft. Thus, you drove 50K miles a year! I think you get the idea…

I had no prior field sales experience worth mentioning, so I was excited to attend the Western Region sales meeting to learn as much as possible. My Regional Manager started with a slide like this one:
It read, “Every morning in Africa, a gazelle wakes up. It knows it must run faster than the fastest lion or it will be killed.
Every morning a lion wakes up. It knows it must outrun the slowest gazelle or it will starve to death.
It doesn’t matter whether you are a lion or a gazelle: when the sun comes up, you’d better be running.”

With little daily supervision, he wanted us to understand 2 expectations:

1) Rise early, hit the ground running, and get in front of customers.
2) We would earn more as predators!

You may be wondering, “What does this story have to do with Kaizen Events?” Whether predator or prey, speed and agility is a winning combination. And, I agree with Doug — Being a predator is more rewarding!

As a supplier, if you out-execute your competitors, you gain market share. Speed and agility are a large part of this strategy. The other major component is reliability.

Agility is a function of changeover or setup times. Single Minute Exchange of Dies (S.M.E.D.) is my preferred tactic to dramatically reduce these times. I’ll briefly talk about agility later in this post. Outside of investing in a ton of inventory, a Kaizen Event is your most powerful Lean tool to achieve speed. To see if you are already Lean or not, please run the quick litmus test I laid out in my prior blog – Are you Lean or Not?

I’ve conducted events in plants with different technologies serving different industries. Let’s talk about the beliefs and myths I’ve heard most often.

Fear of Failure: First, I really don’t believe in resistance to change. I am convinced it is rooted in a fear of failure. After seeing before and after pictures, I think people worry about making that much change all at once. In 90%+ of the Kaizen events I have conducted, there has been very limited capex investment. The events result in a common-sense realignment of existing assets.

The events are focused on drastically reducing the times no value is being added to a product. Other than redistributing some of the value-added steps to gain rhythm in a process, you tend to still make the same product(s) using much of the same machinery and tooling. Failure in a Kaizen event to me is achieving less than a 50% reduction to cycle time and travel distances.

Lean = Cuts: Lean is not a diet! It’s a regretful name choice… Kaizen events are all about speed. On average, 95%+ of the time an order is in house nothing is happening. Kaizen events focus on this slice, not the <5%. It is NOT focused on cutting heads! However, you may also uncover some large inefficiencies in the process. Should this happen, redeploy these folks to help improve other areas, support growth, or replace retirees.

I’m High-Mix; It won’t work: Having spent over 50% of my career in project-based, high-mix businesses, I do understand this belief. Early exposure to Kaizen events involved automotive companies and consumer goods. Comparatively speaking, these are low-mix, repetitive businesses. Your focus centered on part names, numbers, or descriptions as it was easy to organize Kaizen events based on this. In high-mix environments, there is little redundancy tied to part names, numbers, or descriptions.

The focus must shift to how products flow thru machinery in a plant. Once you build the database using this lens and sort it accordingly, you will find dominant patterns in product flow. Once you uncover them, you can organize successful Kaizen events around these patterns. It took me a while to figure this out in the early 90’s. I have used the approach successfully in high-mix businesses since then.

We don’t have time for this right now: This is one of my favorites! I’ll give you a typical example from history. The plant took 12 weeks on average to produce a machine. The event was going to take 2 weeks. The lead time reduction goal was 80%. We did the event and it reduced the production cycle by 75%. So, here’s the math: We invested 2 weeks for the event and ended with a new lead time of 15 days or 3 weeks. Two weeks for the event + 3 weeks of new lead time equals 5 weeks total including the time invested for the event. They were now shipping the same orders 7 weeks earlier than they would have before the event. And, the new response to demand was only 3 weeks! Don’t have time?

In summary, I wanted to talk about the most common myths I have heard in this blog. If you are hearing like responses in your businesses, ask the 5-Why’s. If these tactics are new to you, then consider adding a Lean champion to your ops team. Let’s briefly talk about agility.

