Manufacturers: Stop Leaning Out Inventories

By Chris Chiappinelli | Published: September 26, 2011

Time was, companies that aspired to operational excellence and Lean manufacturing cut their inventories to the bone. This year, we learned what a mistake that can be.

 

Here’s a bitter pill to swallow: Six months in, 2011 had already become the costliest year on record for natural disasters globally.

The somber bill of lading includes floods in Australia, an earthquake in New Zealand, the earthquake and tsunami in Japan, and in the United States: drought, wildfires, tornadoes, floods, and other storms.

According to MSNBC:

The first six months saw $265 billion in economic losses, well above the previous record of $220 billion (adjusted for inflation) set for all of 2005 (the year Hurricane Katrina struck), according to Munich Re, a multinational that insures insurance companies.

Economists now predict that the tech industry will fully recover from Japan’s catastrophe by this fall—a half-year after the fact.

Mercilessly, the disaster trend seems to continue apace. This isn’t an invitation to political debate; no matter who or what you blame for the increase in disasters, the trend line promises more disruption. The disasters of 2011 have ravaged homeowners, tested the durability of businesses, and threatened or dismantled supply lines. They’ve also brought in for scrutiny that nagging brand of operational excellence that says manufacturers must be laser-focused on reducing inventories—a core tenet of Lean manufacturing.

When your inventories are low and disaster hits, how do you maintain operational excellence and customer satisfaction? You don’t. How much operating capital do you spend trying to get back to normal operations? As much as you saved by keeping your inventories trim, I might guess.

Maybe buffer stock doesn’t look so wasteful now.

I don’t claim we’re on a straight-line path to Armageddon, and I’m no predictive modeler. But if I were running a manufacturing business for the next five to 10 years, I wouldn’t worry too much about my inventories. I wouldn’t define operational excellence, or even Lean manufacturing, by that metric. Instead, I would create highly efficient operations and root out waste in my plants. But I wouldn’t consider inventory waste.

This counters many long-held beliefs. For those who need an antidote to the bromide that inventory is always bad, think of inventory as insurance against customer disappointment and lost sales. In a world increasingly prone to disaster, insurance can be a business’ best friend. It’s a smart way to run a business. Running operations without inventory in a disaster-prone world is reckless.

Don’t agree? Check out Lean manufacturing granddaddy Toyota, which, after the carnage in Japan, rolled out a plan to disaster-proof its supply chains. Guess what’s front and center?

“The second step involves suppliers further down the chain,” reads a recent Supply Chain Digital article, “who will be asked to hold as much as a few months’ worth of inventory of specialized components to safeguard against manufacturing problems.”

What do you think?

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Skills Shortage: Educate or Automate?

By Stephanie Neil | Published: September 19, 2011

The answer: Do both. Baby Boomers are taking their intellectual capital into retirement with them, and manufacturers are turning to technology and training to solve what is quickly becoming a dire skills shortage.

There was a disturbing headline in the Chicago Tribune recently. It read, “Caterpillar CEO: We Can’t Find Enough Skilled Workers.” The article went on to say that, despite the country’s high unemployment, the company can’t find people with the right skill sets to work in manufacturing operations.

According to Caterpillar CEO Doug Oberhelman, this stems from a lack of proper schooling. “The education system in the United States basically has failed them and we have to retrain every person we hire,” he told the newspaper.

The recently proposed American Jobs Act offers as a short-term plan for jobs creation the modernizing of at least 35,000 public schools, with renovations and Internet-ready classrooms. It’s nice that our kids will enjoy more-comfortable classrooms as they surf the Net, find new friends on Facebook, and one hopes, access information that will help them in their studies. But this won’t do anything to prepare them for the jobs we’ll need to fill in the future. I think the emphasis should be on education reform, not building renovations.

Manufacturers are already suffering as Baby Boomers retire en masse, leaving a gaping hole where properly trained operations management workers used to be. That hole needs to be filled, but it seems there is no one ready, willing, or able to step in and fill their shoes. So, what are the options? Some companies are considering replacing humans with robots.  Others are opting for other forms of automation that reduce the reliance on people. The Virginia-based Commonwealth Center for Advanced Manufacturing (CCAM) is one organization that is leaning toward the latter option.

