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5 Trends Manufacturing Leaders Shouldn't Ignore
What new technologies change the way products are made and delivered? How does the increase in urban populations affect manufacturing trends? What does the growing global economy mean for manufacturing leaders?
Manufacturers and logistics companies must keep current with the changes in their industry if they want their businesses to survive. Here are 5 trends that manufacturing leaders can’t afford to ignore.
1. The Internet of Things Integrated with Daily Life
The idea that electronic devices can be controlled with the internet and a smart technology interface is often referred to as the Internet of Things (IoT)
Affordable and widely accessible broadband internet has made this idea possible. Consumers don’t think twice about using smart technology to automate their everyday lives. You now have the potential to control all of your electronic devices from one digital platform.
Manufacturing may be the perfect industry for IoT automation. The manufacturing process is highly interconnected, requiring several individual moving parts to come together as a totally realized whole. By connecting the physical process with digital oversight tools, manufacturers receive and exchange information faster. Asset management is clearer and linked across all phases of production.
The process of automation becomes easier too. Instead of manually executing each machine’s function, a manufacturer can sync all of their physical equipment’s operations through the Internet.
2. 3D Printing
3D printing continue to develop at an impressive rate. Manufacturers can reap several rewards by integrating this rising technology into their workflow.
By incorporating a 3D printer into your manufacturing process, you can save room on inventory. Rather than back piling every component you use, they can be created as needed. There’s less of a need to outsource the manufacturing of parts. Create what you need in-house with a 3-D printer and save money.
By using one piece of intelligent equipment to do several jobs, a manufacturer’s supply chain becomes more efficient. There’s no replacing or resetting machinery when moving from one process to the next. That means less downtime and more productivity.
Even companies without any 3D Printing experience are looking to integrate the technology to their process. In 2016, Forbes reported that over 71 percent of manufacturers use 3D printing. 52 percent of manufacturers anticipate that 3D printing will be used in high-volume production in the next three to five years.
The amount of people choosing to live in metropolitan cities worldwide is growing. More people living in urban environments may lead to increased need for materials and a shorter supply chain.
As city populations increase, the need for housing does too. Apartments and other buildings will need steel, cement, and other construction materials. More people living in urban areas also means a growth in public transportation. Many Third Party Logistics companies (3PLs) will have more city clients to serve.
How do centralized city populations shrink a supply chain? Many goods originate from urban areas, or are housed in storage facilities and distribution centers in large cities. With more people located in metropolitan areas, less travel is required for product to reach the end user. This can mean creating more goods in shorter amounts of time.
4. Automated Robots and Human Pilots
Robots with artificial intelligence (AI) are becoming cheaper and easier to use. These machines are often used to complete dangerous manufacturing operations that are unsafe for humans. With features like voice-activated controls and virtual reality heads-up displays, piloting robots will become simpler.
A new workforce is needed to operate these intelligent machines. Because of artificial intelligence in the automation process, Forrester Research estimates close to 15 million new jobs will be created in the US over the next ten years.
Human workers will be needed to interpret the data. While AI and smart technologies can create a more efficient manufacturing process, they are still machines that need to be told what to do, Bill Ruh, CEO of General Electric Digital, emphasizes the importance of collecting and analyzing data to create smart automated workflows. “You cannot build a brilliant factory without insight” says Ruh in an interview with Business Insider.
5. Africa as a Manufacturing Nation
Africa is one of the last nations to develop a presence in the international manufacturing playing field.
The Chinese are already investing in Africa. According to Chinese Ministry of Commerce, over 150 private Chinese investors have manufacturing interests in Africa. Sun Wei, owner of a textile manufacturing factory, explains why it’s advantageous to operate in Africa. A lack of competition, a readily available labor force, and a demand for product allows greater margins than manufacturing at home.