Agility is all about changeover speed. Think pit crew at the track. If you could suddenly reduce changeover times in your businesses by 80% – 90%, would you still feel compelled to make large batches? Think about the improvements in customer response times you would have.

Following a few hundred SMED events, my 1st-pass reduction averaged 40% and needed little investment. Invest in a tripod, a GoPro, and a large capacity micro SD card. Film the setup or changeover on a machine. Make sure the only item in the viewfinder is the piece of equipment. Record what is going on every time the operator is out of the viewfinder. On average, operators are missing from this view 40%+ of the time they are setting up a machine. Do what is needed to keep them in the viewfinder and you will score a 40% cut in changeover times.

I know this sounds way too simple. I can assure you that it is this easy. Getting an added 40% will take some effort and a little investment. Here are a few examples I’m referring to:

Braiding machines – We started with an average changeover of 4-6 hours depending on the number of carriers. Videotape showed the operator leaving the viewfinder for over 50% of the setup time. When I asked him where he was going, he told me he was walking over to his toolbox. Maintenance mounted his toolbox on wheels, so he could roll it up to each machine. New setup time dropped by over 50%.

CNC Mill – When I asked where the operator was going, he told me he was heading to the tool crib. When I asked him what he needed, he said allen wrenches. Bought all the operators allen wrenches. Again, 40%+ decrease.

Metal forming lathe – This one was a 2-for! Operator was leaving to get his socket wrench to changeover each part. Besides leaving the viewfinder, he was clicking away to remove bolts on the part’s retaining band. When asked if I thought an air wrench would make that much of a difference, I said, “The pit crews at the track don’t use tire irons anymore.” We hung an air wrench where he needed it. Over a 40% improvement in part change time and overall productivity resulted.

If your changeover times are taking hours instead of minutes or seconds, try this approach. Spend a little time researching how to externalize setup tasks and experiment to increase reductions beyond the obvious.

I’ll post more info related to conducting Kaizen events in future posts. Meanwhile, I hope this posting helps debunk some popular myths. Remember, Kaizen is your best tool to improve speed, while SMED dramatically improves your agility. This is the combination that makes you the predator and your competition the prey!

As you explore some of these ideas in your own facilities, I hope to hear from you. If you have questions, feel free to reach out to me by email or through the Contact Me button or page. Please post your own success stories in response so other readers will benefit from your experiences.

Thanks & Good Wishes for a successful 2018!
Mike

 

 

 

Are you Lean or not?

Most small to medium manufacturing companies I visit believe they are doing Lean. There may even be plenty of the 3 B’s around to support this belief. The 3 B’s are Banners, Baseball caps, and you can figure out the other B… So, how do you know? If you own multiple businesses and manage remotely, it gets more difficult to understand.

Here’s what I use as a quick litmus test for Lean:

1.      How quickly do they turn inventories? In a high-mix, engineered-to-order (ETO) business, I expect to see 10 or more turns. If they also source many goods overseas, then at least 8 or 9 turns. In a low-mix, repetitive manufacturer, I expect a minimum of 20-30 turns. Many of the companies I visit have 2.5-3.5 turns. This is not Lean!

2.      What percentage of an order’s total lead-time is value-added? I use a machining analogy to show whether a process is value-added or not. If you’re not chipping metal, then you are non-value-added! If you are a world-class Lean manufacturing firm, then you should see a number like 20% or higher. Most companies I visit are well below 5%. This is an important metric when you think about velocity. Most of the time an order is in house, no value is being added!

3.      What is their on-time delivery performance? In automotive for example, you must be on-time for 100% of your orders. Bad things happen if you fail to uphold this performance. Most advanced Lean businesses do well with this metric. In heavy ETO companies, you need to be careful using this test as customers control much of the schedule, including the shipping dock.

4.      What is their average setup time in various areas of the plant? Most often, they respond in hours, not minutes or seconds. When I tour the shop, I’m looking for shadow boards, tool presetters, setup carts or kits, to name a few. Long setup times almost always leads to big batches.

