12 May 2011

Warnings for SMEs Seeking Manufacturing “Solutions”

Many small to mid-sized manufacturing enterprises (SMEs) come to us seeking manufacturing software. Not infrequently, when asked about their goals in applying manufacturing software, executives in the firms are seeking “to get a better handle on manufacturing costs,” or something similar.

Two warnings

In such circumstances we offer a two-fold warning: First, we tell them, if you implement software to support your manufacturing operations, it will be capable of producing mountains of reports. Enough raw data is collected by advanced manufacturing solutions to bury the typical SME in reports—reports that they don’t have today and, to a great extent, they will never have time to thoroughly analyze when they become available to them.

Second, we warn them—and this is the critical warning—when you start getting reports and data coming out of your manufacturing software, you are going to start believing what is on the reports!

And, “What’s wrong with that?” we hear you ask.

Where does it all start?

Well, to understand that warning, we have to take a step back to look at what goes into “bootstrapping” a manufacturing solution in an SME. Here is a short list of some of the data elements:

1. Routings/Bills of Materials

1.1. Quantity per Cycle

1.2. Economic Cycle Quantity

1.3. Materials

1.3.1. Quantity Required per Production Unit (including waste)

1.4. Labor

1.4.1. Move Time

1.4.2. Queue Time

1.4.3. Setup Time

1.4.4. Re-Setup Time

1.4.5. Quantity per Reset

1.4.6. Scrap Quantity / Scrap Rate

1.4.7. Production Effective Rate

1.5. Material Requirements Planning (MRP) by Routing

1.5.1. Planning Window Size

1.5.2. Planning Batch Size

1.5.3. Planning Maximum Quantity

1.5.4. Planning Minimum Quantity

1.5.5. Planning Percent Over

2. Operational Parameters

2.1. Work Schedules

2.1.1. Holiday Schedules

2.1.2. Planned Downtime Schedules

2.1.3. Planned Maintenance Schedules

2.2. Work Centers

2.2.1. Fixed Overhead (Allocation) Rates (dollars) Run-time Rates Setup Time Rates

2.2.2. Production Cost Rates (dollars) Run-time Rates Setup Time Rates

3. Material Requirements Planning (MRP) Parameters

3.1. Days in Planning Period

3.2. Planning Fence Days


That short-list includes more than 20 parameters, the majority of which will have some affect how the system calculates the firm’s “cost of manufacturing” for any given item in its SKU-list. Not only so but, if the SME implements SFC (Shop Floor Control) to capture so-called “actual” production time, the system will calculate new costs based on the variations in actual production times—and they will vary—adding to the confusion over what is profitable and what is not.

Beginning with guesses

Most SMEs interested in implementing manufacturing software will have (quite literally) no idea what values should be used for a great many of the parameters their new manufacturing software will require from them. And, with limited time to get the system implemented, they will be forced to make guesses and use these values for their parameters. The biggest of all the guesses—by our experience—will be in the dollar-amounts assigned to the various Work Centers for the costs of production and overhead allocations.

Now, consider this: Let us assume that a firm has 3,000 manufactured SKUs (Routings with five factors affecting cost on each Routing) running through eight Work Centers (each with 4 factors affecting cost). That works out to be:

3,000 Routings * 5 factors/Routing * 8 Work Centers * 4 factors/Work Center = 480,000

Such an SME has nearly half-a-million combinations of variables from the manufacturing system alone affecting reports that will be used by management to try to guide the firm to greater profitability. Now, consider that a good many of the factors involved—and now buried deeply in the processing—were guesses to begin with, and you may begin to see why we offer the warnings: the manufacturing software will produce lots of data and reports and—what is worse—management will believe the reports!

What is an SME to do then?

The sheer complexity of the problem means that an SME must be careful not to invest poorly in their manufacturing solution. Very expensive manufacturing software that is poorly implemented is probably more damaging to the SME than less expensive software that is properly implemented and practically applied.