The presence of industry in Africa helps empower to impoverished continent. Africa is home to the largest eligible work force in the world. But many of these people are without job opportunities. When new manufacturing companies establish a presence in Africa, they have access to virtually unlimited labor. The median age for the continent of Africa is only 23. The World Economic Forum speculates that by 2034 Africa will have the largest population of working-age adults.
The above post was first seen on the AME “My Industry Tracker” website at www.ame.myindustrytracker.com. The post was content from www.newcastlesys.com reposted by AME. To learn more about this post please visit Newcastle Systems at www.newcastlesys.com.
To learn more about LEAN and its benefits to your organization, please contact the LEAN Accountants of McKonly & Asbury.
Why Can’t I See Productivity Gains In My Financial Statements?
CEO to CFO: “Last month our kaizen teams reported average productivity gains of 50 percent. Why can’t I see them in this month’s financial statements?”
CFO to CEO: “I don’t know. I’m beginning to suspect that this lean stuff isn’t real."
If I had a dollar for every time that I have been told about conversations like that, I’d be rich. And it demonstrates that most CEO’s and CFO’s don’t really understand what productivity is. I believe this is because their accounting systems focus on “labor efficiency”…the relationship of actual labor hours vs. standard labor hours, with the erroneous presumption that the standards are correct. Their systems don’t even try to measure productivity.
A central message of a new book that I’ve produced with three colleagues is that lean, which is widely known yet unfortunately misunderstood, is not simply a way to cut costs, but represents a complete strategy. Strategy is what we do to create sustainable competitive advantage and the lean strategy is a fundamentally different way of thinking about how to do that. And as such, leads us to a different way of framing productivity…let me explain how.
At the risk of stating the obvious:
- Everything we do is in the context of some process
- Processes are comprised of activities
- Activities fall into one of three categories:
- Activities that add value for customers
- Activities that don’t add value for customers
- Activities that don’t add value for customers but are required
(e.g. preparing and filing tax returns)
One of the underlying principles of the lean strategy is to eliminate all activities that don’t add value for our customers. In the Lean lexicon these activities are called either “muda” or “waste.” It’s fair to say that no one would intentionally create a process that contains waste. But we do. I believe that is because historically we have defined waste with an internal focus rather than a customer focus. We call scrap “waste.” We call people standing around the copy machine just talking “wasting time.” But as long as they are “working” we don’t see that as waste.
When Art Byrne came to The Wiremold Company as our new CEO in 1991, as the CFO, I gave him a plant tour. At the end of it he said “this company has twice as many people as it needs.” Needless to say, this statement surprised me because as we walked around what I saw was that everyone was “working.” What he saw was a lot of activity that didn’t add value for the customer. Art had developed “lean eyes”…the ability to see value being added and to see waste. One of the stretch goals that Art set at the beginning of our Lean transformation was to achieve a 20 percent annual labor productivity gain. None of us thought that was even remotely possible, but then at that point we really didn’t understand the real nature of waste. (Spoiler alert: from 1991 to 2000 we had an average a 14 percent annual labor productivity gain.)
Productivity is the relationship of the output of any process and the resources consumed in creating that output. In this context, resources mean all resources…materials, people time, energy, supplies, etc. Thus, it’s possible to improve the productivity of all resources. When we do an improvement event (kaizen) some of the improvements result immediate cash savings and show up in the financial statements quickly…i.e. are true “cost reductions.” Some examples are quality improvements that reduce scrap and therefore material usage. If a company has a scrap rate of 5 percent and materials comprise 60 percent of cost of sales, gross profit can be improved by three percentage points if quality is improved and scrap eliminated. If an improvement event reduces the amount of office supplies that are used, this results in a quick cash saving and an improvement to the bottom line. At Wiremold we reduced the cost of office supplies by 48 percent.
