Manufacturing Fundamentals first, then improvement

Dan Marino, president of Marino Associates in East Windsor, Conn., has talked at various events and visited numerous plants. He espouses the merits of strategies like sales and operations planning (S&OP) and the basic tenets of continuous improvement techniques like lean manufacturing.

He also hears about how difficult it is for companies to change. Customers demand more and more, and everyone always seems behind the eight ball. A company may “lean out” a portion of the plant, but it stops there. The initiative isn’t sustained or spread throughout the organization. Over time nothing really changes, and lean (or any other change that management puts forth) becomes just another flavor of the month.

Marino counters this by saying that before an organization can embark on any path of change, be it a planning strategy like S&OP, operational strategy like lean manufacturing, or anythinxg else, it needs to get some of the fundamental aspects of its operation in order. To make this happen, he suggests that shop managers start by asking six questions.

1. Are my bills of materials (BOMs) 100 percent accurate?

Too often, Marino said, when a new job is introduced, the BOMs—the “what goes into what”—aren’t entirely right. BOMs may include various levels, with parts that go into subassemblies that go into full assemblies, and those BOMs are used to launch purchase orders.

Marino calls the BOM the fundamental “recipe” of any job, and if that recipe is wrong, such as wrong quantities or wrong material specs, big problems arise. If the BOM isn’t right, you can’t plan correctly. “If a company tells me that they have 80 percent accuracy with their BOMs, that’s fine, but that also means that 20 percent of the time, when you place an order, you’re working from incorrect data. Is that acceptable?”

Some companies use a technique called inventory backflushing. Instead of doing all the inventory transactions on all the piece parts for an order (that is, removing these pieces from the inventory count as soon as an order is released), they wait until the order is complete, and on the receipt of the completed product, all the parts are taken out of the inventory system at once and assigned to the job.

“But if your BOM isn’t correct, and you do this backflushing technique, really interesting things start happening, because all of a sudden your inventory is inaccurate,” Marino said. “You’ve issued too many or too few components, or you’ve issued components that were on the product but not on the BOM. This is why BOMs need to be accurate for a company to succeed.”

To ensure BOMs are accurate, a shop needs good engineering change control in place. Anytime engineering makes a change (due to, for example, a change request from a customer), that change needs to be reflected in the BOM and, of course, the new drawing.

Also, just as a shop does a cycle count or periodic audit of its inventory, “I think it’s critical to cycle-count your bill of materials,” Marino said, adding that a quick audit (and correction, if needed) of a portion of a shop’s BOMs can be a good, albeit tedious, practice.

If needed, someone can perform a quick check of a BOM before the order is released to the floor. Someone spending a few seconds with a simple checklist, comparing the BOM to the products actually needed to build the product, can prevent a mountain of confusion and headaches down the road.

Marino added that shop software like enterprise resource planning (ERP) and materials resource planning (MRP) need accurate BOMs to really function as intended. “They’re utterly dependent on an accurate bill of material.”

Moreover, if a product is new, a prototype, or has significant variability, it may warrant a separate process to issue material, like a new product introduction BOM, which accounts for those extra setup pieces and the trial-and-error nature of the work. If a part needs more material than what was expected, those changes need to be tracked. And then once the product is fully developed, it’s accepted by the quality department as a good product, and setups become consistent, the job can be issued a standard BOM.

He added that, yes, it’s tedious, particularly for job shops that perform a lot of complicated prototype, low-volume, or one-off work. But it’s necessary simply because material is the greatest cost on the balance sheet, and a shop needs an accurate account of how much it’s using.

2. Are routings 100 percent accurate?

Whether the routing is made automatically or manually by scheduling personnel, Marino said that it needs to be accurate. Sometimes when a job is sent to the floor, operators or supervisors choose to process the part in a slightly different way or different order, perhaps because that order is more efficient, considering the available machines or tooling, and all the other jobs scheduled during the shift.

Marino added that there’s nothing wrong with finding a better way to route a job, but it does become a problem if people don’t communicate and document it properly. Instead, supervisors or machine operators write the information in a notebook. “And they now just do these jobs based on their notes,” Marino said, “regardless of what the routing said. Well, that’s an interesting process, because the routing is costing a product one way, and the people on the floor may be using more or less material, or performing a job out of sequence.

“Scheduling and purchasing depend on the accuracy of that routing. If there’s a capacity load on, say, work center 20, and yet that operation isn’t even being done, well then, things really get exciting on the floor.” Scheduling doesn’t know the true loading of work centers, and that of course opens the door for a host of scheduling problems.

To overcome this, a shop first needs to ensure routings reflect the actual path a job takes through the shop. If it doesn’t, managers and floor supervisors need to discuss and make changes, so everyone is on the same page. For instance, if a part needs an extra polishing step to prep a subassembly for painting, that detail needs to be noted in the routing.

Next, people need to make sure capacity levels, standard work times, machine setup times, and other routing elements reflect reality. And often those realities, such as machine setup times, take longer than people think.

