Production output issues, in mid 2018, within your control

Skills shortage, rising wages, need for qualified people and turnover get a lot of attention in mid 2018. But even in these sophisticated times, production and productivity still suffer some classic issues. The difference is that proven solutions are available; within your control more than wages and applicants and product orders may be.

Which one, which classic productivity issue? I don’t know, there will be a different answer depending on your circumstances. But here are several classic issues, where a rapid solution can be resolved with routine, known methodology.

  • Lead off with waste and non-value activity that may be in your process or organization. If the marketplace won’t pay for an activity or a component, it is waste and has no value.
  • Bottlenecks, capacity. Does your process cause delay, wait times for people or equipment? Reduce this loss and get more capacity, better efficiency. Do you know the real capacity, and the real constraints? Do you manage constraints actively, and prioritize accordingly?
  • Workloads, in two classes: 1) Overall imbalance in workloads especially with critical steps and equipment, causes loss of output and efficiency. 2) Do highly paid workers spend time performing activities that should be performed by a lower skilled person? Think, you don’t want your surgeons to clean up the operating room. Shift the simpler tasks out of the highly paid position, expect greater output.
  • Expectations for output. Do you know how long a job should take, objectively? If you expect too much, nobody will want the job. If you expect too little, you are not using the capacity you in fact possess. In either event, planning is problematic at best.
  • Accurate job costing. With accurate knowledge of job costs, you can assign your resources to the most profitable products, and safely relegate the lower-profit jobs to a lower priority. Oh, and rid yourself on unprofitable jobs.
  • Facility planning. Your situation may suggest more space, less space, space instead of, rearrangement for better flow or space utilization, expansion, consolidation.

For more on these subjects, give me a call at 843-422-1298. I have a track record of success in these and related issues. Work measurement, time study, plant layout and facilities planning are tools that quickly lead to answers and corrections for the issues above.

Also see http://jacksonproductivity.com for more about JPR. A list of on-line reading is found at http://jacksonproductivity.com/artindex.htm.

Thanks for your attention, Jack Greene

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Tesla Model 3 Production Capacity

Capacity crunch at Tesla, the same as in your shop?

By Jack Greene, Jackson Productivity Research Inc.
Tesla has production capacity constraints according to news reports, within a major ramp-up of Model 3 output volume. And Tesla continues in the news, because capacity adds to other issues, from cash flow through the shortage of resources to work on other problems.

A ramp-up of Tesla’s scale is not common, although it does occurs at model change elsewhere in the auto industry, and when new product launches are scheduled. For most of us, such a major problem doesn’t occur. Hopefully.

But if Tesla is having capacity and utilization problems, we’d better remember it can happen to anyone.

I won’t try to solve the issues from a distance; especially if the experts on the ground are having trouble doing so. But capacity problems, bottlenecks, constraints do appear, all the time, in all sorts of activity. This article suggests common causes, and solutions that are usually effective.

Capacity, Utilization, Constraints; in the context of business operations

Capacity is the maximum amount possible, of… something. That something may be seats in a theater, grain in a silo, passengers in an airliner, gallons from a fountain. Or, to the focus of business, capacity may express the amount of widgets produced, service calls made, brick laid, pallets moved or stored, orders shipped, applications processed, lines of code written; all within a time frame.

Capacity is the sum of what your organization can create, given its resources. Often it can’t react as quickly as you’d like, either up or down. You may have noticed that.

The ability to produce a capacity is, sooner or later, limited by some constraint. Terms and units of the discussion are key. If one person visualizes the situation at a tree farm where trees grow around the clock, and another addresses the usage of a church auditorium, where most activity is on one morning of the week, there will be a serious disconnect.

A. In general,

1. Capacity will always depend on the product mix of output desired. So while your planning, at an optimum product mix, may yield a high capacity and utilization, your customers may buy an entirely different product mix.

2. Capacity will be controlled by one or more constraints, often equipment or people which tend to experience interference. Capacity will be limited by the lowest of the operating constraints that make up the total system. It may also be limited by some overlooked variable; space, utilities, materials handling.

3. Capacity will depend on production scheduling, as well as the availability of equipment to produce (think both equipment and people trained to operate it), as well as availability and delivery of components which may be produced in-house or half a world away.

4. The basic and effective way to raise capacity is to identify and quantify constraints; reduce the cycle time for the lowest constraint until it no longer is the lowest; micromanage all of the limiting factors carefully; reduce the cycle time for the next lowest constraint, and so on. If that sounds endless, it is.

B. The special case of new products and ramp-up, and learning curves

Some news reports suggest that Tesla constraints are merely because processes and equipment may be new to the factory, which hasn’t yet learned the exact procedure, and soon will. If so, it is easy to say, “give it six months and it will come around”; but we all know that is not acceptable in project management.

Volumes have been written about new products and ramp-ups and learning curves, and the suggested actions to work through individual constraints in priority order.

Personal experience says, get specs and process right before asking production to take over. That requires talent on the part of the specs and process people, and management discipline to refuse to let an arbitrary schedule force a premature product release. Never make your move too soon.

