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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Cost reduction, business style

Productivity Improvement or   Cost Reduction?

Different sides of the same coin or two separate activities? Pretty much the same to me, some may call it one thing, some another.

Classically, productivity is defined as Output divided by Input.

or- A second definition is, productivity is the same as profit, selling price minus all costs

-or- Toyota sees Profit = (Price – Cost) x Volume, assuming that the manufacturer cannot dictate the sales price.

Different mathematics, same theory: To improve productivity or gain profit, raise output and / or lower input.

Now that we have the theory out of the way, let’s speak of actions to stress inexpensive and quick ways to raise output and / or lower input in your organization, whatever your line of business. Cost effectiveness is just as effective in the front office, the lab, the maintenance shop, the field, the customer service unit, and the warehouse as on a production floor.

For a deeper analysis, my Amazon book Cost Reduction: In Business Management offers actions for any phase of the economy, for all levels of the organization chart. Click https://www.createspace.com/4418145 for info.

General Cost Reduction procedure:

  1. Act to raise profits or output, to ease bottlenecks, to refine operations that have lost their sharp focus over time or start effective new ones. Operations are most profitable when they have the least waste, and that is the heart of the Toyota Production System.

    A. Raise Output Maximize capacity and equipment capability, manage constraints Match throughput to customer demand Cut cycle times for quick response to market conditions

    B. Lower input, not only direct but administrative and indirect
    Minimize facility capital and operating costs
    Optimize manufacturing and processes
    Simplify logistics, shipping, warehousing Define the process for high quality production
    Establish standard costs and measure against them
    Adapt inventory to continuous manufacturing practices Match overhead to throughput
    Balance inventory levels to output
    Get the most out of material purchases

    2. What first?
    Apply the 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. Expressed most simply, productivity focuses on those few items that influence the largest result. You may know Pareto as the 80/20 rule, or ABC. Show me the money.

    3. Specific ideas.
    A. Management practice
    1. Product pruning A thousand years ago when I was with ITT in the Harold Geneen days, there was a practice called product pruning. Each company was required to decide annually which if any products should be eliminated, based on cost versus income. That is not as simple as it sounds because it requires an accurate knowledge of real costs and net sales prices. Many times since then I have seen individual products crying out for pruning but still in the catalogue.

    2. Overhead allocation method or absorption. Is your overhead allocation and absorption correct? If not you can’t make a sound decision about product pruning, or product profitability, or equipment justification, or department profitability. It takes some work to sort out costs and apply them correctly, but if not you will have information that is meaningless at best, and harmful at worst. Correct decisions can only be supported by correct information.

    3. Lean manufacturing, a common term for the Toyota Production System, is well applied only when it is corporation wide, encompassing admin and executives as well as the production floor. What is your manufacturing labor cost? If you cut that by a quarter, how much do you save? Compare that to an 5% improvement in the rest of the budget. Go back and look at Pareto again.

    4. Just In Time inventory control principles and MRP are mutually exclusive. You can’t enjoy the benefits of both at the same time.

    5. Economic Order Quantity is a proven benefit to operations cost. Modern systems try to improve on EOQ, but with all the expensive additions, all the buzz words, they do not improve on the basic theory, much less the simplicity. An excellent article by Dave Piasecki talks about Economic Order Quantity and it’s uses and misuse within modern inventory control systems; it will be worth your search.

    B. Operations
    1. Constraints management is perhaps the most important tool to use on the shop floor, and it usually is pretty inexpensive to correct problems quickly. Identify production constraints, manage them, and staff all other tasks according to the constrained output level. Then in order, raise the constraints. Please see my article on the subject of Capacity.

    2. Check the company’s basic outlook for production. Is equipment dedicated to one product or flexible to process many products? Does your present arrangement match you present product mix and objectives?

    3. My experience tells me that the work pace of people is pretty good while equipment is running and material available. The loss of productivity comes at changeover, down time, and when material is not available. Pay special attention to changeovers; question carefully why they occur in the first place, then study changes and speed them up.

    4. Is your materials management policy to start a product down the line even if not all components are on hand? You can prove it to yourself that is wrong, or you can take my word for it. It is costing you money, in changeovers, idle delay, bigger inventory, rework.

    Good luck. Call if you need help.

    Jack Greene, Jackson Productivity Research Inc.

jack@jacksonproductivity.com

http://jacksonproductivity.com

843-422-1298

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Productivity 101

Productivity, in the business sense, is what my consulting company is all about. Jackson Productivity Research Inc., productivity is our middle name. This is blog one, and others will follow with reference to current news and views, because there is some ingenious work being done.

It’s a fact that productivity principles can favorably affect cost, boost output and increase your organization’s outlook. The subject is broad but includes at least,

Time Study / Work Measurement;  which is the basis to improve output, utilization, and cycle times; optimize staffing levels; balance assignments; identify non-value added activity; create objective cost definition and control; lay the groundwork for incentives if desired.

Reduce Cost / Improve Productivity; to identify cost reduction opportunity in your present situation; set up continuous improvement.

Balance workloads; through objective observation and time study of people, crews, equipment, and processes; reach optimum, sustainable levels, cut lost time and resolve conflict.

Optimize Capacity and manage constraints. Sales vary, your operations should respond to meet demand efficiently. Identify and manage constraints for lower inventory, faster reaction and shorter cycle times. Adjust manning according to desired capacity.

Facility Layout
Match today’s mission to the space, in existing or new facilities; design efficient flow patterns for product and people; fit equipment, processes and people into the property; improve floor space utilization.

Relocate, merge or consolidate; position facilities to cut costs or aid customer service; integrate acquired or merged operations and facilities for efficiencies, better utilization and economies of scale; find a cost effective location using business criteria and/or quality of life factors.

After all, we wrote the book. Four books so far, on Amazon. In both print and Kindle editions. Plant layout, time study, cost reduction, facility relocation and consolidation. Click on http://jacksonproductivity.com for the Amazon link, and to learn about what my company is all about. Please let me hear from you. I can promise you there are many ways to find the productivity that we all seek.

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