These mistakes are costing you thousands of dollars a year.
The on-time development, manufacture and delivery of product is key to every business. However, everyone in the manufacture and distribution of product faces the same challenges, including; increasing labor cost, varying material cost, production mistakes (rejects/rework) and the increased pressure from foreign competition.
Businesses continually face increasing complexity in their business requirements, forcing them to initiate cost cutting measures, while foreign competitors can manufacture similar products and delivery them to the US markets at substantial discounts. Simply put, the playing field is not level.
Unfortunately, an immediate change to the global economy is unlikely and many business owners look internally to the improvement of their bottom line. This is a logical approach to reducing their internal cost with the expectation of improvements to cash flow and profitability. However, the traditional methods of controlling these costs may be the wrong approach and cost more in the end.
Assuming tradition cost control measures will work.
Traditional methods of controlling cost were effective in previous business climates. However, they are now prone to creating more challenges than they solve. Some examples of these measures include labor reduction, scaling back of compensation and the reduction of benefits and services.
These were effective in previous business climates where the required skillsets for labor were moderate to low and the available workforce was plentiful. Employees who were displaced by these changes could typically locate another job with another company not being affected. Those days are now long gone. The skillsets require to effectively work in todays workforce are much higher than those from just a few years ago.
Trained employees are difficult to find and retain. In addition, the training of employees to meet the technical requirements is often a long and expensive process, before receiving the benefit of their contributions. The loss of these assets may seem like a prudent decision; however, it is short sighted. The long-term cost of hiring and training new employees during business improvements as well as the increased quality issues and customer dissatisfaction from an increased backlog can be devastating.
The same is true for compensation and service reductions. Although the initial intension was not to reduce head count, the results are the same. Employees affected by the cut backs will become disgruntled and leave for another position. This is an understandable reaction. In their minds, it is not their fault that the business conditions have changed. They see themselves as contributing the same value to their position only to have their employer reduce their standard of living. Attrition is always the outcome.
Assuming process improvements are an expensive and slow option.
The three key elements in any business are product
. If the product is inferior, the business is doomed. We have already addressed the expense of hiring and retaining good people. This leaves the process as the single best place to begin improvements to profitability.
Whether it is a manufacturer, distributor or developer, the focus must be on improving the processes of all of business operations. The list is far to long to cover in this blog, but I would like to cover the aspect that CenArk Controls specializes. Automation.
Automation has always had an air of mystery about it. Most see automation as having many moving parts, technical control systems, highly skilled operators, extensive safety requirements, difficult maintenance systems and an expensive investment. This is not accurate.
Automation is simply the analysis of the different steps of an existing process. The larger steps are broken down into smaller steps. These are then integrated into a maintainable system that can accomplish the task more efficiently, repeatably and profitably.
Properly integrated systems are effective and very cost beneficial. They can typically be integrated in relative short periods of time.
Assuming automation is too expensive.
The idea of automation is intimidating to many. We often hear, “If I am struggling with cash flow now, how can I afford to automate my facility?”, or “We cannot maintain a complicated system.”
These are common misconceptions. We only endorse the integration of automation for the following reasons. ·
Poor quality or having an undocumented process is the fastest way to destroy a product line. In this case, businesses are forced to automation key aspects of their process or risk the loss of market share and revenue. Poor quality results in poor sales.
“Quality is always cheaper.”
W. Edward Deming
A process that is unable to meet demand will lose sales. Long tooling changes cause downtime and lost productivity. A business having these issues may be able to continue unchanged, however the continued burden of labor and overhead reduce their margins until the product becomes unprofitable. The result will be an end game to the product line.
In either of these scenarios, the lack of thoughtful automation integration is more expensive than any other alternative. In effect they cannot afford to not automate.
Automating for the sake of automation.
Every business decision must be justifiable. The justification may be in the form of improved quality, production capabilities, safety improvements or cost reversals. Any system upgraded without a full understanding of the true cost of ownership can be detrimental to any business.
