May 20, 2014 / benchmarking, best practices, continuous improvement, customer satisfaction metrics, lean manufacturing, LIT, productivity, quality, ROI, strategic planning, value-added services
As the industrial metal-cutting industry becomes more competitive, a growing number of machine shops are looking for ways to differentiate their operations, whether that means offering value-added services or implementing the latest lean techniques.
One best practice that many of today’s leading shops tout is ISO 9001 certification. The standard, described in detail here, is based on a number of quality management principles, including a strong customer focus, the motivation and implication of top management, and continuous improvement. The basic goal of the standard is to help companies provide customers with consistent, good quality products and services, which, in turn, often brings business benefits like improved financial performance.
Metal Cutting Service, a specialty shop based in City of Industry, CA, has reaped the rewards of ISO certification, including improved productivity and quality. The company, featured in a series of LIT case studies, estimates that quality has improved 20 to 30% since it became ISO certified more than 12 years ago.
However, ISO certification isn’t a quick fix nor should it be taken lightly. Like any company-wide initiative, it requires time, money, and strategic planning. Here are a few points to consider before undergoing ISO certification:
- Understand the purpose. If you haven’t done so already, do your own research on the standard. You can download a basic brochure here. As this Quality Digest article states, many companies go into ISO 9001 certification under the incorrect assumption that the standard itself is supposed to be implemented to ensure quality. However, as the QD author states, this just isn’t true. “ISO 9001 was never intended to be used to design or implement quality management for any organization, but merely to assess quality management,” he says. “Sure, management might glean some details about QMS [quality management system] development from analyzing ISO 9001 requirements, but the requirements are not supposed to establish any QMS. A company must first establish real-time standard operating procedures (SOPs), and then look at how they compare to ISO 9001 requirements.” In other words, as the author quips, make sure you don’t put the cart before the horse.
- Reach out to other shops. Finding out why and how other machine shops approached ISO certification can help you determine if certification is worth the time and financial investment, as well as what you should (and shouldn’t) do in the process. As this Modern Machine Shop article suggests, contact some certified shops—particularly ones about the same size as yours—to get a feel for whether ISO certification is right for your operation. If you find a shop that hasn’t found value in certification, try to find two shops that have had a good ROI and then compare their approaches. However, managers need to realize that no two certification processes are going to be the same. The cost and time of ISO 9001 registration and implementation will vary depending on the size and complexity of your organization and on whether you already have some elements of a quality management system in place.
- Consider getting some support. If you decide to follow through with certification, there are several services and consultants that can help. Although third-party support may initially seem cost-prohibitive, don’t completely write it off. You may find it is worth the investment, especially if you are short-staffed. You can find a list of training and other service providers here on ThomasNet.com, and there are also several software programs available that can help you streamline the process. This is also an area where external insight from other shops can be helpful. Did they utilize any support services? If so, what was the most helpful? If not, do they wish they would have in hindsight?
May 15, 2014 / agility, best practices, continuous improvement, Employee Morale, human capital, lean manufacturing, LIT, maintaining talent, strategic planning
One of the foundational principles of lean manufacturing is employee engagement. As we covered here, one way for executives to do this is to literally walk the shop floor and interact with operators. This not only allows management to see firsthand what happens on the floor, it creates a more team-centered approach to decision making and empowers employees. In the best-case scenario, it also births innovation and improves productivity—both of which can improve the bottom line.
Although a growing number of manufacturers have adopted these types of collaborative lean strategies, Evan Rosen, author of The Bounty Effect: 7 Steps to The Culture of Collaboration, argues that most companies still operate within the age-old paradigm of “command and control.” In other words, a few people are paid to think, while the rest of the employees are expected to simply carry out orders. Rosen, however, believes our culture is in the midst of a major shift that will require companies to adopt a more collaborative, “all hands on deck” approach to business.
Based on Rosen’s model, collaboration goes far beyond employee engagement. In a recent column in IndustryWeek (IW), the author provides five ways that manufacturers can adopt a more collaborative structure. These include the following:
- Establish All-Access People Policy
- Design Collaborative Workspaces
- Collaborate with Customers
- Collaborate with Competitors
- Create Mirror Zones
For some great examples of what these strategies might look like in an industrial metal-cutting environment, check out this case study from ThomasNet.com, which describes an industry-wide collaboration, and this LIT white paper on how to create more collaborative supplier relationships.