Earlier this month I met CCAM president David Lohr, who told me that CCAM launched last year as a partnership between manufacturers and engineering schools. Seven manufacturing members participate in this collaborative research community designed to develop cutting-edge factory floor technology, including simulation, virtual manufacturing, and other forms of production automation to accelerate performance and time-to-market.

“We are about creating practical solutions to real-world problems that can be rapidly accelerated into the commercial space and deliver immediate payback to companies,” Lohr said.

For example, the group is researching new sensing technologies that can improve machine cycle time as well as monitor the movement of workers on the factory floor. “The goal,” according to Lohr, “is to develop new strategies and new enhancements to improve productivity and the ergonomics of the factory floor to drive cost down and productivity up.”

While CCAM’s focus is on technology, Lohr is quick to point out that the group’s research activity is underpinned by aggressive workforce development. CCAM is focusing on how to capture knowledge electronically and distribute it across the enterprise. the organization also is planning a large internship program that will continuously rotate engineering and science students through the CCAM facility. This will groom young engineers and scientists to work in the manufacturing factory of the future. But it does not get to the root of the problem, which is how to get kids interested in engineering as a career path early on and give them a proper education so that they can be productive members of a manufacturing team on day one. No re-training necessary.

The skills shortage we now face requires that we view education and automation technology as intertwined: Technology and proper training go hand-in-hand. If we turn our attention to this now, we can accomplish two things: Fix the unemployment problem for the long term and get American manufacturing back on track.

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Manufacturers: Cloud Computing Costs Could Surprise You

By Chris Chiappinelli | Published: September 12, 2011

A new survey shows that manufacturers are eager to add cloud computing to their IT portfolios, but are they counting all the costs?

 

The manufacturing industry has an “immediate appetite” for cloud computing.

So say the researchers and analysts at IDC Manufacturing Insights. Their recent survey of manufacturing companies, titled “Business Strategy: Cloud Computing in Manufacturing,” found that 22% of manufacturers had already incorporated cloud computing into their IT portfolios, and that 44% were in the process of doing so or had firm plans to do so.

That means two-thirds of manufacturers are sold on the concept of cloud computing; a mere 2% have no plans for cloud adoption. Why the interest? Cost savings, of course. By a wide margin, manufacturers ranked reducing hardware costs as the top benefit of cloud adoption, according to IDC. They also expressed a desire to reduce software costs. And as they shift IT resources to this new model, they’re more bullish on external, private clouds than public clouds, though the use of both is on the rise. IDC attributes the disparity to manufacturers’ interest in protecting company data, and the perception that a private cloud is the more secure platform.

Approximately 100 manufacturing companies participated in the cross-industry survey, which encompassed more than 600 respondents and was completed in early 2011.

Perhaps more noteworthy than manufacturers’ general embrace of cloud computing is the fact that their expectations exceeded those of the other industries represented. When asked to assess the benefits of cloud computing, manufacturers’ responses were uniformly higher than other respondents’. The benefits cited included support for faster application deployment, self-service for business users, and the establishment of standard IT services. The scores indicate that the manufacturing industry is “taking a more optimistic view of cloud,” IDC said.

That may encourage a rethink of the old saw that manufacturers lag the general business community in IT experimentation. More ominously, it leads me to wonder whether this thirst for cloud computing resembles, in some troubling ways, manufacturers’ rush to offshore production during the past few decades.

It’s natural to seek cost savings in an emerging business practice or IT trend. It’s also natural to overestimate the true savings involved.

The remedy: Establish a “total landed cost” benchmark for cloud computing. Many manufacturers failed to understand this metric when assessing the cost savings of overseas manufacturing. We shouldn’t repeat the sins of the past because they come dressed in different garb.

A total landed cost calculation for cloud computing would include, among other factors, the cost to service and support business users of IT systems, which could be compromised if companies lay off IT staff as they shift to the cloud. It should include the cost of reliability issues that can cause business disruption—witness, for example, the latest outage on Amazon’s public cloud. And what about the cost of integrating systems in the cloud?

I won’t declare that outsourced manufacturing hasn’t been a profitable strategy for some manufacturers, or that cloud computing will strain budgets in ways we’re not considering in the rush toward glittering cost savings. But it might. Now is the time for sober assessment, before you’re all in on the cloud and the savings aren’t what you thought they’d be.

