This article explains a logical, seven-step approach that helps to solve problems of on-time product and service delivery with profit. The first step is to obtain product specifications. The next step is to design a method for producing the product, including the design and purchase of equipment and production processes, if required. Scheduling for production is the coordination step; if not done well, it will spell doom for the company. Coordination is the key to purchasing raw materials in accordance with the schedule. Next is the transformation phase of raw materials to finished product—actual factory production—which is commonly called the value-added step. The quality assurance phase of monitoring results for technical compliance and cost control is an ongoing process of constant vigilance and continuous improvement. This step seeks to ensure that the product or service is being provided in accordance with the plan, a plan that includes technical, schedule, and cost goals. The best companies use total quality management (TQM), whereby improvement is continuous, as exemplified symbolically by the TQM triangle.
What does it really mean to “make it”? If you’re an employee of a company, it means you can expect a decent salary and some degree of job security. If you’re a supplier, it means that you will get paid on time for goods and services rendered. If you’re a customer, it means you can depend on the company to provide the products you need at proper quality levels and on time in accordance with your schedule. If you’re an investor, it means the company’s equity will increase and you will reap dividends for the money you’ve put into the company at a satisfactory rate of return. Yet “making it” has a combined meaning for all stakeholders: It means that their various types of investment are well placed.
What stands to reason is that we all want our companies to make it. Some may say it’s the luck of the draw whether a company is making it or not—that the ability to make a profit is buffeted about by so many intangible and uncontrollable variables that business success may be only slightly more predictable than a spin of a roulette wheel—but this is not so. A company can be tops in its field if it does a few things consciously and correctly in its core operation—providing goods and/ or services to its customers. This is not to say that outside influences do not affect the ultimate bottom line. All things being equal, however, companies that are acutely aware of how to do things optimally will always outperform those that are not.
There are a series of steps that all companies producing goods and services go through for each and every product they produce, of which only the very best (and successful) are consciously aware. These series of events can be called the manufacturing system, falling into seven discrete but interlinked steps. This logical approach to solving the problem of business—how to deliver goods and services on time and at a profit—is as old as the industrial revolution itself. The seven steps are:
Obtain product specification.
Design a method for producing the product, including design and purchase of equipment and processes for production, if required.
Purchase raw materials in accordance with the schedule.
Produce in the factory.
Monitor results for technical compliance and cost control.
Ship the completed product to the customer.
These steps follow a definite sequential order. Yet how many manufacturing companies try to make a product before the design is finalized, then are baffled as to why costs are so prohibitively high? This leads to my operations rule 1 : Never attempt a successor step until the predecessor step has really been completed.
The other intuitively obvious observation is that what happens at each step needs to relate to the same set of facts. Often in industry we find that sales has not fully transferred customer requirements to design engineering and manufacturing. So, the company blithely goes about designing and building a product that the customer wants—almost. This leads to my operations rule 2: Make sure the data being acted on at each step of the manufacturing system is identical, or at least consistent.
In short, do everything in business with well-thought-out logic and make sure the entire team is aware of what the logic is.
The seven steps apply to services and to physical goods. Providing a service is just as much a deliverable as making hard goods. A company that contracts to mow your lawn and trim your shrubs has to go through the same logic as one that is selling you a refrigerator.
Obtaining Product Specifications
The first step is to obtain product specifications: This is the sales and product design phase of producing a product. Salespeople have to determine what the customer wants, then transfer the information to the design team, which figures out how to create it. Sales has to be very careful to fully understand the true needs of the customer. Sometimes this is easy, if the business is one where the customer comes to you. Sometimes this is difficult, because customers do not know what they want until the new product is a reality.
Often we think we see a product created, then a market created for it. In reality, marketing and sales discern what the customer wants by focusing on future desires. They obtain product specifications in an abstract manner— tapping the unconscious desires of the public and discerning what their company should produce, always in line with their companies’ capabilities.
How do the best companies ensure that product specifications meet their factory’s capabilities? At a minimum, they use some form of concurrent engineering team formed from all functions of the company to usher products from conception to distribution. In addition, they use a technique called quality functional deployment (QFD). QFD is a systematic approach to matching a client company’s product specification requirements with the producing company’s capabilities and creating a probability model for assessing success rates. The producing company knows the level of difficulty it is likely to encounter before a project is started, so management can make a go/no-go decision based on the best available data.