Improvements in labor productivity is different. In The Lean Strategy, a new book, my co-authors and I discuss how one of the realities that the lean strategy makes executives face is the fact that most of what they think they know about what is happening in the company is wrong. In a multi-layered company, with executives far removed from the actual work being done, they are dependent upon what they are told is happening. And in most companies the “bad news” is filtered out as it flows from the shop floor to the “C” suite, so executives don’t know the truth. The lean strategy requires executives to stop making decisions based on what they think is happening (based on bad or incomplete information) and go to the gemba to actually see what is happening. When they do so and ask the right questions, they begin to understand that the people doing the work know what the problems are and have some pretty good ideas about how to fix those problems. They also begin to understand that their own role is to support the people doing the work in finding workable solutions to fix quality, eliminate non-value adding activities, shorten lead times, etc. All aimed at improving value for the customer.
Because the people doing the work are the primary resource for improving productivity, it is imperative that the CEO gives everyone the assurance that no one will lose their employment as a result of productivity improvements. Their “jobs” will probably change over time, but they will have a job. It is because of this assurance that productivity gains created through kaizen do not reduce costs. Since the people are still on the payroll after kaizen, total people costs remain the same. As a result, we get the discussion described at the beginning of this article. What the executives don’t understand is that labor productivity gains just free up capacity. The traditional thinking executive cannot tolerate the thought of having reduced the need for people without actually reducing the number of people (i.e. layoffs). They view this as unnecessary costs. The lean thinking executive looks at this the source of growth and future profitability improvement. They recognize that by eliminating activities that don’t add value they reduce the amount of time it takes to do everything and that time can be strategically used to differentiate their company from their competitors. In effect, time is the currency of lean.
In the context of the lean strategy, how do we convert productivity gains into profitability improvement? The people doing the work did their job: they created the productivity gains. Now the executives need to their job to “actualize” those gains. At Wiremold, we actualized our gains into 13 percentage points of additional gross profit by doing all the following:
- Sell more. This is the best way to actualize productivity gains into profit improvement. Since we already have the people and the production facilities, the only significant additional production cost of the next unit we sell is its material content. Everything else (Sales minus Materials, which in accounting parlance is called “value added”) improves gross profit. In order to sell more, we used time to create a competitive advantage. For example, we reduced the lead-time for most of our products from weeks to days and used that ability to show our customers how our “rapid replenishment system” allowed them to inventory less of our product thereby freeing up their cash. We aggressively improved our new product development processes, reducing the lead-time for new products (concept to launch) from years to months. This allowed us to satisfy our customers with a stream of more innovative products that our competitors could not match. And all of this growth was “self financed” by our productivity gains. Some of our plants were able to more then double their volume with the same number of employees.
- Reduce overtime. If the company is incurring significant amounts of overtime (and we were), this time represents additional Full Time Equivalent employees (FTE’s). And those FTE’s are expensive since overtime is paid at premium rates. By reducing FTE’s we eliminate those expensive hours and actualize the productivity gains into profitability improvement.
- Hold on to attrition. When someone quits or retires, make it very, very difficult to replace those people. Although we assured people that no one would lose their employment as a result of productivity gains, we did not guarantee a fixed level of employment. When people voluntarily leave the company and are not replaced, that actualizes productivity gains.
- Insource work. If the company is having work done by a vendor that it is capable of doing itself, bring the work in-house. By insourcing you capture the vendor’s profit for yourself. You have the capacity that was freed up by productivity gains and even if you have to buy some minor equipment to support the insourcing it’s generally worth it. For example, Wiremold made power strips in various configurations. One of the variables was the color and length of the power cord. Three colors and three lengths. Accordingly, we had nine SKU’s that we had to buy and store. In order to insource, we had to buy a small machine that would mold the plugs onto the end of the cord (six at a time) at a cost of $25,000. However, this allowed us to only inventory three reels of cords (one for each color) and then cut them to length and mode the plugs onto them within the flow line based on actual customer demand. This significantly reduced both the cost of the cord sets and the amount of inventory we had to carry.
