Managing Process Downtime -- What Are the Biggest Mistakes?

In September, Michael Beauregard published a book entitled Process Downtime Reduction: How to Minimize Waste from Breakdowns, Set-Ups, Supply Chain Issues, and Staffing Constraints. This book provides manufacturers the techniques they crucially need to keep their critical manufacturing equipment running correctly and efficiently – which increases production, decreases labor costs, decreases breakdown costs, and ultimately increases the bottom line. 

When I spoke with Michael this month, I asked him: “What are some of the biggest mistakes manufacturers make while trying to manage process downtime?” Here is his complete answer:

That is an excellent question. 

I think the biggest mistake manufacturers make with managing process downtime is that they don’t manage it – instead, they learn to live with it. They make longer runs so that they can amortize the cost of that long product changeover over more parts. They get the order out by working overtime at the end of the month. They buy more equipment than they actually need. Manufacturers are smart – they learn to adapt to survive, but often those adaptations are the fastest way to solve the problem now and not the most efficient.  

Another big mistake is not measuring downtime and where it occurs. As I wrote in Process Downtime Reduction, “Show me the data!” Many companies cannot. They have anecdotal evidence of their downtime. It takes about two hours to complete a changeover. They remember they ran out of bottles once two years ago so they are focusing tremendous efforts and costs to manage inventory at high levels when the numbers actually show that labor is their biggest downtime cause. They do not make a systematic effort to understand the downtime and where it occurs so they attack where they perceive the downtime problems to be and not the issues that cause the greatest amount of downtime. 

And a third big area is not getting the whole workforce involved. Well, maybe “involved” is the wrong word. They fail to change the culture of the workforce to be looking for wastes in the operation. They load and unload parts without thinking that the machine could have been co-extruding 10 minutes earlier if they hadn’t waited until the core had run out to notify the material handler that another roll of core was needed. 

Do you agree with Michael's thoughts here? How does process downtime affect your organization? What do you do to manage it?

Can Lean Principles Be Applied to Procurement and Purchasing Processes?

While there are many books written on the basics of the "supply" side of the supply chain (i.e. strategic sourcing, sourcing/procurement and purchasing), however, there hasn’t been much written on those areas from a Lean perspective. That situation was rectified when Paul Myerson published his significant book entitled Lean Demand-Driven Procurement: How to Apply Lean Thinking to Your Supply Management Processes.

I recently spoke with Paul Myerson and asked him: "Why haven’t organizations placed more emphasis on applying Lean principles to procurement and purchasing processes?" Here is his complete response:

While there are a fair number of books, articles, and blogs written on the basics of the “supply” side of the supply chain (i.e., strategic sourcing, sourcing/procurement, and purchasing), there hasn’t been much written on those areas from a Lean perspective. This is quite surprising, considering not only that supply chain costs (primarily procurement and transportation), can range from 50% to 70% of sales, resulting in what is known as the “profit-leverage” effect (measured by the increase in profit obtained by a decrease in purchase spend), but also helps drive downstream quality, productivity, and efficiency.

If you were to ask someone who knew a bit about Lean thinking how they defined Lean procurement, they would probably say that it’s about increasing productivity for procurement staff so they can spend more time on value-added activities rather than administration. While that is certainly true, it is also important to extend the view to how it connects and interacts with other processes, functions, suppliers, and customers, as today, procurement plays an important role in improving the flow of information and materials throughout the entire supply chain.

It is important to establish best practice Lean procurement functions that go beyond contract negotiation and establish crucial operational requirements, utilizing strategic sourcing activities such as market research, vendor evaluation and integration to support Lean activities such as Just-In-Time and Vendor Managed Inventory (VMI) programs.

Furthermore, inventory management and sourcing supply chain decisions are directly linked to a company’s financial performance and can, as a result, can affect a company’s cash flow and profitability.

Therefore, a procurement organization must consider:

• The prevention of production disruptions due to inventory or material shortages, while remaining flexible to meet changes in customer demand or cope with market volatility.

• The trade-offs of inventory carrying costs and customer service levels.

• Optimal buying quantities that consider the trade-offs of inventory carrying cost and volume discounts.

• Moving from reactive to proactive procurement operations.

In summary, Lean procurement provides opportunities for process improvements and savings through cost reduction, eliminating wasted time and efforts, and improved cost analysis, and can improve contract compliance and develop better, sustained partnerships with suppliers and other business partners.

What do you think of Paul's perspective on Lean procurement? Does your company apply Lean principles to its procurement and purchasing processes? What results have you seen?

Common Misconceptions About Building a Supply Chain

I recently had a very informative phone conversation with William T. Walker, CFPIM, CIRM, CSCP, about his most-recent book, Supply Chain Construction: The Basics for Networking the Flow of Material, Information, and Cash. During our conversation, I asked Bill: “What are the most common misconceptions about building a supply chain?” Here is his full response:

At the highest level, there are two broad misconceptions about building a supply chain. First, there are businesses that see no need to build or renovate their supply chain. Let me give a few examples from former work colleagues:

One just left his employer to start a computer consulting company. Why would a service company startup need a supply chain? The answer is that third-party relationships, forecasting, planning, matching customer demand with service supply, cash-to-cash velocity, and delivery lead time are each basic supply chain considerations. 

Another colleague just traveled to Shenzhen, China to observe the pilot run at a new contract manufacturer making a new family of products. The parent company is small, engineering focused, and has a limited understanding of the operations side of the business. Why should they care about a supply chain? Won't the contract manufacturer will take care of it? The answer is that demand planning, inventory investment, process variability, and intellectual property protection each depend upon the relationship between the basic supply chain network design and the product design. 

And a third friend recently moved to Texas to establish a cross-border distribution center for product manufactured in Mexico. This was explained to me as just a simple cost-reduction exercise; how is this so important in a supply chain context? The answer is that landed cost, import/export compliance, risk management, information connectivity, and performance metrics are each basic supply chain operational imperatives. Such demand life-cycle events and supply life-cycle events often collide triggering the need to renovate or build a new supply chain.

My book, Supply Chain Construction: The Basics for Networking the Flow of Material, Information, and Cash, presents the supply chain from three basic perspectives. The network container is first. This is the set of trading partner relationships, information transactions, and cash processes that connect from raw materials to the end customer. The product contents are second. These are the locations of inventory items and SKUs across the network that supports product delivery. The matching of demand and supply is third. This is the consideration of push versus pull, capacity constraints, and/or dynamic pricing to operate flexibly and risk tolerantly under both small order and large order conditions.

A second broad misconception is among business organizations that understand the need for a supply chain but think only in terms of their most immediate suppliers and customers. A competitive supply chain is fully integrated and multi-echelon. The detailed blueprint presented in my book sequences the basics of how to build a competitive end-to-end supply chain. It explains how to budget price/landed cost from raw materials to the end customer. The book explains how to calculate inventory turns upstream and downstream. And it presents the concept of a Value Circle to tie together multi-echelon performance measures.

What do you think of Bill's response?  What other misconceptions in regard to building an effective supply chain do you think are worth noting?