Designing a Production Method
The next step is to design a method for producing the product, including the design and purchase of equipment and production processes, if required. This used to be considered the manufacturing engineering step, but it is also a continuation of the design phase of step 1. Ever since producibility engineering came along in the early 1980s—and its successor, concurrent engineering, became the integrated way to manufacture—we have recognized that design includes three phases that are dependent on each other.
The first phase is the concept design phase: Here the product specification is tested for compatibility with the laws of science. The second phase is the producibility design phase, where the design is tested to see if it is technically and economically feasible to produce in the intended factory. The third phase is the manufacturing facilities design phase, where the jigs and fixtures and tooling are designed to be compatible with the proposed concept design. At this stage the concept is turned into reality in a manner that satisfies the customer and all of the stakeholders. Everyone must complete the concept phase. Well-run companies put as much effort into the second and third phases as the first, and it pays off.
At this point the design is tested for its robustness. If it isn’t robust, there will be many failures in manufacturing, which means low product yield and high manufacturing losses, and probable doom for the product. Examples of companies that perform all three phases effectively abound—it keeps costs down and profits high.
We must have the best-designed factory procedures to produce the best concept design. Companies that put all their creative talent into concept design and then treat creating methods for producing as an afterthought—or worse yet, put lesser talent on that task—will fail.
Scheduling for Production
Scheduling for production is the coordination step; if not done well, it will spell doom for the company. Too many companies have great designs and factories full of great equipment and facilities, but still can’t deliver on time, or the “lowest-cost” producer cannot meet his production due date satisfactorily.
The design-step output is used to create a coordinated production schedule for all parts, subassemblies, and assemblies related to your company’s products. This involves creating a workstation route—setting forth where work will be done and in what sequence—derived from an engineering bill of materials (BOM). The BOM is really part of the concept design, showing what the product will be made of and what the sequence order of fabrication has to be. With the route and BOM as a guide, the company can construct a coordinated schedule to ensure that the proper parts are done on time to meet all the assembly needs.
Companies sometimes spend enormous sums of money in perfecting designs, yet get themselves into company-killing conflicts by not being able to schedule their factories. Thus, they know what promise dates to give their customers and it is likely they will meet their schedules. This makes them reliable vendors with the ability to generate additional orders as long as their product meets customer needs.
World-class companies consciously subscribe to the seven tenets of the manufacturing system.
For companies to schedule effectively, they need to have a manufacturing-resources-planning system (MRP II) that is integrated with a computer-aided process-planning system (CAPP) and driven by cycle times derived from a scientific time standards system. These three items are marketed under different names; a common one is “enterprises-resources-planning system.” They all have one thing in common, however: They’re driven by a common integrated information system. We call that system computer-integrated manufacturing (CIM). Many times we hear this referred to as the factory of the future. It has a very bright future, but companies need to embrace it wholeheartedly now. There is no other way of performing integrated schedules.
Just in time, a philosophy borrowed heavily from traditional industrial engineering theory, is an excellent way to eliminate waste. In its most popularized form, that’s taken to mean the elimination of the waste of excessive inventory on hand. There is nothing wrong with this, but it is not a scheduling system and should not be confused with one.
Service businesses also need MRP II because they need to juggle demands from many customers based on their time frames, or risk losing them to competitors. This means scheduling. Workstations, whether design or even word processing, only do one job at a time. Service firms cannot compete effectively without an MRP II—type scheduling algorithm.
Purchasing Raw Materials
Coordination is the key to purchasing raw materials in accordance with the schedule. Companies can take advantage of the integrated nature of CIM to use the database information from design and scheduling to create purchase orders for materials. In fact, the modern MRP II system evolved from materials requirements planning, with which make-or-buy decisions were made for every item on the engineering BOM.
By integrating make-or-buy decisions via the MRP II system, companies create seamless integration of internally made and externally purchased items. Materials arrive at a workstation when needed, in accordance with the routing instructions. The integrated nature of the scheduling algorithm makes it possible to purchase materials with enough lead time to ensure on-time delivery. If vendor-supplied items are not coordinated tightly with needs, the ability to deliver on time is jeopardized.