What are some ways your company has taken a more collaborative approach?
May 10, 2014 / best practices, continuous improvement, Employee Morale, human capital, industry news, LIT, maintaining talent, operator training, quality, root cause analysis, skills gap
There is no question that the skills gap is one of the most pressing issues for industrial metal-cutting companies and, of course, the manufacturing industry at large. According to a recent article from the U.S. News & World Report, it is estimated that more than half a million skilled manufacturing jobs remain unfilled due to the labor skills gap in the U.S., and that number will likely increase as more and more Americans age out of the workforce.
As we covered here, this has prompted industry leaders like GE and industry associations like the Society of Manufacturing Engineers (SME) to take action. Just last week, JPMorgan Chase & Company announced a $5-million commitment to the city of Dallas to help shrink the skills gap within several industries. The move is part of a five-year, $250-million national initiative Chase launched in December to provide job training and fund local research to identify the areas most in need. As this video explains, the banking giant is using real data to identify real needs and then investing in those needs to fill the actual gaps.
While these types of large-scale initiatives might be left to large-scale companies, Chase’s strategy is one that just about any fabricator can apply to their own operations. Like Chase, fabricators that want to make a real difference in their business need to identify the actual gaps within their own company walls. This is especially true if a large number of your workers are headed for retirement. Once you have identified the gaps within your organization, you can determine the skills that are needed and then adjust your training and hiring programs accordingly.
The following are two strategies that can help you determine if (and where) there are skills gaps in your operation:
- Map them out—literally. Marlin Steel, featured in a profile on thefabricator.com, is using a Skills Matrix to ensure that its shop always has someone available to perform the necessary skills. In a Q&A with the trade publication, Marlin Steel President Drew Greenblatt explains that the Skills Matrix is essentially a Microsoft Excel spreadsheet that identifies each worker’s skill set. Each skill is awarded a point value and, in essence, ranks workers by their skill level. This helps the shop identify strengths, gaps, and individual opportunities for improvement. It also encourages cross-training. To make it a win-win situation, Greenblatt provides financial compensation every time a worker adds a skill. (You can read the rest of the interview here.)
- Identify problem areas. Another method for identifying skills gaps in your fabrication shop is to evaluate your workers on the job to determine whether or not they are causing avoidable errors or inefficiencies. Here are a few tactics described in a white paper from LIT that can help managers identify problem areas:
- Conduct a time analysis to measure shop floor efficiency. You can read the specifics on how to conduct an analysis here. Once the analysis is performed, managers can review the results to identify inefficient workers, patterns when certain tasks are performed (i.e., cutting different grades of material), and baselines for improvement. Ideally, this is performed without worker knowledge in order to get a more accurate picture of performance.
- Take a close look at inventory levels. Even if an organization is meeting customer orders, high levels of inventory can indicate “hidden” inefficiency and quality issues. Waste and remnants are often the result of operator errors such as incorrect machine settings and improper blade usage—both of which point to a lack of training or knowledge.
- Implement some form of process control. Without a paper trail, it is difficult for managers to find the source of operational issues, including problem operators. By having processes in place to hold operators accountable such as daily checklists, maintenance reports, defect reports, and signatures to hold operators accountable, executives can quickly and easily pinpoint the cause of workflow bottlenecks, increased tooling costs, and other issues that can impact business performance.
As the skills gap is proving, investing in your human capital is just as critical as investing in your technology and equipment. Taking the time to identify strengths and weaknesses within your operations staff—and then encouraging and rewarding improvement—is one way industrial metal-cutting leaders can equip themselves for today, as well as the future.
May 5, 2014 / best practices, continuous improvement, Employee Morale, human capital, lean manufacturing, LIT, productivity, Safety, workflow process
Most manufacturing executives know that developing a lean culture requires top-down support. Everyone—from the CEO and vice president of operations to the maintenance manager and band saw operator—needs to be on board, or it’s just not going to work.