IDC says as much in its summation of the survey results: “Cloud computing will have a very positive impact on IT performance for those firms that take a well considered approach to investment” (emphasis added).

 

Have you considered the total landed cost of shifting to the cloud? What factors do you use in your assessment?

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Online GHG Data Could Spark New Sustainability Strategies

By Stephanie Neil | Published: September 6, 2011

At the end of the month, large industrial companies will report their greenhouse gas emissions data to the EPA—electronically, if they choose. And with e-GGRT, they can benchmark their sustainability efforts against their peers’.

About 7,000 companies considered “large industrial emitters” face a Sept. 30 deadline to file their 2010 greenhouse gas (GHG) emission data with the Environmental Protection Agency (EPA). And, for the first time, they can file that sustainability data online, using the electronic greenhouse gas reporting tool (e-GGRT) that the EPA launched late last month.

e-GGRT is supposed to make the filing process easier—and greener than the paper route, I suppose. But there is another benefit to online data collection: the ability to share and compare the information. According to the EPA, the GHG data will be available to the public by the end of the year. Companies can use the sustainability information to help find new ways to decrease emissions, increase efficiency, and save money, according to the EPA.

That’s the same message offered by the Carbon Disclosure Project (CDP), a sustainability-focused organization that maintains a database of 3,000 or so companies that report their greenhouse gas (GHG) emissions. With the help of SAP, the group has created CDP Reporter Services, a business intelligence(BI) tool used to help businesses benchmark their performances.

Companies such as DuPont are using CDP Reporter Services to cull information for its internal strategy team, a company spokesperson said in a statement. Cisco taps into CDP analytics to confirm that its business partners are tracking their energy use and publicly reporting GHG emissions and reduction commitments to the CDP, the company said.

CDP’s BI application allows a manufacturer to take a deeper dive into the ROI of sustainability efforts, including identifying operational risks and opportunities. Likewise, the EPA’s e-GGRT will have a huge impact on future sustainability efforts, I suspect.

This new transparency into other companies’ carbon reduction efforts could lead to more creative sustainability strategies. For now, manufacturers are mostly concerned with regulatory compliance. The deadline looms, after all. But when the data has been filed and becomes available for review, it may stir the competitive juices, and even spark some ideas that could turn sustainability programs into some profitable business ventures.

Of course, how companies use the information hinges on the kind of data that is supplied and provided to the public. But now that there are tools in place to collect and analyze the information, more applications that will help companies make use of the data will inevitably follow.

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Manufacturers: Retire the Apprenticeship

By Chris Chiappinelli | Published: September 1, 2011

The manufacturing industry must think more progressively about how to attract the young generation, and an apprenticeship isn’t the way to do it.

 

Call it an internship, not an apprenticeship.

I found that message hidden in the announcement this week that 50 U.S. companies will boost their offering of engineering internships in 2012, an effort coordinated by the White House, the National Association of Manufacturers, the American Chemistry Council, and various business groups.

The list includes 45 companies that will double their slate of internships; five others have committed simply to increasing their offerings. Among the 45 you’ll find Cardinal Health, Facebook, and MasterCard, companies that have emerged as leaders in what some call a post-manufacturing America dominated by healthcare, technology, and finance. But the preponderance of names on the list stir memories of the country’s industrial might: Alcoa, Boeing, General Electric.

I like the effort, small as it is. I also like the word “internship.” Subtle shifts in language can make a big difference—ask any marketer. An “internship” sounds contemporary. An “apprenticeship” sounds like something you find in a caption for a black and white photo in a textile museum. Manufacturers should apply a new language to all facets of their business, whether it’s someone dabbling in operations management, machine work, or research and development. You might argue that “internship” isn’t the right term for someone destined for operations management, or line work. But that’s old thinking. It’s time to rebrand.

In generations past, sons lined up for the trades their fathers had mastered, and a virtuous cycle kept manufacturing humming. The industry isn’t accustomed to fighting for its meals. But it must if it wants to survive. And it’s time the manufacturing industry became its own marketer, using language to its advantage. All levels of the manufacturing organization must think progressively. Throw away your old vocabulary. Think with a new playbook. Offer internships on the manufacturing floor. Change your apprenticeship program to a career development initiative, or a future leaders program.