When I teach a workshop, I ask the participants if their companies require that the “cost/benefit” be calculated for every kaizen event. Almost all of the hands go up. I then tell them “don’t do it” because most of the improvements will be in the form of labor productivity gains that will not result in an immediate profit improvement. By quantifying these gains into dollars they are raising expectations that next month’s profit will reflect these improvements. Naturally, the response that I get is “But I can’t refuse to quantify that. If I do I’ll lose my job.” So in the face of that reality, I tell them that when they return to their companies they need to educate their executives about (a) the strategic nature of lean and it’s ability to be disruptive and create sustainable competitive advantage, (b) the nature of labor productivity improvements (i.e. they increase capacity) and (c) the four things those executives must do to actualize the improvements into additional profits.
The above post was written by Orest (Orry) Fiume. Mr. Fiume is the retired CFO and Director of The Wiremold Company. Mr. Fiume led Wiremold’s conversion to lean accounting in 1991 and went on to install lean accounting at more than 20 Wiremold acquisitions. He is co-author of the 2004 Shingo Prize winning book “Real Numbers: Management Accounting in a Lean Organization” and co-author of the book "The Lean Strategy," published in June 2017. To learn more about this post please contact Mr. Fiume.
To learn more about LEAN and its benefits to your organization, please contact the LEAN Accountants of McKonly & Asbury.
Increase Manufacturing Revenues With This Three-Pronged Approach
You run a manufacturing business, so you know how it goes. The cost of doing business and manufacturing product never decreases; it always grows. Merely maintaining your revenue status quo will only ensure you get your lunch eaten by inflation. If you aren’t growing your profits, you aren’t just standing still—you’re going backward. Here are three ways investing in technology can help your business grow and increase profit margins.
- Minimize inspection time
Although QC and QA are indispensable, outdated measurement tools can create a bottleneck in production. Talk to your QC/QA techs. They can tell you the shortcomings of existing equipment and how much time savings might be possible with upgrades. Making sure your techs are equipped with adequate technology usually shows ROI pretty quickly.
- Maximize throughput
One way to increase production throughput is to enhance design efficiency. The better the initial design, the smoother the production line. Likewise, the easier it is to make design improvements on the fly, the smoother the production line. Having digital measurement solutions that integrate 3D CAD abilities are essential for growth. Underperforming metrology tools almost guarantee built-in waste on the shop floor.
- Fill in the niches
Every manufacturing organization has a core value proposition for its customers, such as:
- Specializing in large volume production
- International distribution
- Rapid prototyping and small-run manufacturing
- Reverse engineering and refurbishing
Whatever your core value, look for small overlaps into other value streams where it isn’t an unimaginable stretch to serve a slightly different clientele with your existing experience and talent pool.
- If rapid prototyping is your specialty, could you serve OEMs or their Tier 1 and 2 suppliers when they have unexpected gaps in part quotas?
- Are there units similar to what you manufacture already in service that have long lifespans? If so, can you expand into refurbishment as a new value stream?
Reinventing the wheel can be a drag. Instead, find niches in in the games of others and help provide a solution.
Tools and technology that enable growth
All three prongs of this approach depend on investing in the tools and technology that help make growth a possibility. If your current measurement solutions already contribute to a bottleneck in throughput, it’s going to be pretty tough to increase revenue without making a change.
Expanding your customer base will require that your design and metrology tools are able to integrate digitally with other organizations. That means having CAD and model-based tools.
So, investigate the technological options that will enable growth in your particular business, do the math on ROI, make the investment... and start growing.
The post was written by Ryan E. Day, a contributing editor and the content-marketing coordinator at Quality Digest. To learn more about this post, please contact Ryan at Quality Digest. To learn more about LEAN and its benefits to your organization, please contact the LEAN Accountants of McKonly & Asbury.