C. Manage constraints, by boardroom and policy actions

Don’t believe that constraints only exist on the operating floor of your enterprise. A management action, or policy, or practice, can well limit. Management does not set out to constrain, but sometimes it happens, and this section offers suggestions.

1. Take out the wasteful activity, all across the organization chart.

What is waste? A March 2009 “Business Week” article presents this test:

Will a customer pay for this activity?

Will my service fail without this activity?

Will I go to jail if I eliminate this activity?

Answer “no” to all three, and the activity can essentially be defined as waste.
Sounds good to me. And the cost savings will almost make you forget how much you have increased capacity.

2. Prioritize and assign resources according to priority. More on this later, in an article called Gorilla List. Where does the 900 pound gorilla sit? Anywhere he wants. Where does the first priority project obtain the resources to solve its problem? Anywhere in the organization chart, any purchase that can be justified. The second priority then selects, and so on. But first, management has to set priority and confirm, for lower priority projects, that lack of resources is a valid cause for delay.

3. As you match labor to the current requirement, do it objectively with work measurement. The resulting balance will be more efficient and productive. Until you establish objectively what output to expect from employees, you’ll never know how you stand, and they will never know how they are doing. Set expectations, assign responsibility, communicate, measure, report progress.

4. Cut cycle time and inventories concurrently. Reduce equipment changeover and its cost and negative impact on capacity and utilization. These actions tend to interfere with each other; take care.

5. Keep product quality up. Let me rephrase that; keep necessary quality up. Just because extremely high standards are necessary in pharmaceuticals and space ships doesn’t mean they are necessary for sunglasses and kitchen cabinets. Be sure to get the accelerator and brakes and air bags and steering system in your product line right. And remember the old adage that quality is built in, not inspected in. The capability of your process drives the quality level, not the other way around.

6. Balance the week, and the month.

Does your organization expend energy and resources to “make the month”? Rush out all product possible the last Friday of the month, and then ship nothing the next few days? Can you justify that behavior?
7. Reconsider your assumptions

It is said that no cost is fixed, as long as we are willing to reconsider our assumptions. The first reaction may be that these actions don’t relate to capacity, but if they tie up more than their fair share of capital or resources, they do. Consider,

· Match facility size and location to the customer base and volume.

· Rent or own facilities? Hire employees or retain temps?

· Expand, consolidate or relocate operations?

· Outsource work or perform it in-house?

· Part with under-loaded, high cost equipment?

· Move away from obsolescent technology?

· Apply product pruning, lop off the non-profitable products?

8. A frozen schedule helps output

The concept of schedule changes to meet customer orders has pros and cons. A change can benefit one customer of course; but at the expense of others. A change can cause an interruption to production output, and that is not free. An order that was first priority is now second. Be sure the change is worth the cost.

9. Provide your highly skilled people more hours in the day

Pull, from your key employees, work activities and tasks which can be adequately performed by less skilled employees. This will not only cut costs, it will provide the scarce, trained people more hours to perform their skills.

Your role model is a hospital operating room. Do you want the surgeons to hang around and clean up the OR afterwards? No, we will send in the cleaners while the surgeons go on to practice their skills elsewhere.

D. Focus attention on the constraints

to see that they are kept in operation; have plenty of material; receive immediate attention when there is a maintenance problem, are changed over as seldom as possible; are relieved at break and lunch and shift change. Observe to assure that all equipment is loaded and utilized. If constraints are not scheduled 24 hours a day, be sure to start them early to have their output on hand for the rest of the line when that equipment starts. Place lights, or alarms, at bottleneck equipment to alert others when that equipment goes down. Analyze scrap rates, reduce losses.

1. Capacity of an operation will be governed by its index time and components controlled by the operator. A good visual tool, called a “Man / Machine chart “, represents what happens and when. Specifically it is useful to determine how to reduce the cycle of the bottleneck.

A classic distinction relates to waiting; does the machine wait on the person or does the person wait on the machine? The terms “Internal” and “External” time are used; an internal element is performed by a person while the machine is performing its function. An external element is done by a person while the machine waits; obviously when you minimize external time, output rises.

Machine speeds are not necessarily fixed, they often may be sped up or slowed down. There is probably an optimum speed that will yield the most effective performance considering machine and operator wait times, product quality, machine reliability and maintenance.

2. Does overall output vary by crew size ; for instance is the cycle shorter if more people work on the activity? Determine the most cost effective crew size, depending on output required. Even overstaff, if it reduces the bottleneck index or up time. Balance crew work assignments, in any case.

3. Can short interval scheduling add control? Assign a small amount of work, perhaps 30 minutes, tell the worker how long the work should take, and require the worker to report when the work is finished. Then assign the next work element. This is very effective with non-repetitive work.

4. Study changeovers and down time , to reduce elapsed time. Stock change-over and replacement parts. Analyze and improve response time, crew size, sequence of events, methods, tools. Preventive maintenance is worth a chapter all by itself.

