My company, Pastoli Packaging, was an early adopter of lean manufacturing and six sigma strategies, and we have worked exceptionally hard to remove waste from every facet of our organization and to rigorously analyze the consistency of our quality and performance measures of our production environment. And, despite some backsliding, all of our internal activities — from product development to purchasing to production — now are more cost effective. So that's the good news.
The bad news for Pastoli is that as a manufacturer of packaging equipment, of which much is customized to specific customers' lines and operations, our markets regularly change, and the planning and production schedules that worked well last quarter won't necessarily work well this quarter — e.g., we're often left short-handed for raw materials or even labor resources, which our lean tools have trouble addressing, and we scramble to meet customer deliveries, occasionally missing them altogether. I can only imagine what would happen if we weren't efficient on the shopfloor, once the right materials and plans got into our production system.
I've also begun to realize that, as CEO and COO, I've done a good job of guiding the removal of waste and hitting of performance metrics (e.g., cycle time, scrap and rework) that occur below, but haven't provided much in the way of a bigger picture or planning structure from above. In fact, we're so lean and standardized on the shopfloor that we often can't see beyond the next pull signal, and we don't have the strategy to react beyond the mechanisms of the pull system and ensure what lean demands most: fully satisfying customer demands. So we often detect exceptions and performance deviations way too late for us to address in a timely and efficient manner, which adds significantly to our operational costs.
I know we have a good foundation for Pastoli Packaging with our lean and six sigma gains, and I'm not about to throw a new improvement flavor around the company. Yet those two methodologies need to align with quick market swings as well as to the hotspots (e.g., material shortages) occurring within our systems. Is this possible?
By Jerry Mairani
As director of quality for the largest HVAC sheet metal shop in the country, I live with the daily challenge of anticipating market demand, as does Pastoli, and I am responsively gearing our organization accordingly. As a company, the attention we pay to running a lean organization is the only way to ensure we profitably complete our orders.
At Beutler Corp., much of what we build is totally custom — or made to order. So we, too, confront the need to meet the demand for the unique orders that come in, striving to be as productive as possible while minimizing our inventories. Combining changing demand with high variability presents, perhaps, one of the most difficult problems to solve — and also one of the most serious. If the aim at these moving targets is not a direct hit, both labor and inventory suffer.
Pastoli already has the lean and six sigma tools to tackle the issue, within reason. I say “within reason“ because there is a necessary balance between labor, materials, and demand. Fluctuating demand should not be considered the root cause. It is merely exposing symptoms of the need to tighten up the operation in other areas.
Dealing with Your Problems
Once Pastoli understands the root causes of it problems, it will be able to deal with them. There are principally three ways (or a combination of the three) to deal with problems:
- Control: This is the best of all worlds. Management has the means and authority to make changes and be in control of the root causes.
- Influence: Management is not in direct control, but through negotiations or other means, can impact the root causes. This is often the case in supplier quality management. The supplier may be influenced by the desire for longer sole-source contracts to become a partner in the process and its results.
- Mitigate: If management cannot control or influence conditions, and the impact of the root cause is costly or severe, then the company is obligated to make its processes as robust as possible so these impacts are diminished. Based on these alternatives, Pastoli must mitigate the effects of the root cause on its business or the customer.
A good start might be to work with customers to manage their demand. Currently, Pastoli is missing shipment dates. You might search for some of the demand variation that could possibly be “influenced” proactively by working with your customers. However, the main problem for Pastoli might lie in being in a highly competitive market in which every job is put out to bid and none of your customers work exclusively with a supplier. Relationships in which suppliers and customers work together to smooth out demand may not be possible.
Tools to Consider
It may be that Pastoli has established a rapport with its customers, yet the demand problem remains as it is. Pastoli can turn to using statistical methods and historical data on demand variation and its impacts. Is demand tied to quarters? Is it cyclical? What are the true ramifications of the changing demand in terms of labor and materials? Are there any constraints?
Great tools are available to understand root causes that you can control, influence, or mitigate. Applying statistical process control (SPC) to selected variables can provide deep insight into the impacts of variation on labor and on materials.
Per six sigma, understanding the variation within Pastoli's business is a must before starting to make the process robust enough to effectively handle the variation. Comprehending variation is a basic six sigma concept. It is not enough to quantify variation, but you must recognize why it happens and why it happens to the extent that it does: root causes discovered through statistical analysis. Knowledge influences the approach toward a solution, and is abetted by answers to questions such as: Is the mean performance acceptable? Does the process involve dealing with common-cause or special-cause variation? Is the “spread” of the standard deviations too wide?
