According to most forecasts, 2009 is shaping up to be one of the most difficult years that manufacturers have faced in the last seven decades. To survive and thrive in this challenging economy, engineers must renew their efforts to reduce production costs, increase productivity, shorten time to market and improve product quality. Here are some practical tips and suggestions from leading experts.
According to most forecasts, 2009 is shaping up to be one of the most difficult years that manufacturers have faced in the last seven decades. To survive and thrive in this challenging economy, engineers must renew their efforts to reduce production costs, increase productivity, shorten time to market and improve product quality.
The downturn in the economy hit manufacturers hard and fast, like a summer squall on Lake Michigan. For instance, consider the case of Caterpillar Inc. (Peoria, IL), which was flying high just a few months ago. In 2008, the company experienced its sixth consecutive year of record sales and revenues.
“Through the first three quarters, we experienced booming demand . . .,” explains Jim Owens, Cat’s chairman and CEO. “Delivery times for many products were extended, and we were focused on increasing production and expediting shipments to meet customer needs. Then we were whipsawed in the fourth quarter as key industries were hit by a rapidly deteriorating global economy . . . .”
Other people use less-colorful words than “whipsawed” to label what’s been happening lately. No matter what language you choose to describe current business conditions, it all translates into the same sobering message: We’re in the midst of a severe recession. Even manufacturers that have relentlessly practiced lean principles or Six Sigma for years can’t control some of the once-in-a-century issues that are rocking the economy.
“Everything has changed,” says Kevin Duggan, principal of Duggan Associates and founder of the Institute for Operational Excellence (North Kingstown, RI). “The business climate that we once knew is gone, and high uncertainty surrounds us. The challenges are different, and our typical cost-cutting measures don’t come close to matching the drop in customer demand.” To survive and thrive in today’s chaotic and volatile market, Duggan believes manufacturers have to use a football strategy: First establish a good defense and then turn up the offense.
“Just as families are reining in spending to stay afloat, manufacturers, too, are cutting back on everything but the bare essentials,” adds Don Penkala, president of Granite Bay Global (Granite Bay, CA). “While many will be forced to make huge cost cuts, there is an opportunity for manufacturers to spend time evaluating the effectiveness of certain programs and other cost drivers.
“[This is a good time to] eliminate those that aren’t producing results or aren’t producing them fast enough,” adds Penkala. “Obviously, in a severe cash and credit crunch, many discretionary activities will have to be postponed. But, smart managers are being more critical of spending and demanding quicker returns, rather than gutting vital programs and activities.”
Penkala and other manufacturing consultants believe that tough times offer engineers a great opportunity to play hero in their plants. By tuning up production processes during a slowdown, your assembly lines will be ready to hum once business conditions start to improve, which some experts predict will start to happen later this year.
No matter what you do, be sure to engage in active dialogue with your assembly team. “During these tough times, it is important to maintain goodwill and morale, and try to reduce the stress on the workforce,” explains Penkala. “It’s always best to be open and honest with employees and explain the business situation in detail and why specific cost cuts are needed.
“Employees understand that in tough economic times, only those activities and programs that conserve resources and capital will be permitted,” notes Penkala. “There is also an opportunity to build a sense of teamwork and commitment by working together-leaders and operators, maybe for the first time-to find innovative ways to cut costs and generate revenues.”
“Mental attitudes about the current economic situation undermine morale and productivity,” warns Dave Gardner, president of Gardner & Associates Consulting (Reno, NV). “Make sure your team understands the current economic situation is a normal, cyclical challenge that, while more extreme than many economic downturns, creates opportunities. Focus on making the company stronger and more competitive during this time.”
If your company has not adopted continuous improvement strategies, this might be a good time to start. Richard Ligus, president of the Rockford Consulting Group (Rockford, IL), believes it’s never too late to implement lean principles. “[Any company should do] three things in a recession to reduce production costs, increase productivity, and reduce lead times: Lean training, 5S and kaizen events,” he points out.
“Lean training can be conducted when business activity is down, and resources are available,” explains Ligus. “The 5Ss are necessary to prepare the assembly floor for further lean manufacturing initiatives, and are a good first step in a lean implementation. Kaizen events are a way to get workers involved in the change process, and to pick the low-hanging fruit.”
Ligus says one of his clients, a company involved in electromechanical assembly, followed that strategy. The manufacturer was able to achieve a 50 percent decrease in throughput time and direct labor, enabling a 100 percent capacity increase in each work area affected. “The decrease in throughput time enabled them to deliver products in half the lead time previously, with half the direct labor hours,” claims Ligus. “The capacity increase using the same amount of direct labor spread overhead over twice the number of products, resulting in a significant cost reduction.”
“Learning about lean principles and applying the right strategy to your unique operation remains one of the best investments manufacturers can make,” adds Penkala. He has tracked lean activity and discovered that, with the right implementation, manufacturers can achieve anywhere from 260 percent to 1,500 percent return on investment. “With the low up-front costs and the possibility of self-funding lean programs, they remain an even better bet in the current economy,” he proclaims.