Remember that constraints come in a wide variety of forms

We tend to think of a constraint as a machine that cycles at a low speed, or breaks down often. In actual practice a constraint may present itself in many forms. Be alert to the constraint even if it consists of :

· a sales order that just had to be slipped into the schedule, which caused a line changeover and resultant delay

· a machine, under-loaded at one product mix, overloaded at another

· late shipment from a component vendor; perhaps for a new schedule.

· a busy chemist who creates new products, one at a time

· an undersized lab with no room to hire another scientist

· a test that determines product acceptability; physical, or chemical, or worse yet a 10 day biological test

· scrap that reduces the amount of acceptable product

· a vendor whose process is undersized for your present volume

  • an inability to add a production shift
  • an inability to add on to a facility
  • a work position requiring rigorous training

Thanks for the attention, Good luck. Good luck, Tesla, Jack Greene

To comment on the blog, or discuss, contact Jack Greene at 843-422-1298 or at
jack@jacksonproductivity.com

By the way, you may want to keep your identity confidential early in the game, and that’s fine. Buy a cheap cell phone at the drugstore, and some minutes, call me. We’ll talk but you can keep your identity to yourself. I have worked that way before, and we’ll do it again. In the early stages, states and communities should not know your identity anyway; and I can help you select the long list, and into the short list, without knowing who you are myself. I’ll ask about your corporate preferences, and what required skills and major cost items are, to rank the communities by suitablity. Unless you are Amazon, and then apparently we play by a different set of rules.

 

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Amazon HQ2 and Corporate Facility Relocation Incentives

Amazon calls it HQ 2, and plenty of communities want to attract that facility. Here is a primer on the corporate relocation / incentives scene; what, how much, why, and how. Because your business may also want to explore a new location, either instead of or in addition to.

Oh yes, there is a caveat. For new facilities there WILL be short term costs. There MAY be long term benefits.

  1. What: The marketplace

Businesses who seek another location will find an active marketplace composed of organizations whose objective is to attract new industry and business to their area.

“Another location” may mean in addition to, or it may mean instead of. Amazon’s search apparently is in addition to; while Boeing’s recent HQ move to Chicago was largely instead of.

The marketplace includes not only nations, states and communities, but utility and energy companies, railroads, air and water ports, geographic areas, financial organizations, enterprise zones, real estate companies and developers, industrial parks, research centers, educational institutions.

Businesses who consider a new site tend to pursue different objectives from the communities where they search. A community will attract investment to itself regardless of its ability to meet the particular company requirements, (Do 238 sites have the resources to satisfy Amazon? Really?) while a relocating business company seeks the one community which best satisfies strategic corporate objectives. (Or the decision maker’s personal preference; please don’t underestimate that.)

  1. How much can incentives be? (Read here, how much could my business get?)

Laws and regulations are established in many states to allow incentives to business, and bureaucracies are set up to encourage businesses and consider applications. Obviously, there is no guarantee of success when an application is made for assistance, but there is little cost to find out.

Many programs are readily funded by states and communities, for instance training assistance. Other programs, e. g. outright grants, are more difficult to obtain. States or communities may negotiate tax relief or exemptions, financing through bonds, loans and guarantees, tax increment financing (TIF). Major concessions tend to involve facilities which generate many jobs, such as a new auto plant, or Foxconn or Amazon. Some companies are able to negotiate incentives, even though no formal program may be in effect.

Some states, Texas and Georgia come to mind, provide help to resident companies who would expand locally; but relocation between states has traditionally been incented more successfully, to the dismay of local competitors.

Very few companies will have to finance their own infrastructure. Most communities provide water, sewer, utilities and power, access roads, and communications to industrial sites if they are not already in place. A business which requires access to seaports, airports, or railroads can find many sites where these are available.

Some business looks for new property, others for empty facilities. (These are already built and available, but to someone else’s spec; a mixed blessing.) In parts of the US, there is a surplus of available property; closed military bases and vacant textile plants are good examples. There may well be costs such as retrofit and perhaps hazardous substance residue, but the net cost of such a facility can be quite competitive.

According to news reports at the announcement, these new facilities have attracted substantial incentives over the years; but at a wildly different price per new job.

Company, State, Year, Expected Jobs, Incentive, Measured In Millions $ / Job

Foxconn, $2.85 billion plant; Wisconsin in 2017; to 13,000 jobs; 3 billion incentive; $230,700 incentive per job

Samsung $380 MM plant; S. C. in 2017;  950 jobs, incentive value not published to the taxpayers

LG $250 MM plant; in Tenn. In 2017; 600 jobs, incentive not published to date

Tesla, battery plant in Nevada in 2016; 6,500 jobs; $1,300 MM incentive;$200,000 incentive per job.

