How Companies Drive Major Profit Improvements Through Effective Planning
Effectively managing operations is a significant challenge for most leaders.
In this month's issue of the Competitive Edge, KGI's Enterprise Operations Group provides yet another tip for CEO's and their executive team to consider. How Companies Drive Major Profit Improvements Through Effective Planning explains how adopting the latest production methodologies can drive significant cost reductions and maximize capacity. The reader will also have the opportunity to take the Enterprise Scheduling Health Exam and learn how KGI's consultants helped:
- A $22M Health & Beauty Products Manufacturer achieve a 12% improvement in production levels and a $1.2M increase in operating income in under 4 months.
- A $48M Mechanical Component Manufacturer increase inventory turns 500% and reduce the working capital investment inventory by $1.9M within 3 months.
As a special measure, we've also included The Kibel Confidential, an insider's view of trends and how a business should act today for success tomorrow.
HOW COMPANIES DRIVE MAJOR PROFIT IMPROVEMENTS THROUGH EFFECTIVE PLANNING
In this issue of Competitive Edge the reader will have the opportunity to take the Enterprise Scheduling Health Exam and learn how KGI's consultants helped:
The Benefits of a Good Schedule
Every business organizes its activities in the form of a schedule. Often, the difference between success and failure business is the quality of the production schedule. The way in which labor, materials, tools, time, and customer demand are sequenced on a daily basis play a significant role in how the CEO's strategic plan and capital investments result in desirable consequences. A good schedule:
- Minimizes use of resources
- Maximizes output of products or services
- Ensures dependable delivery of products or services
- Facilitates a great experience for the customer
To assess how well your organization rates, take the Enterprise Scheduling Health Exam.
Elements of Daily Work Center Scheduling
In order to achieve these benefits scheduling needs to be constructed in accordance with a simple set of principles. To maximize the impact these concepts must be applied to the entire business and not compartmentalized to a few departments.
These six principles are part of the deliberate design of every good schedule. They represent the culmination of a process of design in which the needs of the customer and the capacity of the process are balanced and translated into a Daily Activity Plan.
1. Define the business needs. Clearly determine what will be produced with which resources and tools in which time frame for presentation in a specific manner. Great businesses are very specific. They avoid the use of the "language of uncertainty" whenever possible so that planning is done in terms of what the business chooses to do in response to customer demand rather than simply responding to random customer demand.
2. Level the total quantity of production. The production should not differ greatly from day to day without a deliberate business decision to do so due to seasonal demand, growth, or unusual opportunity. During KGI's decades of helping over 1,400 clients, we have found that a typical business needlessly expends 25% or more of its labor budget because of failure to level output effectively.
3. Balance production. Activity should be balanced within a given time period so that no single product, customer, tool, or department is touched in more than its proportional share of the business. This enables minimized inventory, smooth customer relationships, and predictable vendor requirements.
4. Anticipate exceptions. In a perfect world, the schedule could be completely set weeks in advance and no one would worry about exceptions. Although the identity of a specific exception may not be known when the schedule is created, it is possible to anticipate the need for the exception and allow time and resources so that the emergence of an exception does not require shifting the other scheduled tasks. Poor exception planning can double production costs.
5. Communicate the schedule requirements. The business must communicate throughout its supply chain and within the operation so that vendors understand their role, customers develop a standard service expectation, and employees make decisions that support the effectiveness of the schedule. Failure to communicate vendor or customer expectations leads to expensive requirements being imposed on the business from outside.
6. Flow tasks and production at the proper pace. All activities should move at such a rate as to support an overall pace known as takt time. While most tasks exhibit differing cycle lengths, it is important that the total output of those tasks neither exceeds nor fails to meet the needs of the operation's pace. This overall pace is defined as the time available for production divided by the quantity of output desired. Good flow minimizes production costs for any production level and facilitates the discovery and resolution of problems.
Case Studies: The Impact of Good Scheduling
Health and Beauty Products Manufacturer
Situation: KGI was engaged to discover and remedy the client's observation that the company had a significantly lower productivity rate than competing companies despite having similar plant and equipment available. In the course of this work, the KGI team observed that the company violated each of the principles of a good schedule. The company had three separate departmental schedules that ran at different paces. Each transaction was treated as an exception jockeying for position at the head of the production line. High volume production days alternated with low volume days, and product runs would last weeks with the warehouse over flowing with the active products.
