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 A "New Normal"
for the Enterprise


by Dave Garwood

What's normal? Well, at the Fast Track Company, the mode of operation hasn't changed much in the past 20 years. Everything is pretty "normal."

They struggle to meet the monthly shipping bogeys. Material shortages are a major cause of the problem. Many of the kanban signals go unfilled and pile up. No one seems to say much until a shortage happens. Many purchase and plant schedules are past due (equivalent to almost a month's usage!) and again, no one seems concerned until they run out of material. The plant floor and and purchasing don't believe the formal system schedules. It seems to them someone would scream when they don't respond to a kanban or miss a date. They are constantly asking, "What do you really need and when do you really need it?"

The planning department has created a well-oiled, informal system of spreadsheets and hourly meetings to get answers to those questions. Material is pulled early from the stockroom, staged on the floor and a hot list of missing parts is created. Expeditors kick in high gear and relentlessly chase the missing parts. They run the business with these workarounds, bypassing their new ERP and Lean flow systems.

Fast Track has implemented Lean Manufacturing on a couple of lines. They use kanban signals to trigger material movement down the line. While this allowed them to reduce WIP and shorten assembly lead times, material shortages are still a problem. Many of the purchase parts have long lead times and are not avaliable when the "pull" signal is sent. Fast Track's answer? Add another pile of inventory of each part outside the stockroom. When the line sends a kanban signal to pull material from this pile and deliver to the point-of-use, another kanban is triggered to pull material from the stockrooom and send to the pile. If material is not available because the supplier did not meet the schedules, those parts are put on a hot list and expedited. In effect, workarounds of the formal systems have become a core competency!

Long runs and a minimum 3-month lot size are frequent paramaters used to allegedly reduce costs. Leverage and clout are used to drive favorable purchase price variances. Direct labor efficiency is measured daily using industrial engineering standards and costly labor reporting systems. The plant manager walks the floor 2-3 times a day to make sure everyone is busy. Idle time (and communications!) are kept to a minimum. The edict is to maximize resource utlization and keep making more -- whether it's needed or not.

Once a year, they stop production for a few days and count everything. I asked why once a year? The answer, "it takes 11 months to recover." Cycle counts are made every day and records are adjusted if they don't match. They have both engineering and manufacturing bills of material. Neither are accurate and they're often not the same. Some bills are eight levels deep. A staff of 20 inspectors check all material, especially incoming purchase material, and sort the good from the bad. Bad material is reworked or scrapped. They don't have enough staff to run down the root causes of bad material.

They do a lot of planning. Sales prepares a quarterly forecast, but no one really believes it. Manufacturing adjusts schedules to reflect their "feel" of the market and sales orders inhouse. Finance backs into the financial forecast based on the desired EPS and other financial targets. Expeditors ignore all three plans and go after what's "hot!" Material control buffers the demand uncertainity by making sure they always have enough on order. They plan large buffers and inflate kanban levels to try to avoid shortages.

They have a large warehouse of finshed goods inventory. It is growing faster than sales. Unfortunatley, the customers are often not kind to them. They order a lot of what Fast Track does not have and not much of what they do have. An amazing skill! The order entry folks acknowledge sales orders within 24 hours, including a delivery date commitment using standard delivery lead times. Of course, any resemblance between this date and the schedule manufacturing is using is purely coincidental! They miss a lot of their promises. A large staff of "Customer Service" people answer the customer delivery complaints. Fortuntately, the expeditors are pretty responsive and put the fires out if the customers complain too much. All of these expenses are just considered part of doing business. They are buried in overhead and SG&A.

New product launches are frequently late, cost more to develop and produce than planned and require several bill changes after released. Fast Track has many "can't miss" products in the warehouse. Everyone, except the customers, seemed impressed with the new product ideas.

Fast Track has read lots of books, articles and attended seminars on new concepts. They politley listened to the new ideas about high-quality processes, quality resonsibility at the source, integrated plans, elimination of all non-value added activities, flow manufacting, lean processes, forecast accuracy and concurrent engineering ideas. Has all this knowledge changed how they do their jobs and run the business? Not really. Do they even need to change? Many say no. Some even claim, "we do that stuff already."

Many people at Fast Track will tell you the old systems work. The new theories are interesting but don't really apply or aren't needed at Fast Track. They view the current practices as "normal. "We've been doing things that way for years," they proudly point out. They made money for a few years, but profit margins have been eroding recently. Some claim they just need a little more discipline, implying the problem is people. Others blame the recession or the metric system or...