Foxconn Penn. 2013   $30 mil plant Did not happen

Apple; Texas in 2012; 3,600 jobs; $21 MM incentive; $5,833 incentive per job

ThyssenKrupp; in Alabama 2007; 2,700 jobs; $811 MM incentive; $300,370 incentive per job

Toyota; in Miss. in 2007; 2,000 jobs; $363 MM incentive; $181,500 incentive per job

Daimler Chrysler in Ga. In 2002; 3,200 jobs; $320 MM incentive; $100,000  incentive per job

Did not happen

Hyundai in Ala. 2002; 2,000 jobs $118 MM incentive; $59,000 incentive per job

Toyota in  Ala. in 2001; 350 jobs; $29 MM incentive; $ 82,857 incentive per job

Nissan in Miss. in 2000; 4,000 jobs; $299 MM incentive; $74,750 incentive per job

Honda in Ala. in 1999; 1,500 jobs; $165MM incentive; $110,000 incentive per job

Mercedes in Ala. 1994; 1,500 jobs; $289 MM $192,667 incentive per job

BMW   in S.C. 1992 1,900 $155 MM $ 81,579 incentive per job

North Carolina and Virginia deservedly get a lot of credit for their governmental economic development efforts, but quietly South Carolina and other southern states attract some pretty impressive deals. And stay mum to their voters, about how much it costs.

  1. Why does a community pay incentives?

Why you ask; well that is not so clearly answered as is, how much. There is a constant question, are incentives a win / win, or win / lose. or lose / lose situation? If one community wins, doesn’t another have to lose? Especially if a business is attracted from one community to another; perhaps from the rust belt to the sun belt? Or offshore? Don’t incentives come from a municipal budget? Do they get their money back?

Communities will receive taxes and fees from businesses and their employees for years to come, although communities will have to provide streets and sewers and schools to service the new residents. But also remember that when new people move to town, they will want to deal with a butcher, baker, candlestick maker, A/C tech, boutique owner, auto dealer, tattoo parlor and expresso bar. A given town may have those people already, and underemployed; which applies an entirely new sense of urgency.

Big companies want nearby vendors, to provide a geographically short supply chain for smaller and reliable inventories. (Remember Asian flu, and tsunamis, and product recalls, container ship strikes and company failures.) Smaller local vendors tend not to be able to negotiate incentive deals that the big firms do. The local economy will benefit mightily from the support that grows in place. What would Silicone Valley be like without the high tech base? Northern Indiana without RV manufacturing? Alabama without all the auto industry jobs that came with the Mercedes plant in Vance and the multitude of suppliers that sprang up as a result?

A economist might not quantify the benefits, but there is clearly a huge influx to local cash flow when a big new player comes to town.

  1. How to consider a new facility objectively

The executive who is first to consider consolidation or expansion or another location will make a few notes, then call someone else in, and close the door. Good thinking. Such strategic sessions will be full of “what if” scenarios, not ready for prime time. Keep them confidential.

Still with the closed door, add a few more people in the room. Your organization may not be experienced in strategic concepts, either in the statement of justifications, definition of factors to be considered, or with the frameworks necessary to support investigation and implementation. Keep it quiet, but talk to all the players even, or maybe especially, those who might express valid questions or concerns about concepts and details.

Set up a process to assure an objective analysis. There will be ample opportunity for judgment, but to the extent possible let the data drive the decision.

An effective way for a company to proceed is retain a consultant to establish its objective and subjective criteria, (think location-sensitive costs; skilled labor, “Right to Work” states, utilities, transportation in and out, communications, waste disposal, regulation, local vendors and subcontractors, available property to lease or build on, quality of life, corporate image, corporate and individual taxes) then sort through competing community claims; create a short list, zero in on The One Best Place. The client will not be identified until he is ready to take a public position. Even after a decision is made, confidentiality is vital because a company retains the best leverage over incentives and real estate costs before its identity is announced.

At least that has been the tactic for smaller companies than Amazon and Boeing and Foxconn and Tesla. Smaller companies, my clients at least, typically want to avoid internal and external publicity until basic groundwork is complete and negotiations are underway. However most companies don’t have the stature to attract bids by the dozens, either.

State and local development agencies are quite willing to work confidentially with a client; they presumably don’t want an open bidding war. Industrial Development groups, politicians, realtors, financial institutions, technical or educational institutions are very helpful in the relocation process as they provide information, but they have a different agenda and set of priorities than the company. A experienced consultant understands the questions to ask, and how to find answers; he / she can deflect from the company the considerable attention a community brings to bear, during the decision process.

  1. The bottom line

As with many bottom lines, multiple factor are in play. And incentives are a highly visible factor, but not the only one. Incentives may be whipped cream and a cherry on top, or it may fail to cover the operating costs that can occur after a bad choice considering the other thousand factors.

 

Good luck if you are in the process. Jack Greene

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Priority, Pareto, and the Gorilla List

Someone has to set the priority for actions, and if management doesn’t do it the guy with the wrench in his hand, or the gal with the I Pad, will.

What’s next, boss? The question may come up as soon as the last task was done, or after a break or lunch, but it will come up. And if you are not around, the employee will provide the answer. Let’s make sure that the next job is the one at the top of your list.

1. Assignment and expectations

At the time you give instructions, couple assignments and expectations. Clearly identify who, what, where, when, how. When means both start and expected completion, The level of detail will vary with the individual and with experience. Communication may be formal or informal, although some written record is better for all concerned.  After all, this kind of communication is not unusual, is it? Your spouse will instruct you to take out the garbage now, then walk the dog, then get the oil changed on the Mercedes, and be back in two hours. Maybe not in writing, but pretty definite.

