Too often manufacturers will implement technology for financial reporting purposes but overlook efficiencies that can generate cash flow and reduce costs on the manufacturing floor. Accurate information that provides a business owner or manager the ability to make immediate decisions about his/her operation resulting in a boost to profitability is crucial during an economic downturn. If revenue is down and the market mood does not permit price increases, then profitability can only be realized by reducing costs. So you must ask yourself, “What prevents me from 100% efficiency?”
Focus on “faster and better.” Every asset, machine, tool and person you have must be accountable and cycle more quickly. An airline cannot survive when planes are not in the air producing revenue. Your business cannot survive unless you know where your assets are and how they can be used efficiently. Imagine being able to view where your tools and equipment are at any moment so that you can plan to transfer them to the next job. How important is it to locate a unique asset when it is required on another active job, avoiding any down time? What if you knew exactly how many hours were spent on each step in the assembly process and where the bottlenecks were? These situations and others cause accelerated costs and reduced productivity.
Take a proactive approach. Under normal circumstances a business owner/manager will review financial (accounting) information, overhead and direct operating margin at the end of a month or quarter. But these aren’t “normal” circumstances. “Companies must plan their destiny and not look in the rearview mirror,” according to Bill Allen of W.A. Allen Consulting. “Instead of flying blind (until a work order is completed) it’s time to operate from a plan. Understand what prevents you from 100% efficiency.”
Buy-in happens from the top down. Start by developing a culture that compels events to conform to your plan. Anything that deviates from the plan is an opportunity for cost-savings and efficiencies. Do you have too much time loss in non-direct labor areas (idle or down time)? By evaluating what interrupts the workflow on a daily basis, you will uncover areas that with improvement will provide an increase to the bottom line. It is up to the company to make a conscious decision to manage from a plan rather than react to circumstances, and to hold all employees accountable for following the plan. This transition will be easier if the technology tools available today are adopted.
What technology can provide you the most reward? Evaluate your operations to determine where your technology dollars will be spent best.
Reduced downtime. Can you reduce or minimize the time spent looking for machines, tools and other assets, or plan maintenance and calibration to avoid machine down time? A tracking system using barcode will show where your assets are at the time they are needed – who took them last or which job they were checked out to. An integrated maintenance scheduler will flag required maintenance as it is due and assure OSHA compliance.
Do you make shrinkage unacceptable? Proper control of tools and inventory prevents costs that result from hoarding, irresponsibility or downright theft. It is up to the company managers to declare that shrinkage is unacceptable and to hold employees accountable for losses that are under their control. This policy is given “teeth” when you can effectively track your assets and inventories using technology.
Can you identify bottlenecks in the production process – something that slows down productivity? Although you may not be aware of these bottlenecks, this is probably the single most important variable. What are your capacities for output and what is the optimal load of people, machines and tools to meet 100% capacity? How do you route the work to prevent idle or down time? A computerized system that tracks labor hours to a specific function within the assembly process and on the fly will help prevent these costly issues by identifying those points where workflow gets interrupted.
Does your staff spend unproductive minutes (or hours) manually recording transactions? Manpower that goes into manual recording and record keeping does nothing to increase revenue or control costs. Technology can provide the integrated systems control over asset use, capacity, maintenance, location – and do it 24/7.
You don’t have to be one of the “big guys” to afford technology. Today, systems are available for a reasonable price that can help avoid many of the costs consumed by inefficiencies in operations and can be purchased as stand-alone systems focused on one aspect of the business. The decision where to start depends on what areas you find are losing the most money.
Time and attendance. A time-and-attendance software package will tell you who is working, when, on what job, and for how long, and produce reports for payroll. It can be set up to automatically account for start and end times, breaks, lunch, etc., to reduce the time your employees spend recording their time, and barcode scanning makes the input fast and easy.
Job costing. Job-costing software adds the ability to track inventory costs plus the labor hours consumed against the specific job while the job is in progress.
Work in process. WIP software is a subset of bob costing, and tracks a specific work order through the production process. It will tell your scheduler and production manager the stage of each work order in the production process at any moment.
Inventory control. An inventory control software package will account for your stock parts and tell you when you need to reorder. It can issue parts to a work order or job and confirm that the correct items have been pulled. It will keep track of finished goods inventories and report replenishment requirements. Barcoded inventory makes it quick and easy to take an inventory count.
Barcode. Barcode technology has been actively used for over 20 years in manufacturing, distribution and retail to track inventory and jobs. The barcode terminals are similar to PDAs, and provide immediate and accurate information. There are barcode labels designed for harsh environments that are durable enough to withstand the dirt, grease and rough use that many environments experience and labels that can be printed on a laser printer. Barcodes can easily be added to work orders in the form of a laser “font”, allowing parts, jobs, etc., to be barcoded on the work order.
Making the job of your employees easier by assuring that they have what they need to perform at their best reduces stress. Showing them that you are taking steps to increase the profitability will provide them more confidence in the company.
While technology won’t cure the credit crunch manufacturers are facing, automated processes that improve cash flow and keep lenders in the loop, demonstrating that the business “has its act together” can go a long way in convincing lenders that their risk is low.
Alison Falco is the president of Dynamic Systems Inc., a 30-year-old solutions provider and software development company focused on manufacturing operations, construction and government. Prior to DSI, she held the position of sales manager for Intermec Corp. She is a Phi Beta Kappa graduate of St. Lawrence University.