Unfortunately, many companies have discovered that creating a successful lean environment isn’t as easy as it sounds. In fact, as this blog post explains, there are a lot of ways to do this incorrectly. For instance, leadership is not “committed” simply because they have enthusiastically funded a lean program. They need to actually be involved. At the same time, key improvement decisions can’t be made in an ivory tower.
Change—effective change—needs to start at the ground level, where the work is happening and where the value is created. This place, defined as “gemba” in lean manufacturing terms, is believed to be the key to unlocking true transformation.
“Gemba,” the Japanese term for “actual place,” has been redefined by lean thinkers as the place where value-creating work actually occurs. In an IndustryWeek blog post, Bill Wilder, director of The Life Cycle Institute, calls gemba the “beating heart” of an organization, which for manufacturers, is rarely found in the marketing department or an executive desk. Instead, it is almost always found on the production floor.
This means that to make any real change, metal service center executives need to literally take a walk—known as the “gemba walk”—to see their operation from the front lines. Getting out of the office and taking a gemba walk, Wilder says, is the best way for leadership to see, firsthand, what works and doesn’t, and many experts believe it should be the first step in any lean transformation.
In theory, this sounds great, but what should a gemba walk look like in practice? Here are a few tips we gathered to help you “walk the talk” and put you on the path toward an effective top-down lean program:
- Have a plan. This SlideShare presentation, “Gemba 101,” states that there are four steps to gemba success: know your purpose, know your gemba, observe your framework, and validate. You can read the slides to get more information, but the takeaway here is that a gemba walk should be structured. It is not the same as Management By Wandering Around (MBWA), which is often casual and unstructured. In contrast, a gemba walk has a specific purpose. Lean expert James Womack says he has 10 questions he asks every time he takes a gemba walk. You can check out those questions here in this essay, along with a great case study.
- Think—and walk—horizontally. According to Womack, value flows horizontally. Unfortunately, organizations are organized vertically. As described in this IndustryWeek article, the key to a successful gemba walk is to select a value stream, gather all the managers from all the vertical functions that touch the value stream, and then walk together. This likely includes CEOs and COOs, customers, suppliers, and value-stream leaders.
- Respect and Engage. As this iSixSigma article states, a gemba walk is not an opportunity to find fault or enforce policy, nor is it a time to solve problems or make changes on the spot. Instead, it should be “a time of observation, input and reflection.” Leadership should go on the walk with an open mind and welcome suggestions from operators and other shop floor employees. A good example of this more team-centric approach is described in the white paper, The Top Five Operating Challenges for Metal Service Centers. As the paper states, one service center continuously asks operators for ideas to make its cutting processes safer and faster and, when appropriate, brings those ideas to fruition. This tactic has not only improved operational efficiency, it has also shown operators that they are a critical aspect of the company’s success.
April 30, 2014 / agility, benchmarking, best practices, continuous improvement, industry news, KPIs, LIT, operations metrics, Output, performance metrics, predictive management, preventative maintenance, productivity, strategic planning
A recent report from Gartner continues to build the case that metrics and smarter, more predictive management strategies are critical for industrial metal-cutting companies that want to succeed in today’s competitive landscape. In fact, according to the consulting firm, organizations that use predictive business performance metrics will increase their profitability by 20 percent by 2017.
“Using historical measures to gauge business and process performance is a thing of the past,” Samantha Searle, research analyst, said in a Gartner press release. “To prevail in challenging market conditions, businesses need predictive metrics—also known as ‘leading indicators’—rather than just historical metrics (aka ‘lagging indicators’).”
Gartner said that predictive risk metrics are particularly important for mitigating and even preventing the impact of disruptive events on profitability. The key is for companies to have predictive metrics that contribute to strategic key performance indicators (KPIs); however, Gartner discovered that many companies are failing to do just that.
Metrics vs. Strategic KPIs
After conducting a survey of 498 business and IT leaders in the fourth quarter of 2013, Gartner analysts found that while 71% of business and IT leaders understood which KPIs are critical to supporting the business strategy, only 48% said they can access metrics that help them understand how their work contributes to strategic KPIs. In addition, only 31% had a dashboard to provide visibility into KPIs.
However, according to Searle, even visible metrics won’t help drive strategic business outcomes if business leaders don’t have the right metrics in place. The problem, she says, is that managers often misinterpret the goal of a KPI.