If we’re intent on resuscitating manufacturing, we must first focus on destroying stereotypes and the language that gives them life. Throw away the apprenticeships of old. Rebrand manufacturing.

Tell us what you’re doing to inspire the next generation of manufacturing workers and leaders, and how you have changed the language to help.

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Innovation Starts in the Heart

By Stephanie Neil | Published: August 30, 2011

From the Mac to the iPad, Steve Jobs has transformed the way we work and play through technology. Now, as he steps down from his post as Apple’s CEO, we reflect on his triumphs and the passion that ignited his innovative ideas.

 

Steve Jobs’ resignation as CEO of Apple sent a shockwave through corporate America. This man, a magnate of product innovation, has inspired and invigorated the technology industry while dabbling in computers, music, movies, and mobile phones.

Jobs’ ingenuity, enthusiasm, and competitiveness are designed into Apple’s core. He is a college dropout (because he couldn’t see spending his parents’ hard-earned cash on classes that didn’t interest him), and the Apple co-founder who was ousted by its board at age 30. But he continued to follow his infatuation for technology, and was brought back into the Apple fold after it acquired his second start-up, NeXT, a computer platform development company.

Jobs enjoys a cult-like following of Apple enthusiasts who leap like lemmings at any new product announcement he makes. His passion pumps through the company’s veins. Yet, in his brief letter to the board of directors and the Apple community, Jobs maintained that even without him at the helm, “Apple’s brightest and most innovative days are ahead of it.”

That has many asking the question: Can Tim Cook, who succeeds Jobs as CEO, maintain the momentum that Jobs created? Jobs recommended Cook for the CEO role, so there is no doubt in my mind that he will be a great leader. Cook is reported to be a sharp-shooting businessman with an eye for operational excellence. The real question is: Does he have the passion?

It’s a good question to ask of any CEO, because leadership and business acumen don’t necessarily translate to passion, or a love of innovation.

I think Jobs’ status as an iconic businessman is owed more to his entrepreneurial spirit than to the devices he introduced. Yes, Jobs built wildly successful products using his eye for detail and sophisticated simplicity, and he figured out how to deliver new iterations of the iPod, iPhone, and iPad quickly enough to keep consumers interested. But it is his curiosity and ability to follow his own intuition that sealed his—and Apple’s—success.

A few days after Jobs announced his resignation, a good friend of mine forwarded me a link to Jobs’ 2005 commencement speech at Stanford University. The message was honest and humble. He said dropping out of college and getting fired from Apple were two of the best things that could have happened to him. While not in school, he still hung around and took courses that interested him. Calligraphy class, he noted in his speech, laid the groundwork for the typography that became part of the Mac computer.

When he was fired from the company he founded, it was a public failure that almost forced him out of Silicon Valley, he said. He felt rejected, but still loved what he was doing. That rejection allowed him to start over, with NeXT and also as a beginner in a new field, through his purchase of Pixar Animation Studios.

But perhaps mortality has been Jobs’ greatest motivator. Even before he was diagnosed with pancreatic cancer, Jobs said he reminded himself every day that he would be dead soon. It helped with the big choices. “Death is the single best invention of life,” he said. It can be a change agent because it reminds us that time is limited.

“You have to find what you love and do what you believe is great work,” Jobs told the Stanford graduates back in 2005. “Keep looking. Don’t settle.”

When you love what you do, creativity, innovation, and success naturally follow. Steve Jobs taught me that.

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Should Operational Excellence Go Mobile?

By Chris Chiappinelli | Published: August 22, 2011

Just because I can deliver overall equipment-effectiveness metrics to my line manager’s iPad doesn’t mean I should. A consideration of operational excellence in the age of distraction.

 

I heard it again last week: The announcement of an iPad application that delivers manufacturing intelligence and promotes operational excellence. I thought, Do we need to be that connected? Can we spend 20 minutes away from a desk and survive without information?

A lot of people would answer those questions “Yes” and “No.” We are knee-deep in a trend that incorporates computing power into all our activities, from iPads to hip-mounted computers to headsets that augment our reality.