Action: The KGI solution was to reorganize production around a single schedule that pulled component product from upstream processes. The schedule leveled volume and balanced product mix so that the company's output did not vary significantly from day to day. Communication with customers and vendors defined the elements of a good transaction and set expectations for the company's performance. Exception activity dropped with the improved communication and steady performance, but the company retained the capability to react to exceptions in a structured manner.
Result: As the company increased in skill and familiarity with the new scheduling system, it was able to restructure its labor assignments and reduce direct labor cost by 40% while increasing overall production levels by 12%.
Situation: A manufacturer of intermediate components in a competitive consumer products field contacted KGI to assist them in controlling a raw material, work-in-process, and finished goods inventory that turned only 2 times per year. KGI found that the company’s scheduling process took steady customer-issued, blanket purchase orders and turned them into a highly erratic system that was managed by manual intervention every day. Inventory levels were high due to the need to make any product at any time in response to the poor translation of customer demand to actual production.
Action: KGI designed a solution that enabled the company to use the customer purchase orders as a leveling mechanism that both signaled today's production and established the reliable demand for future production. Rather than needing to be able to produce any product at any time, the company was able to set inventory levels to produce only the scheduled products. Rather than constantly failing to meet customer due dates and absorbing all of the associated expenses, the company was able to increase business by becoming a reliable and predictable supplier.
Result: By the completion of the engagement, the company had improved inventory turns to 12 per year (an 84% reduction in working capital investment in inventory), eliminated the need for second shift production, and improved reliability to the point that it was able to win additional business with existing customers from rival suppliers (a 6% increase in revenue).
How to Achieve these Results
KGI consultants are experienced operations professionals who can help your business evaluate the quality of its schedule. Our team can assist you find the gold hidden in your schedule. Over 24 years, KGI has assisted more than 1,400 companies find ways to do their business better.
Call today to schedule a complementary evaluation of your company's scheduling methods.
The Kibel Confidential
The US Economy Will Go Into A Recession. Do not be fooled -- we will not crawl out of it for a long time. The Credit Crunch and the reduction in the Value of Single Family Homes will lead the recession... What lies ahead:
- Real GDP Will Slow. Plan according to something near 1.2% and not the More Optimistic Forecasts.
- The Average Consumer Will Feel Poorer. The Credit Crunch will Impact their Desire to Consume. Because Consumption Drives most of the US Economy, the Downturn will be felt at all levels.
- The Drag in Increased Crude Oil Prices has Yet to be Felt. Every $10 Rise in the Price of Crude Oil Represents A Drag In Household Income Of 1%. The Total Impact of the Rise in Energy Costs has yet to play-out in Consumer Spending.
- The Recessionary Pressures will then Hit the Retail Industry followed by Distribution and then Manufacturing.
- Job Growth is Slowing, Energy Costs are Rapidly Increasing, Adjustable Rates Mortgages are being Reset, Lending Standards are Tightening.
Companies May Cut Capital Spending And Reduce Inventories. At a later stage Corporate Earnings Will Decline. Ultimately, the Stock Market will be impacted.
The Bright Side is More Competitive Exports. The Declining Value of the Dollar and the Trade Deficit which helps Multi-Nationals by making Our Exports Cheaper Overseas and improves profits.
Overleveraged Mid-Market Companies that Focused on the Domestic Market will Feel the Greatest Pain in the Coming Recession. They do not benefit from the devaluation of the dollar or from the currency conversion (reconstitution back to dollars).
Home Builders are Faced with Lot Values that are Lower than the Purchase Price and in many cases Lower than the Amount Borrowed. They will be looking for aggressive capital partners who see the long term opportunity once values begin to increase. The partners will be coming in from all over the world to capitalize on the weak dollar and buy assets on the cheap. Undeveloped countries with large reserves of cash will be important sources along with well-heeled domestic enterprises.
Next Month's Kibel Confidential: Steps Companies Must Take Now.
Whether a Company is struggling financially or on the cusp of breakthrough growth, KGI can help. Our seasoned experts work alongside management to solve complex cash flow issues, operational challenges and other business crises. If liquidity or sale is needed, KGI provides a powerful combination of services and expertise to achieve outcomes that cannot be duplicated by other standalone consulting firms.