There is no truck driver shortage in the US — Quartz

Brief, but decent article on labor shortages in trucking, that I suspect is applicable to most industries suffering from lack of workers. However, I think the article overlooks that even with rising wages, there is a shortage of workers. Salary is obviously important, but not the only factor keeping workers on the sideline.

The US has plenty of licensed truck drivers, but there’s a shortage of well-paying jobs that would entice them to stay in the trucking industry.

Source: There is no truck driver shortage in the US — Quartz

Rindge Leaphart

https://rindgeleaphartmusic.wordpress.com/

Inside Toyota’s Takaoka #2 Line: The Most Flexible Line In The World – The Drive

Lessons from the last downturn lead the world’s foremost auto manufacturer to reinvent the production line.

Source: Inside Toyota’s Takaoka #2 Line: The Most Flexible Line In The World – The Drive

How Do You Make a Good Paper Straw? – Eater

A brief, but good article that covers many key points in running a business including:

• Capital expansion
• Employee training
• Managing customer expectations
• Environmental impact
• Competition

Enjoy!

The public image of a soggy, disintegrating paper straw is inaccurate, says maker of paper straws

Source: How Do You Make a Good Paper Straw? – Eater

Inventory: The Root of All Evil

Many people have heard of the term Just in Time (JIT) as it relates to manufacturing, production scheduling, or delivery.  But have you heard of Just in Case (JIC) manufacturing? It is a term I coined years ago.  I coined the term one day while walking through a plant that only produced finished goods to order.  The business did not actively stock finished goods.  They stocked raw material and some sub-assemblies in order to produce with relatively short lead times, but in general they did not stock finished goods.  During the walk through, I looked at a work order for a part that was being machined.  The operator was machining lets say 30 parts, yet the sales order associated with the work order only called for 15 or 20 parts.  I asked the machine operator and his supervisor why they were machining more parts than were called for by the sales order.  The response I received was quite curious: “this is a really tough part to machine and we have many rejects, thus we produce extra parts just in case (italics added) we have to scrap a part.”  At that point a new term was born: Just in Case (JIC) manufacturing.  I asked the operator how often they actually had to scrap a part.  Neither he nor his supervisor could answer the question.

I told the supervisor that I suspected that they were overproducing and tying up unneeded cash in inventory.  Additionally, this was a plant that was trying to improve on-time delivery.  I explained to the supervisor that if they were tying up capacity by producing excess and unneeded parts, that they were impeding their ability to produce on-time with short lead-times.  The supervisor assured me that this didn’t happen often.  I then asked the supervisor to take a walk with me to the warehouse.  I asked the supervisor if he was sure they didn’t overproduce on a regular basis.  He assured me they didn’t.  I then asked one of the warehouse employees to pull up several recently completed work orders for parts that had been delivered to inventory.  When we checked several of the recently completed work orders, we found that a large percentage of them were completed for quantities that were larger than what the sales order called for.  At this point the supervisor was a little embarrassed, but there is more to come.  Employees on the floor ALWAYS and I mean ALWAYS know more about what is going on in a plant than supervisors and managers.  Knowing this, I engaged the warehouse employees in a conversation on this subject and they assured us that this happened on a regular basis.  Once again, the supervisor was embarrassed.  At this point the employees told me about the T location.  Being an inquisitive lad, I asked what is the T location.  Their response: “oh that the is the trailer we have outside where we store all of the production overruns.”  At this point the supervisor was quite embarrassed.

As you might imagine the supervisor was besides himself.  But being a smart guy he put a stop to the overproduction and eventually eliminated the T location.  With several other changes we were able to improve the plant’s on time delivery performance as well as their financial performance.

Key takeaways  / reminders from that day: 1. I learned on that day that Inventory is the Root of All Evil.  If you want to know if you have a problem in manufacturing, check your inventory levels to make sure you don’t have an issue with JIC manufacturing.  2. I learned about JIC manufacturing. It is more endemic than you might imagine. Walk the floor and check your work orders to see if you have a case of JIC. 3. Always talk to the hourly employees, because they know what is really taking place on the floor.

Has anyone else encountered similar issues?

Rindge Leaphart

http://www.linkedin.com/in/rindgeleaphart

What Operational Metrics do you use to measure performance?