This process sounds daunting, but in Marino’s experience, getting the routings right can happen over a weekend. “You have to ask, ‘Is it worth a Saturday and Sunday for me to get my routing database completely correct?’ If so, you can invite a handful of operators and assemblers, people who have been at the company the longest and who understand how things really work on the floor. Bring in a few supervisors. And then bring in only one engineer. Print out all the routings for the shop and put them in piles. You take five minutes a routing. Whatever the machine operators and assemblers tell you is wrong, you’re going to change it. When this process is done, routings usually are about 99 percent accurate.”

Marino conceded that this process may take longer for a shop that has thousands of routings, and some organizations may focus on top orders that make up the majority of revenue, or the orders that go across the bottleneck work centers.

He added that this process isn’t about finding the best way to do things. It’s about uncovering the “current state”—what’s really happening on the shop floor—which will serve as a baseline for future improvement.

3. Is inventory under control and accurate?

If you look at the cost of goods sold, you have labor, overhead, and material, and material is usually the biggest number. As Marino explained, “You need to control your inventory from a cost standpoint. You also need to control your inventory so that you know the inventory on hand is accurate. If you have shortages and the inventory system doesn’t recognize it, you’re going to launch jobs thinking you can make them.”

Sometimes people in operations choose to start making a product anyway, because they’re pretty sure that the material needed in downstream operations, like welding or assembly, will arrive before it’s needed. Of course, if the material doesn’t arrive, jobs halt on the floor, and the WIP piles up.

“If inventory is really late coming in, people start pulling material from other jobs and use that inventory to make finished-goods product,” Marino said. “Now they’ve cannibalized other work-in-process, people lose track of what material was taken off and added to jobs, and disaster ensues on the shop floor. And this all started from the fact that the inventory counts were wrong.”

So how does a company avoid this? “Inventory needs to be cycle-counted to death,” Marino said. “I don’t care how big or small a company is.”

Specifically, a shop needs to separate inventory into A items (high cost, long lead time), B items (less cost, less lead time), and C items (fasteners, screws, and other easily replenished stock) and count a sample of each. “You don’t just count them, you reconcile them, and you’re looking to uncover why there are errors,” Marino said.

Custom fabricators also need to deal with remnant control. “Almost never does a custom fabricator absolutely need to use every inch of a sheet for the jobs they’re cutting,” Marino said.

Dealing with sheet remnants is a balancing act. Even with dynamic nesting, a programmer is bound to use only a portion of a sheet for the jobs that need to be cut immediately. As Marino explained, “Do you go ahead in the schedule and find other jobs that have the same material and thickness?”

If a shop has an efficient way to manage remnants in inventory, a programmer may want to avoid cutting ahead in the schedule. But often, Marino said, a shop cuts ahead in the schedule just enough to fill available plate, putting some cut parts in stock. Cutting ahead in the schedule simplifies matters and often helps material yield. Sure, it adds to WIP, but in this case, it may be the lesser of two evils.

“When you have remnants, it’s usually in manual control,” Marino said. “To me, cutting ahead in the schedule just makes sense, unless you’re really a custom job shop. In these cases, you can set up a disciplined remnant stocking process. If a job needs to be cut, the procedure should be to check in remnant inventory first.”

If they have accurate inventory data, shops may not assign a sheet or plate to a certain job, but simply track the square inches or pounds a certain job takes. Say a shop orders 2-in.-thick plate and cuts a third of it. In the inventory control system, that area of material (not the sheet or plate itself) was taken out of inventory, while the remnant area of that 2-in. plate stays in the system as raw stock inventory.

Other companies find success in assigning jobs to entire plates, even though they don’t use all of it for the job. The job takes a hit margin-wise, because of the excess material, but when another small job comes up, the fab shop uses the remnant. So in the accounting system, “the material is free, and at the end of the year it tends to even out,” Marino said.

Beyond this, companies can use all sorts of strategies to improve inventory control, like storing as much inventory as possible at the point of use and utilizing software and bar codes to track material. Marino has worked with one medical device manufacturer that uses the backflushing inventory system described earlier, and all inventory is stored near the point of use, adjacent to the assembly area. “That company’s inventory accuracy is in the high 90 percent range, which is pretty good.”

Regardless of the method, Marino stresses that basic inventory control measures need to be in place before any improvement projects start. Lean and other methodologies promote inventory reduction; but before you reduce inventory, you need to know how much you’ve got.

4. Are we planning and procuring with a formal system, is that system reviewed, and does it align with our metrics?

No matter the tools—be it advanced ERP software or a simple system based in Excel, a manufacturer needs to have a formal planning and procurement system. “You don’t need a fancy system,” Marino said, “but the key is that you’re planning your factory capacity and you’re planning your inventory to meet and align with the lead times you have to satisfy for the customer.”

Lot sizing and material order practices all have to be aligned with that lead time and available capacity (covered in No. 2). “If sales says that jobs need to be turned around within four to six weeks, then people in charge of planning and materials need to make sure that their material ordering aligns with that, and they have capacity on the factory floor to make it happen. That’s their job.”

So what about a job shop environment, where one day might be completely different from the next, and it’s tough to foresee demand? “In a job shop environment, every dollar you invest in inventory, you invest in capacity,” Marino said.