5.      What do I see when I go on walkabout in their shop? Do I see several orders and goods stacked up in front of machines? If yes, then they are not doing single-piece flow. It is a batch process. Is there any evidence of 5S? I’ve never conducted a Kaizen event that didn’t include a healthy dose of 5S. When I go through their warehouse, do I see a lot of dust on goods? If yes, they are not using pull systems with their suppliers to replenish stock. At a minimum, they are not using Lean inventory management policies.

6.      Finally, I ask them to tell me what abut their Lean tactics. The most common Lean tactic I’m told is that they don’t bring anything in until they really need it. I rarely hear about Kaizen events or value stream mapping.

There are many more items you can list to evidence Lean, but these are the ones I use most often when I visit a key supply chain partner or potential acquisition. If your plants fall well below the suggested benchmarks, then you know there is much upside available!

I often hear about cycles that repeat in these companies. Sales complains that they can’t sell out of an empty wagon, while accounting worries about excess and obsolete (E&O) reserves. The operating folks worry about efficiency, so they want large batches to leverage setups. You may have unintentionally fueled these cycles through incentive systems. As each group chases their own interests, they collectively fail to notice there is a common denominator that gets all of them what they want – Time.

First, let’s talk about inventory investments and overall working capital needs. This is where the adage that time is money needs no creative interpretation. Simply stated, inventory investments are designed to cover customer demand during the time it takes to restock the shelf plus some safety stock. You hope demand for your goods go up, so outside getting your suppliers to stock your shelves, time is the only variable driving the investment. If you reduce the time it takes to replenish the shelf by 80%, outside of safety stock, your average inventory investment drops directly by the same amount. If your sales team can now quote 80% shorter lead-times, do you think they will have any issues?

So, how do you do this? What wrench in your Lean toolbox do you use? When it comes to speed, I use Kaizen events. Having conducted dozens of events, there is nothing I have tried that comes close to matching the decreases in cycle times I have achieved with Kaizen events. I’ll comment in future postings on this topic. If you would like to learn more now, I suggest you grab a copy of Art Byrne’s book, The Lean Turnaround. I’ve not had the pleasure to meet or talk to Mr. Byrne, but I can tell you that his book is a great primer for leaders and owners alike. So, what about the concerns your manufacturing folks have?

I use setup reduction events to make small batches efficiently. From a working capital point-of-view, I would rather make a single capex investment to reduce setup times dramatically than a continuing inventory investment to support large batches. Achieving decreases of 80% or more are not uncommon.

There are numerous other benefits to consider related to these events. We know that nothing ever goes according to Hoyle… When you dramatically reduce batch sizes and overall work-in-process (WIP), you reduce your failure cost exposure. You also improve the time it takes you to recover from a problem.

If you’re in private equity where it’s all about EBITDA, please keep the following speed bump in mind. This applies to standard cost environments where direct labor is being used to absorb overhead. When you reduce WIP and batch sizes by 80% or more, there will be a brief period in which you will under absorb. Until levels stabilize at the new reorder points and quantities, you will not be producing new parts to get absorption credit. Your accounting folks can estimate the valuation impact, so you have an idea of what to expect. Large improvements to execution often generate top line growth, so there is a direct offset. It really becomes a timing issue. They can also model the increase to liquidity.

You should now have an assessment tool you can use to determine if your business is Lean or not. If it isn’t Lean, you should also have a sense of how to quickly simulate the benefits. I’ll go into some of these topics more deeply in future postings. I’m also in the process of updating a Kaizen manual I wrote for my teams 20 years ago that I plan to make available for download.

As always, thanks & Good Wishes for a successful 2018!

Mike

 

What exactly is 8020?

When I have asked people if they are familiar with 8020, almost everyone’s heads nod yes. When I ask for their descriptions of 8020, I get a wide variety of responses. Let’s start with the basics.