The first thing companies need to realize is that KPIs are metrics, but not all metrics are KPIs. A KPI is a measure that should indicate what you need to do to significantly improve performance—or that indicates where performance is trending—which means it is predictive in nature. However, Gartner’s Searle says many companies don’t have predictive measures in place. “They persist in using historical measures and consequently miss the opportunity to either capture a business moment that would increase profit or intervene to prevent an unforeseen event, resulting in a decrease in profit,” she explains.
If you are still unsure of what qualifies as a KPI, check out this article, which lists five rules for selecting the best KPIs for your manufacturing organization. As the article states, “the key to success is selecting KPIs that will deliver long-term value to the organization.”
The larger lesson here is that in today’s fast-moving market, companies need to anticipate business events—not react to them. From a high level, Gartner is saying that this requires KPIs that are predictive. But what does this mean from a plant-floor level? What type of shop floor metrics can help businesses anticipate business events and provide input into strategic KPIs?
A benchmark study from the LENOX Institute of Technology (LIT) may provide a little insight. The following are two of the study’s key findings:
- 67% of industrial metal-cutting operations that follow all scheduled and planned maintenance on their machines also report that their job completion rate is trending upward year over year—a meaningful correlation. The implication is that less disruptive, unplanned downtime and more anticipated, planned downtime translates into more jobs being completed on time.
- 51% of organizations that “always” follow scheduled and preventative maintenance plans say that blade failure is predicted “always or “mostly.” This shows that preventative maintenance helps operations predict blade failure. And as any metal-cutting leader knows, predicting blade failure not only keeps production flowing, it also helps tooling and maintenance costs under control.
Both of the benchmark findings are, in fact, key metrics that can help industrial metal-cutting companies better understand strategic KPIs. In this case, we discovered that a proactive strategy like preventative maintenance can help managers plan for downtime and, in essence, allows them to create “predictive downtime,” which can actually improve cutting performance and extend equipment life. This is a much different from “interruptive downtime,” which can hurt performance, reduce on-time customer delivery, and increase material costs.
Based on this example, the KPI might be whether or not an organization is hitting its preventative maintenance schedule or whether or not the cadence of preventative maintenance is increasing or decreasing. For instance, if production was increasing but preventive maintenance measurements were static, it could predict massive failure issues.
Moving forward, here are a few questions to consider: What metrics are you using to measure business performance? Are they KPIs? Are your management strategies focused on being proactive or reactive? Are there ways you can predict business events such as blade failure and machine downtime?
Answering these key questions may help you determine whether or not your company is on track to increased profitability or at risk for being stagnant. Proactive strategies like the predictive metrics suggested by Gartner and the preventative measures suggested by the LIT study are critical for industrial metal-cutting companies that want improve their agility and, most importantly, their bottom line. Leaders are realizing that they need to act now—not later—if they want to be successful in the future. When it comes to today’s manufacturing landscape, good things will not come to those who wait.
April 28, 2014 / continuous improvement, Cost Management, human capital, industry news, lean manufacturing, LIT, predictive management, preventative maintenance, strategic planning
For most of the industrial metal-cutting industry, things are staring to look up. Earlier this month, the World Steel Association released its Short Range Outlook for 2014 and 2015. The forecast projects that global apparent steel use will increase by 3.1% in 2014 and by 3.3% in 2015. Regional projections are also positive. While the U.S. showed a decrease of -0.6% in apparent steel use in 2013, the global association forecasts that apparent steel use in the U.S. will grow by 4.0% in 2014 and by 3.7% in 2015.
However, even with its positive forecast, World Steel expects continued volatility and uncertainty to create a challenging environment for steel companies this year. And many metals executives are feeling that uncertainty. As stated in LIT’s 2014 Outlook for Industrial Metal-Cutting Companies, most industrial metal-cutting companies are only cautiously optimistic about today’s market.
This is especially true of many forging industry executives, who were encouraged by sales increases in 2012, only to be disappointed with no growth and some decreases in 2013. Specifically, the Forging Industry Association (FIA) reports that total industry shipments for the custom impression die forging industry were at $7.313 billion in 2013, down slightly from $7.337 billion in 2012. Meanwhile, 2012 total industry shipments by the custom open die forging industry were 15% below 2012, and shipments for the custom seamless rolled ring forging industry were basically flat. (You can view FIA’s final sales data here.)
