Nov 11 2011

Total profit in four simple steps

Published by at 3:03 pm under Uncategorized

I was in the owner’s office that overlooked the production floor where all the machines were making parts.  His comment was “Look at that, a money machine!”  Interesting.  When we got around to discussing why I was there; he was complaining about his minimal profits although his machines were busy.  And there’s the problem: are you making money or just running your machines? Here are four simple (inexpensive) steps to make money:

#1 The first step the easy one – Don’t make parts, Make schedule.  Although you might fill the order, if the customer gets it late or you paid overtime to get it on time; you’re going to lose business because you’re an unreliable supplier who can’t properly schedule or contain your costs.

#2 Don’t accept variances find out why – I love student interns:  They work cheap, will do a job that no one else has the time for; their work output will be their Senior Project so you also get free consulting advice from a professor.

Have your student intern go though all your jobs.  Write up a list of the most recent cycle times that you based your part prices on and the actual cycle times (the pieces shipped for the last order divided by the total hours to fill the order)  This will give you the REAL cycle time.  On this same spreadsheet have them calculate the difference in hours.  In the next column have them calculate the poundage of material budgeted compared to the amount of material actually used.  Using what you believe to be your standard press rate and the materials cost, in the final column lay out if the job made or lost money compared to your expectation.

Now have your student intern create a Pareto Chart with the biggest losers ranked first down to the least losers and the back up to the big money makers.  If your Intern can do it, have him/her postulate the reasons behind the winners and losers.

What’s typically found in cycle times is that most people on the floor don’t think a second or two means anything.  Here’s where the law of Unintended Consequences will chew up your profits:

A. Longer cycles extend the run time and therefore lower your press rate – where you make all your profit.
B. Longer cycles steal future press time that could be sold to another job or customer.
Since materials consume the vast majority of the part’s cost, this component of the pricing should take special attention.
A. Does your scrap rate plus the contribution of the sprue and runner amount to less than the regrind allowance?  If it does, 1,000 pounds into the process should yield 1,000 pounds of product.
B. While $10/pound purging compound may seem expensive, how many pounds of material are you generating in cleaning the barrel and tossing out mixed material parts?  This is both machine time and material lost that you’ll never recover.
Yield rates affect both cycle times and material usage.
A. Speeding up a machine but making more scrap in the process has a negative effect.
B. Over inspecting – the operator every 20 minutes – the Inspector every hour – the final inspection before shipping tells you two things:
a. You are actually ‘inspecting quality in’ and therefore you’re more likely to reject parts.  You’re spending a lot of indirect labor on inspections with little return.
b. You probably don’t know what an acceptable (read: Shippable/salable) part is.

#3 Don’t make rejects.  I realize this is stating the obvious but when you ask an operator, an inspector and a customer to tell you what a good part is, you generally get multiple answers.

Face the facts – NOBODY makes parts to print.  There are too many dimensions on a part to comply with all of them; so we generally only look at the ‘critical’ ones.  But when the customer has a quality audit (just for the fun of it OR because he over-ordered) he’ll find some sniggly dimension or a visual surface that he’s never complained about before and reject the entire lot.

This comes from ignorance on the part of the customer and supplier.  All too often I’ve heard buyers whine ‘the part is OK, but you can do better’.  It’s interesting that this complaining doesn’t come with any financial incentives.  Look at your $1,000+ TV set or your new car with the eyes of an inspector not a purchaser – look for flow lines, dings, bad texturing, scratches, rippled paint jobs etc. – All the stuff your customer rejects your product for but something you couldn’t care less about because you bought the product.  Too many molders bid on jobs with the specification “Free of Manufacturing Defects”.  You’re kidding Right??  If you have these jobs, you’ve got an engraved invitation to a rejected lot anytime your customer feels like it.  Dummy.

MORAL – a good part does what it’s supposed to do (It functions per its intended use) and is acceptable to the customer who purchases the part at the retail level (cosmetic acceptance).  Get that definition clearly stated from your customer on what is acceptable (not perfect) – rejects will vanish.

Have your Intern give you a listing of rejects.  Have your engineers and quality people jump all over the customer for a solid definition of what they’re actually willing to pay for.

#4 DO SOMETHING DIFFERENT – With this wonderful data from your intern, focus in on the biggest losers and eliminate the causes, keeping in mind one solution that won’t kill you is to tell your customer to either change the requirements or take his molds and find someone else to bankrupt.

Don’t form a Kaizen or Lean committee who’ll study it to death.  I had a client once with a proprietary product (read: they defined all the specifications) who formed a Kaizen committee of 10 people who met for half a day twice a week for 6 weeks to see if they could reduce their scrap.  I found it funny because an engineer and an inspector could have come up with better recommendations in a couple hours of solid work.  However these two people probably wouldn’t have generated a 50 page report and an hour long management presentation (at what cost?).  I secretly hoped some brain-dead manager would have seen through all the fluff and feathers, but they didn’t.  The report was presented at a national convention and nothing ultimately was done.   Go figure. All the quality/manufacturing gurus tell us to solve the problem embedding the solution – nothing more.

I cannot emphasize this enough – DO SOMETHING, if whatever you’re doing now isn’t working, doing anything different has a better probability of success.  From your intern’s Pareto chart; work on the biggest losers first.  Redo the chart and again attack the losers until there aren’t any.

– Find the proper cycle time and material allocation for a job.  Hold your people accountable – money only comes from on-time shipments that get paid.  Late or poor quality shipments ultimately come out of everyone’s paycheck.  You can’t afford apologists or slackers.  It’s better to have people who are arrogantly proud of how well the place is run, then some PowerPoint-wonks giving lame excuses on why you’re bleeding to death financially.

– Look at your sales force.  These guys and gals are the classic Hunter/Gatherers.  Their definition of success is booking a job.  They’ll tell you it’s your job to make a profit on it (after their commissions are paid, thank you).  Unfortunately their commissions are based on percentages of sales and not percentage the best fit between the job and your expertise.  There’s no such thing as a general molder.  We all specialize.  A medical house couldn’t afford to quote automotive work.  If someone wants a precise gear, going to someone who make screwdriver handles and bicycle grips might not be a good choice.  Quote jobs based on what you do well.  Only quote jobs on things you’ve never done that have little impact if they are rejected but the upside of giving you the expertise to move into a different type of molding.

– Train your people.  Every molder will tell you hiring an inexperienced operator is always a high source of scrap.  However, asking them to spend money on training is almost blaspheming.  What do they expect? – standing near a machine will allow the operators to somehow absorb knowledge like cat litter soaking up a spill?! If you can pay for scrap and inefficiencies you can afford to eliminate these problems with training.

‘Nuf said.

* – * – * – * – * – * – *

You can read this article take it to heart and do something.  Who knows?  You might become more profitable.  Or, if your fiefdom depends on generating reports laced with Japanese words and esoteric presentation slides, you can bury it and hope no one else got a copy.  OR you can read it, smirk, and use the paper you printed it on to line the cat litter box of your corporate pest control beast.

You’re choice, in hard times like these; it’s only your future at stake.

ABOUT THE AUTHOR – Bill Tobin is a consultant and trainer who can help molders make more profit.  He is the owner of WJT Associates and can be contacted at bill4012@hotmail.com

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