February 15, 2016 / benchmark study, best practices, Cost Management, industry news, LIT, ROI, strategic planning
In general, growth is good in business. It means more customers, more orders and, typically, more profit. Growth also typically indicates a healthy market, a stable economy, and increased market demand.
In today’s uncertain market, however, industrial metal-cutting companies are finding that growth might not be possible, and in some cases, shouldn’t even be the goal.
According to the Metal Service Center Institute, December metal shipments and inventory levels for both steel and aluminum declined 11.4% and 21.7%, respectively, from December 2014. In addition, the Institute for Supply Management’s January Purchasing Managers Index rating of 48.2% indicates a contracting manufacturing industry for the fourth consecutive month. (A reading above 50 indicates expansion; below 50 indicates contraction).
This has left many industrial metal-cutting companies unsure about how to grow while balancing fluctuating demand, raw material costs, and shop floor process and machinery improvements. A recent survey conducted by the Fabricators & Manufacturers Association Intl., for example, concluded that small and medium-sized job shops and fabricators are “facing a lot of headwind and uncertainty,” according to a report from The Fabricator. While most of the survey respondents believe their companies will grow in 2016, only 39% were positive and a significant 23% said conditions aren’t getting any better.
The reality is that based on current conditions, growth in the traditional sense probably isn’t going to happen in 2016 for many manufacturers. In fact, according to the article, “Achieving Smart Growth: A Guide for U.S. Manufacturers” from manufacturing.net, growth may not be the healthy—or profitable—path to take.
Before trying to achieve growth of any kind, the article states that manufacturing executives should ask themselves a few key questions:
- Is there an ideal size for my business so as not to compete with current business while avoiding administrative costs?
- What is my greatest profit opportunity? Is it expanding sales or increasing efficiency?
- How do I ensure increased sales that lead to higher profitability?
- How long is growth sustainable and are we prepared for slowdowns?
- What will help manage cash flow during ups and downs?
Once companies answer these questions, the article states that “smart growth” is possible. What is “smart,” however, will look different at every manufacturer, depending on its unique circumstances. For example, a “smart” path for one company could mean maintaining their current size and optimizing operations, while another manufacturer might want to consider making some larger investments to achieve bottom-line growth in the future.
The manufacturing.net article says regardless of the circumstances, there are three key principles all companies should follow for “smart growth”:
- Plan. This includes defining objectives, planning how to achieve growth, and identifying risks. Managers should review their plans quarterly and change as needed.
- Invest. This includes looking for profit-generating opportunities for your business. Whether it’s through technology or training, managers should actively find new ways to improve the status quo.
- Fund. Managers need to find a balance between cash and credit. Relying on cash keeps interest costs away and demands financial discipline. However, relying solely on it can limit a company’s ability to grow when opportunities arise.
As reported in a benchmark study from the LENOX Institute of Technology, many of today’s metal-cutting companies exist because of their ability to survive even the toughest market conditions. However, best-in-class operations know they cannot afford to rest on their laurels. By developing a tactical, healthy “smart growth” strategy, industrial metal-cutting companies can continue to find opportunity, identify areas of improvement, and achieve long-term success, even in uncertain times.
Do you have a “smart growth” plan for 2016? What strategies are you using to ensure success?
February 10, 2016 / benchmark study, bottlenecks, KPIs, LIT, operations metrics, performance metrics, preventative maintenance, quality, workflow process
Manufacturing leaders know that measurement is the only way to truly gauge how their operations are performing and, more importantly, identify areas that need improvement. However, many companies fail to realize that metrics can be applied to every area of an organization, not just production.
One area that can greatly benefit from measurement is maintenance. A strong maintenance department keeps equipment up and running, which directly impacts production schedules and costs. As an article from Reliable Plant points out, maintenance should be treated just like any other business area.
“You must make good decisions that add value,” the article states. “This means you need input and lots of it. Making decisions based on gut feelings just doesn’t cut it these days. Key performance indicators (KPIs) can provide the input you need to help meet this lofty objective.”
Where Do You Start?
As we covered in a previously published blog, the challenge for many metal fabricators is knowing which metrics to measure, especially in niche areas like maintenance. Not all KPIs are created equally, and the goal should be quality—not quantity—when it comes to metrics of any kind.
According to Lifetime Reliability Solutions (LRS) Consultants, maintenance KPIs should reflect achievement and progress in meeting an agreed maintenance benchmark. “In measuring maintenance performance we are concerned not only with doing good maintenance work, we are also concerned that the maintenance work we do successfully removes risk of failure from our plant and equipment,” LRS advises on its website.
