Manufacturing in Crisis

September 8, 2010

Almost every segment of manufacturing is being affected by the downturn in the economy. Some are in a full crisis fighting for survival. I was at the site of a prospect two weeks ago. Their demand is low and their warehouse inventories are high. The manufacturing facility is running at about 25% of the capacity that is was only a year ago. Is this the time to put your head down, nose to the grindstone, work and tough this thing out saving every penny? Well I have to admit that is what most of us should do with our own personal spending – but is a manufacturing facility the same as your personal household?

A manufacturer makes money by producing and selling something. The manufacturer should be selling the unit for more than it cost to make it to be sustainable – but a manufacturer cannot save their way to profits. Cutting and saving leads to antiquated methods and the inability to adapt. A manufacturer must make their product and sell profitably in bad times as well as good. The opportunity that presents itself in lean times is to get good at producing exactly what will sell, when it will sell, at a cost lower than the selling price.

Let’s go back to our manufacturer that is at 25% of last year’s production levels. This manufacturer is doing a lot of things right. They are reducing the warehouse inventory, bringing work back into the plant from contract manufacturing, and they are running less and taking “Dark Days” where they shut down the factory for a week or more per quarter. But, these things will not help them make a product that will sell at a profit. Do they have a chance to increase company profits by better manufacturing performance management to real-time metrics?

Probably. We can say yes or no a little more definitely with a study but here are three of their opportunities they have to make more money:

• The company bought a new injection molding machine to bring work back into the plant. They need to get this machine working at nominal ratings for speed and quality as soon as possible after installation. A real-time performance system can help them do this quickly and very effectively and allow the manufacturer to sustain their performance.
• The company needs to actually increase the efficiency of the manufacturing operation right now to keep production at its highest while employees are being paid and they are running equipment. Make good product fast and then shut down to take more down days saving labor and energy costs.
• Finally, the manufacturer can use real-time performance management tools to measure and reduce change-over times with the constraint machines on the line – such as that new injection molding machine Lowering the change-over time hurts increases operating time and therefore productivity but it also adds to the manufacturing agility. The plant with a faster change-over/setup can schedule production for more change-overs profitably. This increase in change-overs hurts the plant OEE metrics but greatly helps the company schedule a higher mix of products on the lines – thus reducing inventory and getting the right product to a customer. This is the ultimate solution for a manufacturer producing the product that can sell quickly at a profit.

This is lean manufacturing. It is profitable in lean times and incredibly profitable in good times.

The question is will the facilities trying to save their way to profits with “across the board” cuts in spending be able to compete with Lean operations during an extended downturn or when the economy picks up again?

 

Kevin Totherow is a Business Development Manager of MES for Schneider Electric and a consultant for helping manufacturing clients manage their operations better. Kevin has been a controls engineer, consultant and president of Sylution Incorporated. He can be reached at (864) 252-6819 or by email at kevin.totherow@schneider-electric.com.

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