2. Pareto

To determine what should be at the top of the to-do list, lets consider Pareto, and ABC.

Vilfredo Pareto, a 19th century, Neo-Classical economist mathematically described the unequal distribution of wealth that he observed in the world around him. His observation, known as Pareto’s principle, has been profitably extended into other fields of inquiry: in business Pareto’s principle tells us that a few of the inventory items will constitute most of the value; a few processes will give most of the trouble; a few line items will generate most of the cost; a few constraints will control the entire pace of operations; a few misdirected efforts will create the most issues. Expressed most simply, priority focuses on those few items that influence the largest result. Show me the money.

Another common technique is often called ABC. Each line item, on an inventory or an action list, is rated A, B, or C; A being most important. Sometimes a super B category is created. Items are rated A or B or C because of importance defined in some manner; inventory for instance may consider price, usage volume, floor space consumed, lead time, number of vendors who can make the part, technology, complexity, potential of an interruption to production.

Don’t forget an item because it is a C; today it needs no attention but ignore it and it will become an A some day. For want of a nail the shoe was lost, etc.

3. Gorilla list

The most effective system I ever saw to assign management’s project priority, set milestones, record progress and react to issues was called the Gorilla List. And it governed resource assignment for hundreds of resources, in engineering, research and development, quality, and production people in the complex and regulated pharmaceutical environment.

The name came from the question, “where does a 900 pound gorilla sit?” and the answer, “anywhere he wants.” Senior management set priorities for projects at the division level, from one through twenty. Project number one received any help it needed from any resource, now. Project two got any help it needed except when number one was using that resource. And so on. The project manager had a good idea of how to set the schedule, milestones, and assignments from the assigned priority. The project manager selected and utilized individual resources, working across different disciplines, within their management structure.

Other projects, rated below number 20, got along as best as they could. But it was an acceptable answer for a lower priority project manager, that his need was superseded by a higher project. The system served top management priority. It was constantly reviewed and modified as projects were completed and new ones introduced or upgraded in priority.

I ran a project rated number 6, and was able to obtain and utilize resources in all disciplines just by the accepted influence of the project ranking. Progress was smooth and predictable because of the resource allocation mechanism. Even lower ranking project managers seemed to prosper, using the resources remaining.

4. Real time scheduling

One effective application of the concepts in point 1 above is real time scheduling. It is especially suitable for an operation which has regular work tasks that occur on an irregular schedule, such as demand maintenance, or a warehouse put-away or picking crew. A real time scheduling program should be organized, with one source to issue instructions, a formal paperwork system to issue work and then to record completion, an estimator to define the work time expected and keep track of performance (and update the files to aid later estimates).

5. Your own personal priority

Today if you only work on one thing, and that item is at the top of your priority list, you were successful. But it can be hard to focus on priority, as there will be distractions. Be sure to control your own plans, don’t cede control to others. Don’t let others fill up your calendar, electronically or otherwise, without your full understanding.
Thanks for the time, I hope the article was useful. JPR welcomes the opportunity to discuss your particular application.

Jack Greene, Jackson Productivity Research Inc.

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WSJ editorial board comes out against Trump’s Carrier deal, offshoring

But most comment I read seemed to center on rhetoric about Free Trade. The commentators all blandly accept without question the premise that off-shore automatically equals cheaper than “Made in the USA”. And that is just not so, in every case. It can be true, don’t dispute that but it is not necessarily true; your company must crunch the numbers to know. Labor is not the only product cost and certainly is not the largest.

 A good mantra for moves is, “There will be costs, there may be benefits.”

 The ReShoring Initiative lists hundreds of companies (https://drive.google.com/file/d/0B6EKVqt-UZHIbFpleGM5WlBSQmc/view) who have re-shored jobs to the USA, including 3M, ABB, Alcoa, Airbus, Amway, Apple, Boeing, Bausch + Lomb one of my alma maters. Baxter, Bayer, you get the idea. The number of companies and the many locations to which the jobs returned indicates that reshoring is a common strategy, even if not well publicized. It appears that sophisticated companies are watching closely their costs by product, location, specific circumstances; good work. That is what cost control is all about, not broad-brush but targeted.

 My web site http://jacksonproductivity.com/offshore.htm is a comprehensive look at offshore cost. This blog will summarize the points, please look there for further detail.

 How much will you save?

Labor

For most manufacturers, direct labor cost is typically less than 10% of the cost of goods sold. If you move to South East Asia where labor is one–third U. S. cost, you might save 7% of the cost of goods sold.

But cost per hour is not the only consideration; there are also benefits to workers, mandated holidays, housing, meals, transportation and 13th month benefits.

Next, consider the two types of labor variance, price and usage. Although your labor price may well go down, what about the usage variation and hours worked?

Startup

Move or acquire equipment to fit into someone’s building; startup costs and perhaps a stateside write-down. Import duty on manufacturing process equipment?

What will the learning curve be like for an offshore facility with respect to labor and material losses while it is still below steady state?