He added that there’s a caveat here: The inventory needs to be well-managed (as described in No. 3). Buying excess stock just because people can’t find what they need or don’t have a clear idea of what they’ve got is never a good situation. It’s sometimes unavoidable (until the issues in No. 3 are resolved), but it should never be a permanent state.

“Ideally, job shops should never lose an hour of capacity because they didn’t have inventory,” Marino said. “So making sure shops have enough inventory on hand is of critical importance. They need to set their inventory buffers high enough to carry them over whatever peaks they have.” The safety stock needs to be large enough to hold the shop over until the next material order from the supplier comes in the door. The only other option is to extend job lead time to account for raw stock and component delivery, “but usually the customer base doesn’t accept that,” Marino said.

He added that if a fab shop has nearby service centers that deliver common materials within hours, that safety stock may not be huge, though it needs to be large enough to allow for unexpected problems, especially for fast-moving or difficult-to-obtain inventory.

Sure, lean and other improvement methods promote reducing inventory. But reducing inventory happens only after variability is reduced, be it through scheduling changes, solid order processing and communication in the front office, batch size reduction, or setup time reduction (and consistent setup procedures). “In a job shop, you can’t be afraid of more raw stock inventory,” Marino said.

Yes, reducing inventory improves cash flow, but a highly variable manufacturing operation can drain small inventory buffers in a hurry, which can starve all operations and effectively bring an entire shop floor to a halt.

5. Do we operate with concise business rules?

Business rules are not detailed procedures. Instead, they entail one or two sentences about certain day-to-day practices that define how things are done. Marino gave this example: “Everything that’s received on the receiving dock has to be received, checked, and put away on the same day.”

Another rule: “Every morning at 7 a.m., these four people cycle-count 20 percent of my A-stock [high cost, long leadtime] inventory.”

Marino defines business rules as functions of the business that have to be checked on a regular basis. Documenting these usually isn’t difficult. “You can usually go into a department, ask a few questions, and create 15 or 20 business rules in a heartbeat,” he said.

The rules could entail checking the oil in a machine, cycling a machine at the start of a shift to ensure machine safeguards are working, signing off on a job router after periodic quality checks, and so on. It’s analogous to going to the doctor and having the medical technician check your heartbeat and blood pressure. Business rules are just the basic procedures that keep the business functioning.

6. Do we have a formal training program for all key employees?

When you hear about the skilled-labor crisis, you usually hear about engineers, welders, machinists, CNC machine operators, and the like, but as Marino explained, skill also resides in critical front-office functions, including purchasing. And, of course, proper safety training needs to be part of the mix. Formal processes need to be developed first, of course, but once they are, they must be communicated to everybody as part of formal training.

For instance, material is a shop’s greatest expense, but does a material planner receive formal training? As Marino asked, “Does a material planner really know how to plan? Does he understand what capacity is, and what a constraint work center is? Does he know how to negotiate a material price?”

Ideally, the training should involve both the business aspects as well as at least an awareness of the technical aspects of ordering material. Say a critical job has a bending operation that requires all material come from a certain heat or lot from the mill. This situation could be in the traceability requirements from the customer, or it could come from engineering or technicians on the shop floor, who say they need consistent material to ensure they can form pieces quickly and reliably. Whatever the case, purchasing people need to be aware of this fact to avoid making purchasing decisions that make life on the shop floor difficult.

“Even if purchasing thinks of changing a supplier and the tensile numbers are the same, this action needs to be reviewed and signed off,” Marino said, be it by engineering or anyone else with expertise. “You need strict engineering controls for material sourcing changes, and purchasing needs to be trained on these procedures.”

Formal training is needed beyond purchasing, of course; it ideally should touch every person in an organization. A person may land a job because he’s highly qualified, but his first day on the job is still his first day on the job. No matter how qualified that person is, on his first day he’s still a novice when it comes to knowing how things are done at a particular company.

“Say I go out and hire smart people for the purchasing function. I hire experienced managers. I hire welders with years of experience who have had training at topnotch welding schools. You’d hope they have a high level of intellect and capability. However, are they trained on the way the company works, the procedures in place, and how it produces products? And do they know about the goals that drive the company? Do they know the culture and how they fit in an organization?”

Beyond this, training ideally should involve fundamental business practices, such as the importance of good communication and the inefficiencies of rigid silos among different departments. “This really doesn’t take a lot of time. The sessions can be brief, and they can be spread over weeks or months,” Marino said. “You can avoid doing this and continue with the same issues, or you can hit it head-on as a good management team and provide this training. Even one class every six months is better than no class ever.”

Ready for Improvement

As Marino put it, there’s nothing wrong with 5S or any other improvement method, but without these business fundamentals, sustaining the improvement will be an uphill battle. When a company can answer “yes” to all six questions, it has the foundation it needs to tackle change, be it a lean manufacturing initiative or a planning strategy like S&OP.

He added that these fundamentals help improve a company’s culture. Sometimes so-called “bad culture” comes from some type of process dysfunction, and there’s a good chance the cause of that dysfunction can be traced to one of those six questions.

Marino Associates LLC, 110 Greenwood Lane, East Windsor, CT 06088, 860-623-2521, www.dmarino associates.com