The consulting firm suggests that maintenance managers use a mix of lagging indicators and leading indicators so they have an understanding of what is happening to the risk and performance of their operational assets through maintenance efforts. “Lagging indicators use historic data to build a performance trend line,” LRS writes, while leading indicators use historic data to monitor if an operation is doing those activities that are known to produce good results. A good example of a lagging indicator related to machine health is Mean Time Between Failures (MTBF), whereas a leading indicator in maintenance might be the percentage of condition inspection work orders performed when they fall due.
In general, LRS suggests maintenance managers consider using KPIs within the following six categories:
- Maintenance Delivery (e.g., Proportion of Work Orders Performed when First Scheduled)
- Maintenance Work Quality (e.g., Number of Rework Work Orders)
- Equipment Reliability (e.g., Asset mean time between failures)
- Operational Risk Reduction (e.g., Number of Equipment Improvement Work Orders Completed)
- Maintenance Resource Usage (e.g., Proportion of Work Orders Started at the Time Scheduled to Start)
- Maintenance Costs (e.g., Maintenance Cost Component of Unit Cost of Production)
Why Do Maintenance KPIs Matter?
Like any other business area, maintenance performance can directly impact the bottom line. For example, if maintenance personnel fail to follow a shop’s preventative maintenance (PM) schedule, a host of problems can arise, ranging from lower quality cuts to unplanned machine downtime. As confirmed by a recent benchmarking study of fabricators and other industrial metal-cutting companies, maintenance tasks like PM can impact job completion rates, blade life, and material costs.
With the right KPIs in place, maintenance managers can make sure that maintenance performance is up to par, as well as play a key role in ensuring that the shop as a whole operates as optimally as possible.
How are you measuring maintenance performance at your fabrication shop?
March 25, 2014 / benchmark study, bottlenecks, continuous improvement, preventative maintenance, productivity
In most cases, one of leading causes of lost productivity is breakdowns. Equipment and tooling failures create bottlenecks that throw off delivery schedules, reduce efficiency, and increase costs. And in today’s competitive market, forges just can’t afford downtime.
While some breakdowns are inevitable, more and more companies are realizing that proper maintenance and proactive care of equipment and tooling can, in fact, reduce their occurrence. When equipment is well maintained, it is more reliable, more predictable, and more productive.
Really, the case for preventative maintenance (PM) program isn’t a hard one to argue, especially when so many manufacturers are seeing the positive impact it can have on the bottom-line. For example, according a recent benchmark study from the LENOX Institute of Technology, 70% of industrial metal-cutting organizations that report their scrap and rework costs are less than 5% also say they “always” break in their band saw blades. This provides strong economic validation for the proactive care of equipment such as saws and blades. By breaking in blades properly, organizations are able to reduce “soft” failure that leads to waste and scrap and that eats into their bottom line. It also keeps operators productive and reduces unnecessary tooling costs.
While the theoretical benefits of a PM program are clear, like any continuous improvement initiative, it requires some strategy to be successful in practice. The following are just a few best practices for managers to consider when implementing a formal PM program:
- Define it. Managers need to take the time to define the purpose of their maintenance program and, more importantly, its goals. This article from Reliable Plant dissects the different “levels” of maintenance and the objectives associated with each. For example, the article differentiates between Preventative Maintenance, Predictive Maintenance, and Proactive Maintenance—three terms many people use interchangeably. By understanding the entire spectrum of maintenance possibilities, managers can assess what is realistic within their operation based on available resources.
- Schedule it. As stated in this article by consultant William Worsham, the key to executing a successful PM program is scheduling. According to Worsham, scheduling should be automated to the maximum extent possible. He suggests that managers implement “a very aggressive program to monitor the schedule and ensure that the work is completed according to schedule should be in place.” This means both documentation and accountability are critical.
- Measure it. Metrics are the only way to truly gauge if a maintenance program is producing results, and according to this article IndustryWeek, one or two metrics isn’t going to cut it. Quoting Jeff Shiver, managing principal of maintenance consulting firm People and Processes Inc., the IW article provides ten key metrics managers should use to help determine whether or not their maintenance initiatives are improving reliability. Based on this list, effective measurement goes far beyond PM compliance and should include bigger picture metrics like maintenance cost per unit of production, storeroom inventory value, and first-pass yield.