What type of business are you responsible for managing?  Is it a distribution center (DC)?  Is it an assembly facility?  Is it a machine shop with assembly and DC characteristics?  Is it a chemical plant? No matter what type of business you manage, you should have a solid set of metrics that measure whether your business is:  A.Meeting customer expectations, and B. Performing in an efficient and profitable manner.  I’m not going to spend time discussing measures of profit.  Instead, I will focus on operational metrics that have served me well in the past.  Many of these metrics may seem like common sense, but you would be surprised by how often they are overlooked and in some cases not even tracked.  Also, I hope not to bore you with an never-ending list of metrics.  Sometimes you  can get buried in the metrics and lose track of how the business is really doing.  There is always a balance that one must strive for.

Below are a list of metrics that I always like to have in my tool bag:

• On-time delivery (OTD): Based on my previous posts, this metric may not be surprising.  You have to measure your ability to deliver products on-time: whether to customer expectations or to promise dates that have been provided to the customer.  There are many different methods to measure customer satisfaction.  And by no means is OTD the holy grail, but for a business that is delivering a product (and maybe even a service) to a customer, this is one of the best operational metrics that you can have in place.
• Percentage of orders past due: What percent of your backlog is past due?  A high percentage of past due orders is typically correlated with a low percentage of OTD.  Both of these metrics must be looked at hand-in hand.  It is very possible to have high OTD and a high percentage of your orders past due.  Look at both these metrics to make sure the system is not being gamed.
• Lead Time: How long does it take you to ship an order from the day of order receipt?  This is another key metric that I always want to view.  You might have an excellent OTD rate, but lead times of 90+ days.  In many industries 90 days is not acceptable.
• Vendor OTD.  Without decent performance from your vendors, it is tough (not impossible) to perform well for your customers.
• Purchase Price Variance (PPV): This metric allows me to tell how the purchasing team is performing. It also provides good insight on material prices (are they going up or down).
• Capacity Utilization:  Are you overstaffed? Understaffed? Do you have enough equipment? How do you tell if you don’t don’t measure?  There seems to be an acceptable rule of thumb that capacity utilization of 85%  and above requires additional capacity.  I like that rule of thumb. Many companies don’t heed this metric.  This is one of many reasons you need a detailed sales forecast by product line.  Without it, it becomes hard to determine how much additional capacity you might need to add.
• Cycle count accuracy: I always joke that inventory is the root of all evil.  Well if we have to keep inventory, lets make sure we know what we actually have on hand.  The importance of cycle counts cannot be underestimated.
• Gross Margin by Product – specifically I look for low margin products: typically below 35% to identify if I have:  1. A sales price issue, 2. A bill of material issue, or  3. A purchasing issue.
• DSO: What good is it to ship a product on-time (or deliver a service) if you can’t get paid in a timely basis?
• Dock to Stock: How long does it take from the day you receive a product to the time you actually put it on the shelves?  You might be understaffed in your warehouse if it takes you 5+ days to put inventory away.

Different businesses use different metrics.  The ones above are ones that I have always found useful. What metrics do you track in your business?

Rindge Leaphart

http://www.linkedin.com/in/rindgeleaphart

Development of the Annual Sales Plan

How does your organization develop the annual sales plan?  I’m always interested in how different companies develop their sales plan.  I’ve drawn up  a couple of simple charts below to illustrate how sales plans are sometimes developed.  The top down method is straightforward and  fairly easy to develop.  The problem with this method is that you don’t get true buy in at the divisional level.  I also believe that the probability of success (i.e., hitting the plan) is low.

On the other hand the bottoms up method is quite different. While I believe the bottoms up method delivers better results, it is much more time consuming to develop.  No pain, no gain?  With the bottoms up plan, much more useful information is developed and can be used across the organization.  Outputs include:

• A detailed sales plan by product line and sales person.  With a detailed plan, that is developed by the sales person, you have much more buy in and accountability.  Of course you have to make sure the sales person develops a plan that is challenging.  There is always a concern that someone might turn in an artificially low plan.  One has to be vigilant with the bottoms up plan.  When developed in a robust and transparent manner, the bottoms up plan has much better chance of success.  In cases where the bottoms up plan does not match the corporate growth directive, the divisional GM will have solid data to support their plan.  In these cases, the GM can negotiate from a position of strength – a detailed bottoms up plan.
• Detailed data by product line, which then can be used to drive both capacity planning and materials planning.  Don’t underestimate the importance of capacity planning.  With detailed data you have  the needed support to determine if you should add people, machines, warehouse space, etc.  From a material planning perspective, you now have data that will allow you to better negotiate terms and delivery schedules with your vendors.

I am a fan of the bottoms up plan.  What method do you prefer?  What method does your company use?

Rindge Leaphart

Sales Process