Origin: Vilfredo Pareto, an Italian engineer, sociologist, economist, political scientist, and philosopher is credited with the original idea. In an 1896 paper he published, he noted that 20% of the Italian population owned about 80% of the land. He also found income distributions followed this same ratio. In 1941, Joseph M. Juran, one of the founders for advanced quality systems and management, discovered Vilfredo Pareto’s work and started using it for quality issues. That’s it for the quick history lesson… Let’s move into 8020’s various forms.

Basics: Its simplest form is a single-dimensional view of any data set. I have looked at individual distributions of revenues, profits, costs, and activities and found that 18% to 22% of the items or customers almost always drive about 80% of the studied item. Regardless of the industry, region, technology in use, or products/services involved, 8020 has applied. This is important to remember, when we talk about activities later. Although rare, I have seen cases where extreme concentrations will distort the numbers. For example, a small business serving a large OEM may have 1% of the customers driving 95% of the Revenue. A business using exotic and expensive alloys may have a different ratio when looking at cost distributions.

More complex forms of 8020 also exist. Illinois Tool Works (ITW), has developed a multi-dimensional operating strategy with 8020 as its backbone. For the record, I have never worked for, nor am I beholden to ITW in anyway. Over the years, I have worked with folks who learned the ITW Toolbox and I have taken advantage of many of its tactics. By far, it is my favorite 8020 strategy! I’ll talk more about it later in this blog. Let’s talk more about the basics first.

A single-dimensional use of the tool is powerful. It can help you understand and focus on core drivers and risks in your business. Let’s look at Revenue. If you were wanting to grow your business, do you think the odds of doing so are with the handful of customers driving 80% of your business or the multitudes driving 20%? As a rule, you will have more success with the 80’s, as I will call them, versus the 20’s. With the 80’s, you probably are a top choice when relevant opportunities arise. You have what’s know as mindshare with this group of customers.

When you consider risks to your business, the same idea applies. The 80’s driving your revenue are also 80% of your Accounts Receivable (AR). If you’re reliant on AR to fund your working capital, then you have some near-term risk if one of the top-5 were to experience financial problems. The same thinking applies to products. Competitors may introduce a disruptive technology that displaces some of your 80’s. My main point is there are several layers of risk related to your 80’s to consider.

I think it’s important to align your best and brightest on your 80’s to maximize growth, while you manage risks. I have witnessed an interesting phenomenon in many plants that runs counter to this thought. Look at your most thinly margined business and evaluate who on your team is spending most of their time on it. Forget the books on this look. Use an activity-based assessment. You may be surprised to see some of your top “A” players as well as a disproportionate number of others focused there. Meanwhile, your revenue and margin 80’s are somewhat ignored and neglected.

I also encourage you to involve the 80’s in your strategic planning and your product development efforts. I have included customer and supplier 80’s in key strategy sessions with great results. These meetings are always fun and exciting. I love the ownership that results from these efforts. And, the alignment throughout the supply chain tends to produce products and services that sell well in the market. At an minimum, you will increase mindshare with these key stakeholders.

Before I get more into ITW’s 8020, I want to cover one more topic that seems to elude most small to medium sized groups. Any of you who have driven or took part in cost reductions know that, regardless of size, they all take some effort. If you’re going to impact results, it’s important to focus on where it counts – the 80’s! The math gets simple. A 5% improvement on something in the 80’s is worth a great deal more than one in the 20’s. Yet, I have seen far too many examples where most of the team charters in a business deal with the 20’s.

Asset & Time Management: Small to medium plants who introduced Just-in-time (JIT) inventory policies can experience unintended results related to both asset and time management. Many banks want an ABC classification based on unit values for cycle counting purposes. When I run a Pareto based on dollars flowing through the plant for ALL items, my classifications are very different.

For this writing, I’m not going to go into any of the ideas used to identify what you should be a stock item, how much safety stock it should have, etc… I want you to consider a classification tactic that ensures 80% of your best and brightest are managing 80% of the money flowing through your plant. The adjacent table reflects typical results for studies I have conducted in plants throughout the US.