Operations

What will the steady state output be? What about utilization, efficiency, productivity, material usage? Don’t forget direct to indirect labor factors, expatriate workers and their costs, turnover rates, theft and security. How well will equipment be maintained; how much down time can be anticipated?

Materials tend to be priced at a worldwide level, and so may not vary much. (There are exceptions: raw sugar is priced much higher in the U. S.)

 Will you pay import duties for raw materials? 

Shipping

Freight, insurance, product damage, obsolescence, tariffs, and brokers fees all contribute to the cost of the landed product. The cost of fuel to return the goods to the USA is low in 2016 but appears to be on the way back up.

Out of market conditions, Product recalls and Shipping Interruption

When a company has no products on the market, wage rate savings are quickly lost. Off-shore manufacturing introduces two factors that recent history tells us pull product off the market, recalls and shipping interruption.

Recalls

Regulation within the United States, and Canada, is frequently the target of criticism. But realize how many recalls the regulation prevents. Count the number of recalls from foreign sources, and realize that a recall on your product washes out any possible labor savings.

United States and Canadian regulation does not allow the use of unauthorized materials; lead based paints and industrial grade chemicals in food products, and outlawed antibiotics for instance. 

Shipping interruption

Interruption comes from production problems such as bird flu strains and SARS which have affected workers, shut plants, stopped production

Shipping just recently has been held up because of the Hanjin crisis and Long Beach labor dispute. Just-in-time factories normally operate on reduced inventories, but they don’t do well in earthquakes and epidemics.

My crystal ball is not clear enough to predict when and where in the world the next major health issue will arise, and the overall impact may well be much greater than missed shipments. But history of the first part of the 21st century indicates that North America will not be the center of the problem.

 How will your U. S. operations change?

There is a long list of overhead costs that will occur as you operate offshore.

Cost to phase out a North American facility, relocate equipment and technology.

Executive and technician travel to support the offshore location as well as special mail and priority shipments of documents, models, specs and products. Modern communications technology can only do so much to mitigate distance, language barriers and the lack of face to face meetings.

Who in the organization will perform product design, new product development and engineering; what about the model shop and pilot plant? Remember, too, that new product transition is problematic even when headquarters is in the building next door.

Who will perform Human Relations oversight. Who will exercise quality oversight and how?

What about procurement and the quality of components? Will you see the product and its components for the first time when the product is in the stores or your warehouse?

Who will provide financial oversight within the new company? How about independent auditing? Although US auditors hardly have a pristine record, they do function under a (more or less) transparent regulatory regime?

Lastly, consider the political vagaries of U. S. tax law. What happens if the deduction of expenses to transfer jobs offshore is disallowed?

Can you continue your business strategy?

Can you practice Just in Time with product on the high seas, subject to port work stoppage? (Not just Asian; Long Beach had recent problems.) Have you planned additional inventory to cover transportation lead times? With extended inventories, will scrap and obsolescence costs increase?

What is the label “Made in the USA” worth to your company and to good will?

Can the new overseas employees and vendors purchase your products on par with your former employees and former vendors who may feel disinclined to buy more?

Will you be able to integrate vertically in an offshore setting as easily as you can here in the US?

How will your Time-To-Market change? Stateside manufacture offers the shortest time-to-market, from product design to prototype to test run to manufacture to ship to customer, especially considering reaction times to changes inherent in the process. If your product depends on style and design and quick reaction to customer whims, watch out.

For a company in apparel for instance where style and change are everyday issues, the advantages of vertical integration, lower shipping costs and the ability to advertise “sweatshop free” can be decisive in choosing a manufacturing site.

Off shore legal and political considerations.

Will practices and laws in the new country limit executive actions?

Can you eliminate jobs in the future? Move plants? At what cost? Emerging nations tend to be much more protective of jobs than the U. S. Even Italy is criticized for the high cost of eliminating jobs.

How will you establish and defend your real and intellectual property rights?

Is foreign ownership possible? Are you ready to partner with a local entity? Remember, disputes will most likely be adjudicated in the offshore country.

Is the local banking system healthy and vigorous?

Is the legal system friendly to investors?

Tax and Accounting issues

What are profit repatriation tax rules in both the host country and the U. S.?

Whose rules will apply to inter-company accounts such as transfer pricing?

Has there been approval by your CPA considering the Sarbanes – Oxley Act?

  Foreign Exchange

 Are your ready and able to predict accurately and respond effectively to fluctuations in exchange rates that affect raw materials and operations? Do you plan to use common currency hedging strategies to minimize exposure? How much will it cost to be sure you obey rule #1, don’t run out of cash?

 Although JPR declines on principal to aid clients seeking to move U. S. jobs offshore, JPR is pleased to advise companies seeking to open new and / or expanded operations in North America, and to return manufacturing.