As forging executives move into the second quarter, there are some trends unfolding in 2014 that they should be watching closely. A recent column from IndustryWeek does a good job of describing five higher level trends that are affecting most of the manufacturing industry. These include the following:
- Increased reliance on automation and robots
- Rapid prototyping
- Smaller orders
- Leaner factories
On an operations level, there is perhaps one prevailing trend—the relentless push for continuous improvement. In an uncertain market, operations managers are realizing they have no choice but to optimize and become more agile. In some cases, this requires capital investment, but many industry leaders are discovering alternative ways to improve operations. LIT’s benchmark study of industrial metal-cutting companies, for example, identifies three key areas where managers can make improvements without adding new capital expense:
- Invest in Smarter, More Predictive Operations Management
- Embrace Proactive Care and Maintenance of Tools & Equipment
- Invest in Human Capital
Of course, there is no crystal ball for what 2014 will bring, and as the last few years have taught manufacturing executives, nothing is ever certain. In the end, the key will be for forging companies to strategically consider industry trends (i.e., smaller orders), while also proactively improving what is happening inside their doors.
April 20, 2014 / continuous improvement, human capital, industry news, LIT, maintaining talent, operations metrics, operator training, performance metrics, skills gap, strategic planning
Here’s the good news: Data continues to show that 2014 will likely be a year of growth. Gardner’s most recent metalworking business index (MBI), for example, showed that conditions in the metalworking industry expanded in March for the third straight month and the fourth time in five months. According to Modern Machine Shop, this was the fastest rate of growth since March 2012. Additional MBI findings revealed positive trends in several key business areas, including new orders and production, capacity utilization and spending, employment, and supplier deliveries. You can read the full report here.
All of this good news, however, comes with some uncertainty. As reported in LENOX Institute of Technology’s (LIT) 2014 outlook, most metals executives are only cautiously optimistic about the near-term future. Political issues, pricing pressures, and talent shortages are issues weighing heavily on industrial metal-cutting companies, leaving executives with no choice but to focus on continuous improvement as they attempt to strategically approach a shaky marketplace.
For machine shops, taking the time to make improvements is a challenge in itself, especially if business is starting to pick up. However, leading-edge shops know that in today’s demanding market, optimization is the only way to stay competitive. In other words, they are making time.
While you may not have the resources to undergo a major improvement initiative in 2014, the following are two key trends today’s machine shops need to consider:
- Data-Driven Manufacturing. Yes, “big data,” the Internet of Things, and digital manufacturing have all become industry buzzwords. But as this article from Modern Machine Shop Editor Mark Albert suggests, behind all of this terminology is a trend that can’t be ignored: Today’s machine shops need to make decisions based on information. In fact, Albert says this is the only way that production can move forward. “Facts and figures determine the path a manufacturing process should take, and they propel it ahead,” he states. “To drive manufacturing, factual information has to be available so that people, as well as computers, can use it.” Whether you are manually measuring cut times or implementing cutting-edge monitoring software, the point is that today’s manufacturing decisions need to be based on real, quantitative data.
- Closing the Gap. For years, experts have been warning manufacturers about the skills gap, but it is just now starting to have an impact. Case in point: Prime Advantage Corporation, a buying consortium for midsized manufacturers, recently conducted a survey of CFOs from its member companies. According to the results, 65% of those surveyed said they have open positions that they are seeking to fill, but are having difficulty filling the jobs because of a lack of qualified labor. Other reports are revealing similar trends. To close this gap, companies are discovering that they need to start investing in their human capital. This is a change from the last few years, when metals executives invested more in technology and equipment. In addition to addressing the skills gap, LIT’s benchmark survey of industrial metal-cutting companies provides evidence that investing in areas like training can provide additional benefits, including better quality, faster on-time customer delivery, higher revenue per operator, and lower rework costs.
To read more about trends we expect to see in 2014, check out LIT’s 2014 Industrial Metal-Cutting Outlook.