For the items you decide to stock, consider treating “A” items on as close to a true JIT approach as is possible. I like to white-knuckle “A” items. Remember, this group represents 80% of the money going through your business. In sharp contrast, consider stocking up to 6 months’ worth of “C” items. How much time do you want your team wasting time on 5% of the money? You may unintentionally be focusing 55% of your team’s time every week working on 5% of the money! Production planning, buying, inventory control, material handling, accounts payable… all spending time on transactions that may not even be worth $5.00. For “B” items, consider stocking 2 to 3 months’ worth on the shelf.

In every case I have done this, we have cut out thousands of transactions. Vendor Managed Inventories (VMI) for many of the “C” items provides another way to reduce investment and management time. Even in a high-mix, project-based business, I have seen turns improve from low 3’s to over 10 by adopting this approach.

You can use this same tactic for any activity-intense aspect of your business with like results.

Multi-Dimensioned 8020: Last and not least, let’s talk more about ITW’s 8020. I mentioned that it is multi-dimensional. If you’re familiar with customer/product or industry/technology matrices used during an environmental assessment in strategic planning, then you already know something about ITW’s approach.

Set up a spreadsheet with your customers down the vertical axis and the products they buy across the horizontal axis. Use revenue dollars for the data points. Sort total revenue by customer in descending order and sort total product revenue in descending order. Once you’ve sorted the data, then place heavy borders through the data where 80% occurs for both customers and products. You will see 4 quadrants:

Now you can see 2 dimensions at once using this approach. You can also include other items for cross-comparisons between the quads:

1. Margin %’s
2. % Total Margin $’s
3. % of Customer & Product Counts
4. Commission %’s
5. % Total Commission $’s

What you decide on for the 2 top-level dimensions and what you cross-compare is only limited by your available data and your imagination.
Once you are happy with the how you’ve decided to slice things up, it’s time to look at future strategy. You approach each Quad a bit differently. For simplicity’s sake, I’ll use the same customer/product matrix and offer you some typical tactics I have used for each Quad:

Quad 1 – This is your core. Align your best and brightest with this Quad. Actively engage the related customers in councils to gain their help growing the business and managing risks. Make sure your product development efforts for products in this Quad stay ahead of your competitor’s and are well-aligned with market needs. I like to use Lean tools like Kaizen & Setup Reduction events to develop agile and high-velocity products in this Quad. Even minor improvements for products in this Quad produce solid improvements to margins and working capital.

Quad 2 – Over the course of years, a quilt of product designs were developed to satisfy needs that rarely occur. Since this Quad also involves your customer 80’s, you may want to engage them to up feature product 80’s to include what these outliers provide. It may be time to obsolete items that are rarely in demand. I like to use Design For Manufacturing & Assembly (DFMA) to develop configurable products for items in this Quad. At a minimum, you should make sure that remaining 20’s are done easily and profitably.

Quad 3 – This is really channel management. For example, if you are dealing with multi-line rep firms, you may be on the 2nd page of their line card. For this Quad, I have set up action plans, made rep changes, etc. Finally, ask yourself if you are achieving acceptable market share and if the cost to keep it is worth it.

Quad 4 – Although I always start with a Quad 1 focus, if the costs and distractions in Quad 4 are too burdensome, I’ll go to work in Quad 4 simultaneously. At 4% of Revenue, you’re not putting much at risk!

Summary: This is quick summary of the basic tactics within an 8020 deployment that I thought you might find informative and useful. My teams all became familiar with my question, “Is that an 80?” There are far too many possibilities to cover in a brief blog, so I may not have talked about something you are seeing in your business. There have been dozens of books published on this topic. Do a quick book search on Amazon for “80/20 Principle” and you will find over 100 of them.

As you explore some of these ideas in your own facilities, I hope to hear from you. If you have questions, feel free to reach out to me by email or through the Contact Me button or page. Please post your own success stories in response so other readers will benefit from your experiences.

Thanks & Good Wishes for a successful 2018! Stay tuned for new postings on 8020 and Lean!

Mike