Steps 4 & 5 to Regain Manufacturing Prowess

By September 9, 2015Uncategorized

4. Construct and deploy sensible metrics The current manufacturing metrics of efficiency, keeping all machines busy all the time (utilization), and overhead absorption were developed after the stock market crash of 1929. Any manufacturing manager can tell you what products are really the most profitable. Rarely does the formal accounting system come up with the same answer. Sensible metrics must be deployed that encourage better integration of various components within the company. These metrics align resources, working capital, and activities to the company goal of being sustainably profitable. Sustainable profitability is far more important than short-term operational efficiency.

5. Learn from success Even during these very dark times there are American manufacturing companies in a variety of industries that are not only surviving but thriving. These companies stripped out the common non-sense of prevailing practices and got on with the business of providing what the customer wants, when they want it, at a price that is competitive. Take Le Tourneau Technologies – an American icon that supplied 70 percent of all Allied earth moving equipment in World War II. In more recent years, instead of falling into the trap of outsourcing a capital-intensive division of the company that made steel, the company leveraged its ability to supply this key raw material closer to home and significantly reduced the time it took to build their steel intensive product. Instead of following common practice, they protected their supply chain and were able to sell highly specialized steel on the open market for even more profit. Overall company revenues and profits skyrocketed. Similarly, Oregon Freeze Dry, the largest diversified freeze dryer in the world, recently realized a 13 times revenue increase while only increasing inventory by two times. Tube Forgings of America completely rethought its operational approach, “reduced inventory” and “increased serviceability to customers” and as a result “have been VERY successful during the recent economic crisis,” according to management. There are a number of other examples of companies who adjusted to market demands and changed their operations to better respond to the customer. Each company spent time thinking, and then they developed and implemented a unique competitive advantage supported by sensible metrics. There are many stories like this if other manufacturers are willing to listen and learn.

About Carol Ptak

Carol Ptak is currently a partner with the Demand Driven Institute, and was most recently at Pacific Lutheran University as Visiting Professor and Distinguished Executive in Residence. Previously, she was vice president and global industry executive for manufacturing and distribution industries at PeopleSoft where she developed the concept of demand driven manufacturing (DDM). Ms. Ptak is also a past president of APICS and has authored several books on MRP, ERP, Lean and Theory of Constraints (TOC).

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