The latest app to push the pursuit of operational excellence to mobile devices is the OEE Monitor by AutoLean Inc., a lightweight application for the iPad, iPhone, and iPod. Users can create views of manufacturing assets to ensure that they’re never more than a few thumb-strokes away from, for example, a report on the performance of the slitter machine on line 2.

Information overload, some might say. But the distinction between data overkill and data perfection may be as simple as this: Give manufacturing users—line managers, shift bosses—the ability to create their own mobile apps. A manager who can configure an iPad application to measure operational excellence, whatever those metrics may be, will be inclined to call for just the right amount of information. Overload comes from things like an e-mail inbox, which the user does not control, and which thus abounds with items one never asked to see.

Now we’re seeing the emergence of lightweight mobile applications that a manufacturing line manager can configure, instead of the IT person who doesn’t understand the plant, much less the tenets of operational excellence.

We can all agree that understanding key operational metrics in real time promotes operational excellence. The real challenge, as I see it, will be to prudently deliver that information to the up-and-coming generation, whose members sleep with smartphones on their pillows and break out in hives if five minutes pass without an incoming text message. This generation of youngsters will soon form the ranks of operations managers and plant floor workers. They are driven to distraction more than any generation in history, and thus it will be more important than ever to appreciate the distinction between valuable information and distraction. Maybe these kids will graduate from college and technical schools and spontaneously develop the ability to devote their full attention to the task at hand. If they don’t, they’ll waste time half-listening to a plant floor worker while staring at their iPad trying to calculate OEE. And that won’t bring us any closer to operational excellence.

It’s a challenge we’ll all face, perhaps sooner than we think.

What about you: How is your company incorporating mobile technology? Are you borrowing from the younger generation?

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Is SaaS Sabotaging Enterprise Integration Efforts?

By Stephanie Neil | Published: August 15, 2011

Hosted applications remove the burden of buying and maintaining hardware, but off-premise systems could cause data integration problems that require serious consideration in any purchase decision.

Through industry standards, application programming interfaces (APIs), and middleware for enterprise integration, manufacturers have made great progress in uniting the islands of information that once kept them from sharing data between plant floor and enterprise systems.

As a result of these enterprise integration efforts, companies can now connect production operations with back-end accounting systems to keep material costs under control and manufacturing schedules on track. They can integrate supply chain data, warehouse management systems, and even sales forecasting applications to deliver the right product, to the right people, at the right time. When done right, it’s a huge competitive advantage. But any CIO or systems integrator will tell you that integrating applications that target different departments is not easy to do, since business needs change as fast as applications are upgraded.

Enter software as a service (SaaS) applications, which might seem to be an IT manager’s dream: no server and storage systems to buy and maintain. But their emergence presents a whole new integration problem between on-premise legacy apps and those that live in the cloud.

According to the recent InformationWeek Analytics 2011 Enterprise Applications Survey, 43% of SaaS users are very happy with the ability to deploy the applications quickly, but are much less satisfied with the complexity of integrating hosted apps with on-premise systems and data sources.

The InformationWeek article cites a handful of SaaS-based problem areas that are causing many CIOs to forgo the cloud, for now. Among them was the view that a lack of integration creates information silos—catapulting us back to the islands of information that make it difficult to share information or run business analytics. Another issue respondents cited was the inability to maintain a master data set that includes enterprise wide governance of the information flowing among the applications.

One has to wonder whether some of the new integration appliances and brokering services emerging, including Jitterbit, CloudSwitch, Cast Iron, Boomi, and Vordel, will address these challenges. They may well offer a better alternative to custom programming, but that’s just a start. They’ll have to do a good job of integrating on-premise and off-premise data, managing workflows, governing data structures, and keeping the enterprise secure.

To that end, it’s pretty clear to me that a lot more work will need to be done before CIOs at large organizations fully embrace the cloud as part of their technology landscape. Sure, they’ll dabble with an app or two, but for now, SaaS will likely remain an application island within the enterprise.

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Rust on Our Heart

By Chris Chiappinelli | Published: August 8, 2011

Rust does not become us, and rust will not sustain us.

Across America, rust has eaten through the things that once defined us, leaving silence in places that once roared with the noise of creation, the presses that thundered metal into submission, the lathes that screamed as they spun goods into being.

We have heard these tools go silent. We have seen the rust creep in.