Supplier quality management is another tool. Changing material demands can be a difficult issue for Pastoli's buyers and the inventory control manager. Maintaining the right balance between backorders and materials on hand when the demand is highly unpredictable can be extremely difficult. Suppliers can be part of the solution. Working with supplier-partners to negotiate nontraditional contracts and relationships that include returns of stock and shortened delivery schedules are just a couple of ways to fashion a win-win for suppliers and Pastoli. This type of service might come at a premium, but negotiations can set pricing and other arrangements at a level beneficial to both Pastoli and its suppliers.
Since Pastoli is already lean, a couple of other tools are worth an additional emphasis. Single minute exchange of dies (SMED) can ensure that you are retooling your lines as efficiently as possible. Additionally, SPC for short runs may also hold some value. The need to understand process variation and control is important because a process can be in control but its performance unacceptable. The spread of the standard deviations can be too wide, driving a percentage of the performance beyond specification limits.
On the demand side, the specification limit might be impacted by labor availability, materials, or both. If the demand cannot be controlled, then the process needs to be made robust enough to react better to the variation.
Pastoli has gone in the right direction in putting lean and six sigma to work in its organization to minimize the unknowns and to build a solid foundation for its operation. This effort is vitally important toward creating a high-performance environment. On top of this foundation rests the relationships that need to be built with both customers and suppliers for an effective impact on the bottom line. It is in the best interest of Pastoli to control not only what goes out of its plant — but also what comes into it.
Jerry Mairani is Director of Quality for Beutler Corp., a manufacturer of residential heating and cooling products, and is Chairman of the Board for the American Society for Quality (www.asq.org).
By Andy De
I think there is room to discuss the improvement of the overall process at Pastoli Packaging, for example:
It is good to hear that you've made significant improvements by deploying lean/six sigma principles in the factory. While the continuous improvement effort for the factory is a never-ending journey, it may be time to start evaluating lean principles that extend beyond the four walls of the manufacturing process. This may include vendor-managed inventory programs with electronic supplier kanbans to replenish materials as they are used on the factory floor. This helps to create an even pull through your supply chain and reduces material shortages in production. You may also want to start evaluating taking your lean initiatives beyond manufacturing to improve your front-office and back-office processes.
Many engineer-to-order (ETO) companies lose a lot of time in the process between when the order was placed and when the order actually starts in manufacturing. It is not uncommon for a company to consider itself ETO, when in fact only a small portion of the items built are truly ETO. Often an engineering review of all orders consumes a lot of time between the time an order is received to the time it is passed to production only to find that several very similar machines have been built in the past.
By utilizing a product configurator, companies can leverage their engineering work to be reused over and over again, eliminating the waste of an engineering review on every order. This frees up engineers to evaluate only those orders that are truly exceptions to the engineering rules that already exist.
For example, a machine destined for the UK may have to operate on 220 volt 50 Hz. Today you may have an engineer review every international order to ensure the correct electrical components are specified. This process may be completely eliminated by capturing the rules the engineer uses to make his decisions in a reusable configurator model. Set it up once, and reuse it over and over. This process ensures the unit is automatically specified correctly at order entry, which reduces errors and can shorten the front-end order validation process by weeks.
An added benefit of using an SAP product configurator is that it can help you automatically adapt as customer buying behavior changes. The configurator works closely with the forecasting engine to adapt the planning percentages of options planned in the configurator planning bill based on what customers are actually ordering. This way, the system self-corrects to market trends so that you are ordering the correct long lead-time components and have a greater probability of having the right long lead-time components in stock.
For truly engineer-to-order projects, by utilizing SAP's ETO manufacturing solution, engineers can reuse information from previous projects to accelerate the project definition and get the item into production faster.
By applying the same principles as used in the transformation of the factory, you can lean out office processes. By value-stream mapping the complete end-to-end process you can pinpoint steps where information as well as products do not effectively flow, then take a look at the tools SAP provides to eliminate or reduce wasteful steps in all of your core business processes.
Andy De is Director of Applications Solutions for SAP AG (www.sapmanufacturing.com). Andy can be reached at andy.de@sap.com
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