This may sound like a contradiction to the previous topic, but in fact it is the same situation restated. At CenArk Controls, we receive request weekly to review business applications with the Client ready to purchase an expense automation system. The Client may have seen the proposed technology at a trade show or read about it in trade journals. It is not uncommon for us to arrive at the Client’s facility where they have a purchase order in hand. However, upon a full review of their situation we often discover that the solution is not what they had anticipated.
The Client may have expected the need of additional equipment to meet capacity, when in fact upgrades to the current equipment produced the required results at a much more reasonable cost while eliminating the need for additional training. The Client may have asked for a material handling system to be upgraded to sophisticated robotics or servo control, when their staff is only familiar with pneumatic systems. The Client may have a customer requiring real time data collection and expect to have to replace most if not all their production line. Simple sensors could be integrated into the existing line providing the required data collection without the need of process replacement. *
The solution is to verify the true requirement and develop a cost-effective, long-term solution. I am a proponent of automation but am also the first to admit that the act of automating for the sake of automating is unjustifiable and wasteful.
Assuming internal resources are a more cost-effective solution.
America is a Do It Yourself (DIY) culture. It is a natural assumption that if it can be done it can be done cheaper in house. Business owners think, “We already have technicians and maintenance personnel, so we can do it ourselves.” This is probably true. I am a strong believer in listening to the input of the people who work directly on the line. They know the processes; the equipment and they know the weaknesses of the current systems. However, other aspects of internal projects must be considered time, cost and bandwidth.
Any new development will take longer than expected. New applications will have a learning curve. This could include mastery of the technology to be utilized, system controls, programming, installation, processes timing and many more factors that affect the successful integration of automated systems, regardless of their size. These delays create a hidden cost to the project.
Every employee in a business has a cost associated with their actions. These are sometimes hidden in overhead and overlooked, however the cost is still there affecting your bottom line. Having skilled labor tied up on an automation project for an extended period of time typically cost more than having the system developed by an experienced third party.
These resources will also be busy with the new project and unavailable to fulfill the role that they were intended. Is the new project worth a loss in the support of current production? Numerous businesses have tried this model. Some were successful, while most either delayed the implementation of the process improvements, missing anticipated benefits, or abandoned. There are thousands of unfinished projects stored away in warehouses all over America.
This is not limited to small businesses. Many multi-billion-dollar companies have tried to start internal automation teams at production facilities and failed due to the constant production demands.
An open and honest review of the project must be made prior to dedicating any internal resources to a process improvement project.
We have covered a lot in this blog; from acknowledging that traditional cost control methods as being less effective that in the past to the true need for automation and when automation should be implemented.
Each of these mistakes are easily made if not already instilled in current business models, however if a situation arises within a business a careful analysis should be made to determine the true issue. Each mistake should be avoided.
Good questions to start when reviewing a business improvement. ·
Is it a product, people or process issue? ·
Are there current or upcoming production issues that will challenge the current process on output and quality? ·
What will be the long-term result of not improving the key aspects of the process? ·
Am I wanting to automate for the sake of automation or is there a true need? ·
Can I afford to not improve my processes? What will be the result if I don’t? ·
If the development was internal, would the project be completed on time, in budget without affecting current production needs? ·
Who can help me determine the true solution? ·
For additional information or to review a free no obligation review of your process improvements, please contact CenArk Controls:
Office: 501-314-0840 Fax: 501-859-8381 Email: firstname.lastname@example.org Web: cenarkcontrols.com
Greg Shultz is the Principal Engineer with CenArk Controls, LLC. He has over thirty years of hands on experience in the design and implementation of automatic and semi-automatic systems in the US, Mexico, Europe and Asia. He can be contacted by calling the CenArk offices at 501-314-0840 (US) or via email at: email@example.com.
*For more information on these events, please visit the Case Studies section of our webpage for more details.