Check out recent news about other companies who are re-shoring. Companies as varied as furniture manufacturing, small appliances, batteries, and steel have brought manufacturing back to the U. S. from China. Thanks for the time. Jack Greene 843-422-1298

jack@jacksonproductivity.com

http://jacksonproductivity.com

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Tesla facilities expansion, 2016

We read about the Tesla facilities plans, for the electric car sales growth, the introduction of their self-driving auto, the giga-factory for batteries. Because of my facility planning experience, I find it fascinating, but at heart the Tesla actions apply many of the same facility planning steps that any company can use, just on a larger scale. Maybe your company can pick up a few tips from Tesla.

Tesla’s actual and expected growth sets the company apart from most of the rest of the world. The electric car volume grows rapidly, while battery production starts from zero, and self-driving cars are still in development but well on the way. But for most of us who grown and consolidate facilities, the size of the Tesla challenge is unprecedented.

 

Objectives for Tesla or anyone else.

Challenge # ! is probably “don’t run out of capacity”; booming sales forgive many sins. From press reports, Tesla understands this principle and is locking up space before it is needed.

Facility rearrangements are expensive and time consuming, but not necessarily permanent. Layouts are after all just a checker game. What you can do however is to plan sequential stages of development, to minimize lost motion and shorten the calendar.

Classic factors to justify new facilities start with the need for operations space, but they don’t end there. Location sensitive costs are paramount in a new location; real estate, utilities, unskilled labor, minimum shipping for incoming, outgoing, and in-process.

Take advantage of a short term opening, or “window of opportunity”. ( That was the title of some project folders, in my own experience, before a concept even had a name.)

To create good layouts, for short or long term use, zero in on the proven techniques:

Create smooth, direct, and short flow between departments, especially for heavy or bulky parts. Optimize relationships between functions, especially those that need to be close by for movement or cooperation reasons. Utilize space well. Leave a clear path for expansion.

 

There will be costs, there may be benefits to a facility change.

This part of facility planning needs the human touch, although later tasks of detailed layouts are much easier with computers. There may well be cost trade-offs in the options possible, short term windows of opportunity; good real estate buys but not in quite the right location. From press and blog accounts, Tesla has actively managed their opportunities.

Start with some basic corporate objectives such as make or buy. If the corporate objective is to manufacture vertically, then the facility planner has to provide space for components, whether batteries of engineers or machine centers for parts and subassemblies or storage and their movement. And facilities must be in available before the grand scheme can take place.

Throw in property complications of build or buy, and of own or lease. Buy is almost always faster in permit and construction time, and Tesla quickly obtained very suitable, and empty, facilities. Layout can usually be adapted to a building without much negative impact, so it isn’t necessary to find a perfect building. But get your hands on the square feet.

Permits take a significant part of the time to make a facility plan happen, so ease that path in advance; avoid contentious sites or conditions of ecological concern.

 

Option A or option B?

The value of location options can be measured in different ways. Tesla’s property choices were at some distance from each other so movement between locations can be expected to be slower and more costly, but they were away from the very expensive environment that is Silicon Valley. And they now have more facilities, more room.

Where are prospective employees available? Probably nowhere, in the quantities that Tesla needed; but putting plants in desirable locations attracts potential employees.

Other options can come into play in this day and age. State incentives and tax structure are significant. Can the company cash a corporate chit? Encourage a state to see an issue a company’s way? You may decide to include some “might as well” items too, in the new facility scope. And, the classic consideration, just where does management want to be?

This big picture planning is fun, but somewhere along here you will need to put in hard and less interesting work to come up with values. Just what will we put in the new facilities, now and in the future? (A layout has to include every desk and work station and CNC machine and assembly line and pallet.) What technology and equipment? What is the inventory plan? How many engineers, support, manufacturing people do we house? By the way, what is the capital budget?

Far as I know the vision for facilities and equipping them is not available on machines and computers Later steps are greatly aided by electronic programs, but start off with bright people in the conference room.

 

Good luck, to Tesla and all others who would expand..

Jack Greene

843-422-1298,  jack@jacksonproductivity.com

http://jacksonproductivity.com

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Top ten productivity tips

There are many ways to increase productivity, which is shorthand for increasing profit. Different actions are designed for different problems, but check out the following list and choose what fits best for you.

1 and 1 a. For me there are two pre-eminent concepts that seem always to work well. Nothing is more important than either, so we’ll put them at the top: Pareto’s principle (also known as ABC priority, or the 80/20 rule), and get the waste out. You will also find these two concepts woven through many of the other terrific ideas below,

Pareto Principle Vilfredo Pareto, a 19th century, Neo-Classical economist mathematically described the unequal distribution of wealth that he observed in the world around him. His observation, known as Pareto’s principle, has been profitably extended into other fields of inquiry: in business Pareto’s principle tells us that a few of the inventory items will constitute most of the value; a few processes will give most of the trouble; a few line items will generate most of the cost; a few constraints will control the entire pace of operations; a few misdirected efforts will create the most issues. Also known as ABC priority, and the 80/20 rule.

Expressed most simply, productivity focuses on those few items that influence the largest result; Show me the money.

Get the Waste Out

What is waste? A March 2009 “Business Week” article presents this test:

Will a customer pay for this activity?

Will my service fail without this activity?

Will I go to jail if I eliminate this activity?