I was reminded of this while watching the 2010 movie The Company Men. In it, an old-roots shipbuilder played by Tommy Lee Jones wonders how his manufacturing division, once the cornerstone of the business, became the vestigial arm of a corporation that no longer makes things.

In one exchange, he lays bare the sadness of someone who can no longer describe himself by the things he makes. In that scene, he walks along the docks that once defined him.

“Two thousand men a shift, three shifts a day,” he says. “Six thousand men earned an honest wage in that room.”

He points to the hulking skeleton of an old shipyard. Its windows are pockmarked, its heart rusted by the winter winds.

“They fed their kids, bought homes, made enough to send their kids to college,” he recalls. “Building something they can see. Not just figures on a balance sheet but a ship you can see, smell, touch.”

He pauses for a moment.

“Those men knew their worth,” he says.

America is snarled in an identity crisis; has been for some years now. We’re no longer sure of our worth. For a long time, we made things, and those things, in turn, made us. Without them, we’re unsure of what we are.

We could stand on the sidelines and rail against change. We could sing ourselves an elegy. But that won’t resurrect our identity any more than a self-help book will. Those who fight progress stand on the losing side of history, for progress is built into us like gravity.

The answer is to adapt.

Through 3D manufacturing, which can help the masses understand what it feels like to make things, and what it means to be someone who makes those things. Through the creation of solar panels, or wind turbines, or electric drivetrains. Through the design of goods we can’t imagine yet.

Seldom have we met a moment so charged with potential. Millions are out of work, and want back in. They have usable skills, and they understand that times and wages have changed. They want to resume who they were.

There is rust on our heart, but rust does not define us. Only action does.

 

[Addendum: Check out how San Francisco's Techshop is jump-starting a new era of manufacturing.]

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The Mobile-To-Mobile Enterprise: What It Means for Manufacturers

By Stephanie Neil | Published: August 1, 2011

Near field communications technology promises to dramatically change the mobile e-commerce model. Savvy manufacturers should start thinking about how else they can leverage this short-range wireless exchange technology.

Creating a structured enterprise mobility plan that includes in-house wireless networks and support for a myriad of mobile devices is essential in today’s business climate. But manufacturers can’t stop there. There are emerging wireless technologies and mobile applications that will completely change how people purchase products, as well as how companies collect consumer data.

Take Google Wallet, an Android e-commerce application that essentially turns your phone into your credit card, storing a virtual version of your existing card on the phone. Just tap your phone on a Google Wallet-enabled reader and your payment is made.

Of course, it will be a while before our pockets are completely cash free and carrying credit cards is a thing of the past, but it is worth considering the technology behind this shift in how we pay, as it could also directly influence what products manufacturers produce and how they are marketed, sold, and serviced.

Near field communication (NFC) technology involves the short-range wireless transmission of data to provide a mobile-to-mobile transfer of cash, for example, or to facilitate an airport check-in where the passenger’s identification and boarding pass are already loaded on a smart phone.

In addition, Indian firm United Tecsta recently created an NFC warranty tag that stays on a product for its lifetime and contains product warranty information, such as sale date, price paid, warranty length, etc. If you bring the product back to the store, the NFC-enabled RFID tag sends an SMS message to the manufacturer’s server, which automatically replies with an SMS containing warranty information. Manufacturers can also leverage the technology to keep a database of complaints and claims about a particular product or model.

But wait, there’s more. Like the nifty airport check-in application, NFC technology can be used for retail check-in services that identify exactly when an individual enters a particular store. Already, companies like Shopkick are using the technology to bridge the virtual mobile world and the physical retail world. Shopkick entices consumers to visit a store by delivering a special promotion to their phone, for example. The technology also verifies the customer’s presence once he or she is actually in the brick and mortar building.

Now the retailer knows that Sally Smith, who is interested in the big shoe sale and bought a dress last week, is back. A good salesperson would seek out Sally and personalize her shopping experience. Sally, on the other hand, could be getting updates on new styles in stock and alerts if her shoe size is available here—or at a different store location.

A savvy apparel manufacturer would accumulate data on Sally’s shopping habits and perhaps use that information to figure out how to innovate product or services in the future.

As a result of NFC, new mobile-to-mobile opportunities are upon us. The question is, how are you going to use it to your business advantage?

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