April 10, 2014 / continuous improvement, Cost Management, industry news, LIT, strategic planning
Late last month, the LENOX Institute of Technology (LIT) published its 2014 Industrial Metal-Cutting Outlook. Echoing the sentiments of many industry analysts, the report expects 2014 to be another year full of uncertainty. Metal fabricators, as well as every other manufacturing segment, are finding it difficult to anticipate what this year might hold, which makes planning extremely challenging.
There are, however, several trends that fabricators should keep in mind as they attempt to strategically navigate this unpredictable market. Here are a few we gathered from the industry’s top resources:
- Government Setbacks Continue. As pointed out by Dan Davis in a recent blog from thefabricator.com, a lot of today’s market uncertainty stems from political dysfunction. As Davis states, “the government can’t get out of its own way,” which is why many business leaders are “increasingly calling on Congressional leaders to work together to chart some sort of course for the future.” In all reality, political games are likely to continue this year, which means manufacturers shouldn’t expect the government to help the economy grow in 2014.
- Wages and Costs Will Rise. Dr. Chris Kuehl, economic analyst for the Fabricators & Manufacturers Association International (FMA), predicts that costs will rise across the board by mid-year. “The producers of metal and other raw materials have been reducing production to bring supply in line with demand,” Kuehl states in an FMA forecast report [LINK] published in late December. “Wages will rise for the people needed as they will be in short supply, and any pickup in business will make them that much more valuable.”
- Some Growth is Expected. There is some good news. Most reports expect at least some growth in production over the next two years. According to the latest outlook from MAPI, fabricated metals production is forecast to post moderate gains of 4% in both 2014 and 2015. The manufacturing organization also reports that nearly all major types of fabricated metal products have shown production increases in the three months ending January 2014 relative to the same period one year ago. Forging and stamping was up 4%, architectural and structural metals rose 4%, machine shop turned products and fasteners grew 6%, and coating, engraving, and heat treating grew 1%.
- Improvement Continues to be Critical. While the MAPI numbers may not be indicative of a full rebound, they give some indication that there is opportunity for growth, especially for companies focused on improving the one thing they can control—their operations. Lean techniques and technology investments will continue to be important strategies for managers to consider, but as this white paper from LIT states, optimization starts with your operators. Ongoing training is key for existing employees and becomes even more critical for new employees as fabricators attempt to bridge the current skills gap. There is no question: continuous improvement is the new normal for metal fabricators that want to thrive in today’s competitive market. And if you think you have no time for improvement, check out this article from thefabricator.com. As the article shows, you can—and need to—make time.
April 5, 2014 / best practices, continuous improvement, human capital, industry news, KPIs, LIT, maintaining talent, operator training, performance metrics, skills gap, value-added services
As the industry heads into the second quarter, uncertainty remains. In fact, as we state in our 2014 Industrial Metal-Cutting Outlook, uncertainty may be the only thing that is certain right now.
Like most sectors of the metal-cutting industry, metal service centers have experienced little if any growth in 2014. January started off with a much-needed improvement over December, with small increases in shipments and reduced inventory levels. However, February wasn’t as strong as many had hoped. According to the latest figures from the Metal Service Center Institute, U.S. service center steel shipments in February 2014 increased by 0.4% from February 2013, and 2014 year-to-date steel shipments increased by 0.2% from the same period in 2013. When looking at total volume from January to February, service centers’ shipments of steel and aluminum actually declined, reports IndustryWeek.
In other words, we aren’t quite there yet. Experts like the Manufacturers Alliance for Productivity and Innovation (MAPI) are hopeful that the rebound is coming, but until then, there are several industry trends that we feel will be key for metal service centers in 2014. Here are a few to keep in mind:
- Diversification. Shrinking profits and political issues like budget sequestration are making diversification a key strategy for service centers. In a recent column appearing in the March/April issue of Forward magazine, business journalist William P. Barrett stresses that this is especially important for companies that service the military. He states, “But it also seems prudent, in these times of daffy congressional budget strategies, to diversify as much as possible to dilute the risk that haunts the business of military contracting.” In some cases, this may mean forming new customer relationships, or it could mean offering existing customers a few value-added services (e.g., sawing, laser cutting, and parts fabrication) for a more predictable stream of revenue. You can read a great case study of one metal-cutting company’s successful “reinvention” here.