Report: Factory Jobs Fall, but Output is Higher than Ever
Large-scale job cuts in manufacturing, including those in recent months at York County's Harley-Davidson Inc. factory, often grab headlines. Despite that, all is not doom and gloom in the country's manufacturing sector, an Indiana business professor says. U.S. manufacturing and logistics industries, despite public perception, in fact experienced dramatic growth over the past generation in at least one metric, says a new report from Professor Michael Hicks at Ball State University. U.S. manufacturing production grew 11 percent since the dot-com bust of 2000-03 and the ensuing economic turbulence of the 2001 and 2007-09 recessions, according to Hicks.
The director of Ball State's Center for Business and Economic Research and a professor of economics and business research, Hicks released a report, "Manufacturing and Logistics: A Generation of Volatility & Growth," spotlighting the positive trends. "According to folklore, this has been a terrible generation for manufacturing and those who move goods," Hicks said. "That isn’t really what the data says. Indeed, 2015 was a record manufacturing production year in inflation-adjusted dollars," he continued. “While 2016 fell just short with some weakness in the first and second quarter, 2017 looks to be a new record year."
One local manufacturing expert said the Indiana report is spot-on, and applies to Pennsylvania as well as other parts of the U.S.
"Contrary to common misperceptions, manufacturing output is greater than ever, and this has been achieved with fewer workers," said John Lloyd, president and CEO of MANTEC Inc., a York-based nonprofit consulting firm that provides assistance to the manufacturing sector. The increase in productivity has come about through better workforce training and education, lean manufacturing techniques, increased use of technology and greater automation, Lloyd said. And it has increased American global competitiveness, creating greater demand for U.S. products, he said.
Hicks noted that most of the confusion about tough times in manufacturing and logistics is due to declining employment over the past generation: "The fact is, manufacturing firms have become very lean, and productivity growth means more goods produced with fewer workers."
According to a news release describing the Ball State report, three factors contribute to a decline in employment: the workforce is better educated and trained, increasing productivity; mechanization displaces workers; and improved processes, such as "Lean Six Sigma" and other management methods, increase manufacturing production.
But just in York County, some manufacturers have recently announced job cuts. Harley-Davidson in April announced it would eliminate roughly 118 jobs at its factory in Springettsbury Township, as it consolidates production of its Cruiser line of motorcycles to a plant in Kansas City, Mo. The shift will add 118 jobs in Kansas City. And Kelvion, which makes heat exchangers, also had announced in April its plans to close its East Manchester Township manufacturing plant. Seventy-two people will lose their jobs, with the cuts to begin June 30, it was announced.
Since peak manufacturing employment in 1979, the U.S. has lost some 7.5 million manufacturing jobs but has gained more than 9 million jobs in trade, transportation and utilities, the broadest measure of the logistics industry, the news release about the Ball State report noted.
"Trade and productivity growth shifts job opportunities to other places and other sectors, even as employment grows," Hicks said. "We are at peak U.S. employment right now."
For more, visit the Ball State business center website here. To learn more about this post, please contact the LEAN Accountants of McKonly & Asbury.
Five Questions to Understand the Data that Drives Business Performance
Manufacturers rely on metrics for the clearest and most accurate performance picture of their organizations’ processes, production, and profitability. Yet, although they have come a long way in updating their technology, many aren’t certain how to leverage the mounds of information being generated. Data crunching, which refers to importing facts and figures and processing them in a way that makes it useful for arriving at better decisions, is key—especially when doing so helps to answer five simple questions that enable manufacturers to make better choices when it comes to their operations.
Question 1: How well do you turn your data into action?
Data may be in good supply for many manufacturers, but it’s futile unless the data offers what’s needed to make decisions that have discernible influence. In truth, the majority of manufacturing executives in charge of big data don’t know how to make sense of its worth. Even for those who understand the big picture, turning the data into actionable steps in a timely manner proves tricky. But to be a factory of the future, the job of consolidating, sorting, and analyzing this data has to occur quickly and efficiently. Companies with the upper hand in turning this data into business intelligence—with enough time to implement change quickly at a lower cost— will come out ahead.