Another way to gain a competitive edge in purchasing is to create a supply chain with the company’s vendors. Some companies treat vendors as an extension of their own in-house workstations. Before they engage a vendor they make sure it is qualified to meet high quality standards, just like their own internal operations. They go so far as to assist vendors in upgrading their quality and production management skills so that they do not become weak links in the supply chain. They also, as policy, strive to maintain relationships with specific sets of vendors through long-term contracts for services and supplies.
Production in the Factory
Next is the transformation phase of raw materials to finished product—actual factory production—which is commonly called the value-added step. This is where work is done that directly affects the customer’s receivable. This step applies equally to service firms and goods producers.
The best companies make no distinction between external and internal workstations for exercising management control, except that internal workstations are considered to be “owned,” while external ones are “rented,” They integrate workstation activities based on their master schedule output from MRP II and make no distinctions as to where the workstation is located. They allow, and in fact insist, that vendors have the same scheduling information as their in-house workstations.
Companies can mitigate any differential in labor costs by maintaining tight control on how work is handled at workstations. They use short-interval scheduling techniques that factor in workstation methods, time standards, maintenance criteria, suitability of materials, and operator training, along with established goals set over periods usually no longer than half of a work shift. They also vigorously investigate failures of any kind for root cause and set immediate corrective actions. They view the workstation operator as a member of their production team. This philosophy ensures the best performance on the shop floor and gives a company the highest probability of success yet avoids the constant squandering of resources by chasing low labor cost around the globe.
The quality assurance phase of monitoring results for technical compliance and cost control is an ongoing process of constant vigilance and continuous improvement. This step seeks to ensure that the product or service is being provided in accordance with the plan, a plan that includes technical, schedule, and cost goals.
The best companies use total quality management (TQM), whereby improvement is continuous, as exemplified symbolically by the TQM triangle. On this triangle, the customer is at the apex spinning off data about the validity of the work received. This information goes down the leg of the triangle to the right corner as data to be processed. The data go along the base of the triangle becoming an improved process. Process improvements commence at the left corner and go back up to the apex for customer judgment. Then the process starts over again.
There are many approaches to monitoring and controlling processes. By far the most popular is the statistical-process control (SPC) technique, which can be tied into the CAPP system for developing process monitoring steps as part of the methods plan. In fact, many companies consider SPC to be part of the integrated CIM approach, whereby SPC action steps are included in the MRP II scheduling algorithm. Most recently we’ve seen companies use the six-sigma variant of SPC to gain even further competitive advantage by approaching the very difficult goal of zero defect.
As for ISO 9000 registration, by itself it signifies little as to the adequacy of your quality system vis-à-vis the needs of your company. ISO 9000 only states that you have a control system that you follow faithfully and have records to prove it. TQM philosophy, along with tools such as SPC tailored to your customers’ needs, makes a viable, effective quality system.
The job is not done, of course, until the purchased product is delivered to the-customer on time, complete, and at the expected quality level. Just as a company’s vendors are part of its supply chain, it is itself part of its customers’ supply chains. The goal of a world-class company is never to be the weak link in any supply chain.
Well-run companies use integrated scheduling and control systems to track every aspect of production, then kit goods systematically and only release for shipment when it is all there. They use MRP II as their tool and control mechanism to make it work. Their shipping and warehousing people are trained in distribution controls and are held responsible for inventory control. In fact, their inventory control records are always 99 percent accurate, at a minimum. They know that whatever happened beforehand, the job can be completed only by the customer taking delivery of the product and agreeing that all is in order.
The thread of information cascading from step 1 through step 6 is clear. World-class companies exude communications excellence. They not only consciously subscribe to the tenets of the manufacturing system but have also integrated the information flow within an all-encompassing CIM system. By doing so, they can respond to opportunities in a dynamic fashion. They can make changes to schedule, designs, SPC checking parameters, contents of shipments—and virtually any other demand made by their customers—many orders of magnitude faster than those companies not consciously aware of the seven steps of the manufacturing system.