- The Skills Gap. We’ve all heard about the skills gap, and at this point, we may even be sick of hearing of hearing about it. But the issue is real, and like every manufacturer, service centers need to address it. For example, the latest U.S. Total Manufacturing Index revealed that manufacturing job openings for the latest three months is 16.1% above the year-ago quarter, and the rates-of-change are improving. According to analysis from IndustryWeek, this means that manufacturers should “expect upward pressure on wages as skilled labor becomes even harder to find.” While finding and training new employees is a large part of addressing the gap, as this white paper from LIT points out, it is just as important for today’s industrial leaders to focus on maintaining and improving their existing workforce.
- Metrics, Metrics, Metrics. Continuous improvement is the mantra of most manufacturing leaders these days, and as any lean consultant will confirm, this requires measurement. There is no question that industry buzz words like “metrics” and “KPIs” will continue to be important tools for industrial metal-cutting leaders; however, knowing where to start and what to measure can be a daunting task. Although the “right” KPI will vary by organization, as this blog discusses, there are a few simple guidelines managers should follow to determine the most effective performance measurements for their metal-cutting operation. For those who want a more in-depth look at metrics, MESA International is offering a webinar, “Manufacturing Metrics that Really Matter” on April 16. Based on a 5-month research study by MESA and LNS Research, the webcast is targeted at manufacturing executives, continuous improvement team members, and plant managers/supervisors that want to use metrics to optimize their business performance.
December 10, 2013 / benchmarking, Cost Management, LIT
In an ideal world, a fabricator wouldn’t list cost management as a challenge. If production is running smoothly, maintenance is under control, operators are trained, and customers are satisfied, then costs should be relatively stable. However, at a time when the industry hasn’t fully rebounded and uncertainty about market conditions remain, cost is a concern for even the most efficient industrial metal-cutting operations.
The question, then, becomes: How can today’s fabricators better manage their costs? When many companies are already “running lean,” what other measures can they take to keep costs under control or, better yet, save money?
Unfortunately, there are no “one size fits all” answers when it comes to cost management, but the LENOX Institute of Technology (LIT) was able to find a few strategies currently being used by industry leaders. Below are some of the ways top performers are approaching cost:
- Weigh long-term benefits against short-term costs. Whether a hard cost or an opportunity cost, fabricators should weigh their cost expenditures against the benefits or detriments of dollar-allocating decisions. Managers need to make sure they are not shortsighted by upfront costs and, instead, consider the long-term benefits. For example, would investing in a new piece of equipment improve productivity? Would it increase quality? Will it help reduce maintenance costs? This was certainly the case for O’Neal Steel. The company, featured in a white paper from LIT, found that spending $40 more per band saw blade saved the company about $600 a week—a total of $30,000 in annual savings.
- Focus on improving the order-to-cash cycle. An industry study from the Fabricators & Manufacturers Association International (FMA) says top-performing fabricators are focused on increasing the order-to-cash-cycle. The study, covered here by thefabricator.com, says that best-in-class companies are scrutinizing and improving every process in the order-to-cash cycle, including sales, quoting, engineering, customer communication, part flow, packaging, and delivery. According to the article, this shortens the cycle, which improves a host of financial metrics. When employees are able to process more jobs in less time, sales per employee increases and costs per job decreases, all of which outpaces downward pricing pressure from customers and rises earnings before interest, taxes, depreciation, and amortization (EBITDA).
- Set cost-cutting targets using external benchmarks. If your company is focused on reducing costs, make sure you are not setting arbitrary goals. According to a survey from Bain & Company, the problem with many cost-cutting initiatives is that they are based on internal benchmarks that ignore market trends. According to the consultancy, successful companies develop cost-cutting goals after taking into account what their competitors are doing. For example, cutting costs by 10 percent means nothing if all of your competitors are using new technologies that reduce costs by 30 percent. Managers need to make sure their cost-cutting goals are both realistic and relevant.
All three of these methods suggest that successful cost management in today’s marketplace requires managers to look at cost from a high level before implementing any initiatives. In other words, gone are the days of “quick fixes.” By taking the time to approach cost strategically, fabricators can make improvements that have a long-term—and more importantly, sustainable—impact on the bottom line.