Question 2: How can manufacturers get the most from their data?
Numbers can be a manufacturer’s best friend. Not surprisingly, the metrics they provide are getting the attention of manufacturing budgets everywhere. These metrics are impressive in that they can offer a real shot at gaining a competitive advantage. Some of the strategies that help manufacturers get more from their data include:
- Set a baseline. From the start, measure manufacturing systems and process performance in order to establish a baseline from which everything will be measured.
- Customer-centric metrics. Which of the company’s manufacturing processes impact customer interactions the most? Once identified, devise metrics to measure this performance from the customer’s point-of-view. Think in terms of metrics that connect performance on the floor to financial results by way of the customer.
- Make results visible. With customer-centric metrics, it’s impressive to see the changes that can occur across a company. Collaboration toward solutions seems to happen more seamlessly and willingly once the entire company can see the analytics of customer performance.
Question 3: How do manufacturers accurately identify total operational costs?
Moving beyond the raw materials and labor, there are indirect costs that are just as essential to the operation, even though they’re not physically part of the manufacturing process. These costs fall under manufacturing overhead, and they must be properly accounted for, as required by generally accepted accounting principles. Factory expenses that are indirectly related to the manufacturing process include quality control staff, factory clerical workers, and equipment maintenance and repair personnel. Although these represent indirect manufacturing labor costs, they still include benefits and payroll taxes, not just salaries. Other costs that fall under manufacturing overhead include property taxes, factory supplies, utilities, and equipment/building depreciation.
Question 4: How flexible is your manufacturing execution system (MES)?
In the past, manufacturers used manufacturing resource planning (MRP) and enterprise resource planning (ERP) applications to manage data. MESs have brought about positive change to the industry by offering a far more simplified process, which is much more likely to produce a competitive advantage. The primary goal of a manufacturing execution system is to arrive at a level of high performance and maintain it. And, since MES software can be customized, it allows a manufacturer to choose the areas in which it wants to improve performance. Be it inventory, a specific process or a dysfunctional machine, an MES can offer sufficient insight to get to the root cause of problems.
Question 5: How does your business align with the global marketplace?
Repeatedly, research supports the notion that aligning with the global marketplace is a process that is driven by strategy, not tactics. Going global requires a long-term action plan—not just any action plan, but one that aligns corporate vision and mission, as well as identifies opportunities in preferred markets.
Going global presents an awkward situation for many executives charged with its execution. Those who know the tactical side of business naturally lean toward this type of work and associate accomplishment with getting an operation ready to roll…tactically. However, setting out to introduce a product or service to a new or foreign market requires a keen sense of the local culture, right down to consumer buying habits. Also, how does the company plan to distinguish itself in this new market? Nothing can be presupposed based on its past performance. Instead, newcomers need to find the product or service’s unique market position so they know what will move inventory more quickly than any competitor.
Getting answers from the numbers
One apparent trend in the manufacturing industry is its ongoing volatility, which translates into uncertainty—a condition from which all supply chains suffer. As a matter of principle, manufacturers must rely on the data their operations accumulate, which is why they use metrics. The process of effectively measuring, analyzing, and improving manufacturing metrics isn’t as easy as it may seem. Often there are combinations of metric indicators necessary to ensure that a larger business objective is being met. Developing a strategy, coupled with comprehensive answers to the five questions outlined, help a company understand the interrelationships between high-level goals and objectives. Also, being clear about strategy provides a sharper understanding as to how to better collect, manage, and act on a company’s business metrics. In the end, visibility into the process is made clearer and decisions can be made with resolve.
This article was a Target Online Original Story posted on June 14, 2016. The authors of this post are Michael Mantzke, CEO and Robert Jonas, COO of Global Data Sciences. To learn more about this post, Mr. Mantzke and Mr. Jonas can be reached through their website at www.globaldatasciences.com or contact the LEAN Accountants of McKonly & Asbury.