Fast Track was the market leader for several years. But a new competitor, Super Fast Company, is making significant inroads into their market share -- and making a lot of money while selling better products at lower prices.

Super Fast Has a "New Normal"
When Super Fast entered the market, they had little experience. This turned out to be an advantage. They didn't know what was "normal." They were determined to listen to customers, understand their needs and build high-quality processes to meet those needs consistently. Super Fast ignored traditional practices and developed a "New Normal" with these characteristics:

A process of phases and go/no-go gates are used for new product development. Customers needs vs. wants are identified. A "Pull" system is used to launch new product projects. New projects are not started until one is complete or additional resources added. Overstuffing the pipeline is not allowed. Design never begins until product definition is complete. Business processes such as how the product will be produced, planned, serviced, sold, ordered, etc. are designed concurrently with product design. The critical gates are managed by senior management. They decide when to fold 'em or hold 'em and how resources will be deployed.
Six sigma schedule execution. They meet engineering, supplier and plant schedules 100% on time or do a root cause analysis to find out why schedules were missed and then take corrective action. Kanbans do not pile up.
Valid Schedules. They understand that accountability without credibility won't work. Demonstrated capacity is used to validate the feasibility of the plans. Time fences are used to avoid schedule changes that can't be met.
Make-to-order. They never make the wrong product because they don't make products until they have a customer order, just like Dell Computer. All of the associated costs to keep a finished goods inventory is avoided, putting that money in the bank or using it to sell products at lower prices to gain marketshare.
Demand Management. They understand the difference between demand management and sales forecasting. They measure quality of the demand plan, not forecast accuracy.
Integrated plans. A monthly process called SOP is used to revise the sales, manufacturing and resulting financial plans. They have one set of numbers. Everyone is part of the process to establish the plans and use them, second-guessing is not allowed. Costly workaround processes are banned.
Delivery and manufacturing schedule alignment. They make customer delivery promises based on uncommitted inventory and current schedules. The data is updated real time. ATP is the technique used.
High quality data. The inventory records and bills of material are accurate. They put the emphasis on finding root causes of disrepancies, adjusting records only when the reasons are known and then taking corrective action. They haven't taken a physical inventory in 10 years. They understand it is too costly, not value added and not needed. They have only one bill. The lean plant floor processes allow them to need only 2-3 levels in the bills. The result is less maintanance costs.
Focus factories, not departments. The plant equipment is organized into flow lines. Raw material moves quickly from receiving to shipping. It never stops to collect dust or absorb working capital. The essential prerequisites for kanban are met. Kanban signals pull material through the process. Lead times are minimized, allowing them to respond quickly to customer needs.
Thinking workers. They make only what they need. On slow days the people use their brains, not their hands. They come up with better ways to do things, saving tons of money and time.
Flexibile work force. The only job description is WORK. People are cross-trained and move to where the work needs to be done to meet customer's needs. Part of the day is set aside to discuss how to do it better tomorrow. If they finish all the work that is needed today, they stop producing.
Supplier partnerships. They have a win/win relationship with suppliers. Customers and suppliers are treated as equals. They often ask suppliers "What can we do to help you?" Clout is out.
Quality at the source. Everyone is an inspector, inspecting his own work. Suppliers are expected to deliver 100% good material, no 95% yields. They periodically audit supplier processes for compliance. They don't duplicate inspection.
Measurements are used to help improve processes, not find guilty people and punish them. When results don't meet expectations, they ask "why," not "who."

It is interesting to note that everyone at Super Fast looks on these practices as "normal." The impact on the business is impressive. Look at a few of the accomplishements when one of our clients transitioned to the "New Normal."

• Operating income up from 5% to 15%
• On-time to master schedule from 60% to 95%
• On-time delivery from 60% to 98%
• Inventory reduced 24%
• Indirect labor reduced 17%
• Purchase cost savings of 17%
• and there are more!

This potential for improvement exists in most companies right now!

An Observation
I have had the opportunity to visit over 600 companies in the past 25 years. I have watched the knowledge level of new and better ways to run the business steadily rise. Yet, the practices at Fast Track remain the norm. Super Fast remains the exception. In short, we know, but we don't do! I will talk about this challenge in future Hot Lists. The "New Normal" is here!

All Contents Copyright � 2002 R. D. Garwood, Inc. All Rights Reserved.