Answer “no” to all three, and the activity can essentially be defined as waste.
Sounds good to me. Apply the test to all aspects of the organization’s overhead, especially the major cost factors using Pareto; find and cut out waste.

Removing waste is a big part of the Toyota Production System, but years ago it was equally central to Value Analysis and Value Engineering.

Other high quality tools and techniques follow, in alphabetical order. Choose what applies even if your problems are not in alphabetical order.

Activity Based Costing. ABC. ABC is designed to relate individual line items of overhead cost directly to a given product, instead of allocating costs less accurately or even smearing overhead cost across dissimilar operations. An ABC model will assign more costs previously classified as indirect (overhead) into direct costs, compared to conventional costing models.

Overhead is often considered “fixed” when nothing could be further from the truth. But unless defined by a mechanism such as ABC, overhead items may be poorly differentiated, hard to understand and manage. ABC may require more time and effort, but much more of the cost structure can be directly related to cause and effect.

Economic order quantity; EOQ. An EOQ is the level of inventory that minimizes total inventory holding costs. It is one of the oldest classical production scheduling models. It applies accurately and simply to purchases and manufacturing batch sizes, and the math relates current costs to all the factors that vary with batch size. Rather than rigidly choosing a batch size or Just In Time delivery, optimize considering the total real costs throughout the system.

Expectations  Create expectations, because everyone wants to know what they are expected to do. That is true of you and me and all the people in your organization. How specifically should expectations be expressed? Ah, that is a tricky question. I would suggest that a good estimate is better than no statement at all, and that it is possible to over-define the detail. Performance standards, quality specs, delivery schedules, standard costs, project management will be topics that a Pareto analysis says are important.

Stockholders and customers want to know what to expect from an organization, as well. The answer to them will be more accurate when internal expectations are established and met.

Flow chart. “Flow chart” may be the mechanism of graphically showing the steps of an operation or process, or it may refer to the diagram itself. For many including me the first step to understanding an operation is to flow chart it. Value chain mapping is a later term.

There are only five things that can occur during a step in a process; an operation, a move, a delay, an inspection, a storage. Note that four of these possibilities do not add value. Work of any type can be flow charted; products, paperwork, electronic documents.

Line balance, in the broad sense of balancing all the resources involved. The objective is to assign members of a working group so that production flows smoothly without constraint. The members may be equipment, or people working alone or in crews or teams. Note that optimum workloads are not necessarily equal; load the bottleneck or the primary cost / income producer, at the expense of secondary ones.

 Performance reporting. Expectations such as standards or quotas are useless without objective reporting of actual performance against the expectations, and the communication of the reports to those concerned. Is it possible to assign accountability without accurate, timely reporting? No.

Product pruning is the concept that reviews each product or output periodically to determine whether it should remain in the catalog. The judgment can relate to profitability or to a subjective measure, and absolutely requires accurate standard costing and overhead allocation. Sales may complain that customers love a product being pruned; why would they not love it if they get it below cost?

Pull system. A manufacturing planning system that loads production based on communication of actual real-time needs from downstream operations and customers, ultimately sales demand; as opposed to a push system which schedules upstream operations according to theoretical sales volumes. Don’t stop forecasting, but do set up your process to recognize real demand and react quickly.

Short Interval Scheduling; SIS. A system invented by Alexander Proudfoot to improve work assignment. First applied in warehousing, it is effective there and for management of other short interval jobs. Short interval scheduling is self-explanatory and I learned if from my wife. Take out the trash, honey, when you are done in about two minutes; then come back and I’ll give you the next chore.

This level of control may look like micromanagement, but in many circumstances it can mprove productivity and throughput. Both boss and worker get positive reinforcement from each task completed, and both know that a task is done so we can move to the next step. The actual time taken then can be entered to update the data base.

Total Productivity is the understanding that productivity is not just for the production floor, but can generate improvement throughout an organization. Indeed, following Pareto’s principle, the majority of costs will be elsewhere than on the production floor. Total productivity is near the bottom of the alphabet, but in actual practice you had better move it up the list.

Toyota Production System; TPS, often known as Just in Time, or JIT, or Lean Manufacturing, or Lean. The source of all of these was the post-war Toyota Motor Company of Japan, developed by Sakichi Toyoda and his son Kiichiro. Taiichi Ohno is widely credited with making TPS a reality. Consultant Shigeo Shingo was an important contributor as were Eiji Toyoda and Saito Naichi. Ohno said, “The most important objective of the Toyota System has been to increase production efficiency by consistently and thoroughly eliminating waste. This concept and the equally important respect for humanity … are the foundations of the Toyota production system.” Please don’t overlook the latter objective.

Search out excellent current authors on lean and TPS; Bill Waddell at Evolving Excellence; Dr. Bob Emiliani, at The Center for Lean Business Management, and Michael Baudin.

Oops, that is more than ten tips, but I am reluctant to remove any. Detail on these, and many more improvement techniques, are in the Industrial Engineering : Theory, Practice & Application book, found on http://jacksonproductivity.com.

Good luck, Jack Greene

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