Where should an SME look to find the skills?

Some SMEs seek to hire employees who have had previous experience at other firms in working with or implementing manufacturing software. At times this works out. However, there are two potential dangers in taking this approach. The first is that the employee comes to the new SME with the intention of implementing exactly the same software he had at his old employer’s firm and he or she intends to implement it in exactly the same way it was implemented at the other firm.

This is dangerous because no one knows for sure whether the other firm’s software is the right fit for the new SME’s deployment and, worse, no one knows if the previous firm’s implementation was done properly and effectively.

The second danger in taking this approach is that the employee is likely to bring with him or her preconceptions about how manufacturing or other business processes work together with the manufacturing solution. However, the new SME’s business processes and manufacturing flows may be significantly—or wholly—different from the other firm’s processes. The preconceptions may be entirely out of place in the new manufacturing environment.

The right implementation partner

Everything we have discussed up to this point emphasizes the importance to the SME of finding the right implementation partner for the manufacturing solution.

What should a good manufacturing solution partner look like?

It is rightly said that no consulting organization will ever understand the SME’s business as well as the folks in the SME organization itself do. It is also clear that it is highly unlikely that any business enterprise will ever come understand the software it uses as well as the consulting organizations that specialize in its application across multiple enterprises. So, the best implementation partner for any SMEs manufacturing solution should meet the following qualifications:

Able to unlock “tribal knowledge”

New manufacturing software will not help you:

clip_image001 Create new manufacturing capacity

clip_image001[1] Sell more products

clip_image001[2] Reduce inventories

clip_image001[3] Ship more orders on-time

clip_image001[4] Increase customer satisfaction levels

However, an implementation partner with the skills and experience necessary to unlock what your people know—the “tribal knowledge” carried about in the heads of your employees and managers who get things done day-after-day despite the difficulties—is one who may also be able to help you do all of these things while implementing your new manufacturing solution.

Unlocking “tribal knowledge” requires tools and skills built through years of experience. It requires a deep and thorough understanding of businesses from customer acquisition to cash collections and financial reporting. Any “implementation specialist” that only looks at—or only has the skills to see—what’s happening on the manufacturing floor may implement the software but will not help your firm reap the most return for your investment.

Able to reduce complex problems to simple solutions

The more complex a problem appears to be, the simpler the solution must be if it is to be manageable, reliable and sustainable. Consider the following simple illustration of two systems:

FIG Simple-Complex Systems

Many executives, managers and consultants view their organizations much like “System 1.” They see A, B, C, D and E as just so many departments and functions, each to be considered, managed and optimized separately. This leads to “complex” solutions that frequently do not produce predictable—or even, desirable—results. The solution must be “complex,” because the system appears to be complex. In order to affect areas A through E, we must touch each of these areas individually.

However, through the process of unlocking “tribal knowledge,” it is possible to get a view of an organization that looks like “System 2.” Now we find a “simple” solution. We understand that if we affect just function A in a certain way, doing so will a predictable affect on all of the other areas. We have, thus, reduced apparent complexity to find a simple, yet elegant, solution.

Able to help your organization “design” its own solution

Something you won’t hear from too many software resellers is this truth: the software is not “the solution.” The solution is to be found in the context of your SME organization. The solution is the blending of people, technology and processes with a holistic view of what it will take to help your organization make more money tomorrow than it is making today.

Getting to that end does not mean—as some software resellers would like you to believe—simply “buying the right software” and “implementing” what you bought. Rather, it means getting the whole organization involved in creating a new “solution” by reshaping the way people see and believe in the operation of the whole enterprise—and, in particular, their role in that “big picture.” We believe it is essential for your organization to be involved in creating the solutioncreating the blend of people, processes and technologies—because in guiding them in the creation of the solution, we are automatically helping them create success.

Success becomes virtually automatic result because people don’t fight against their own invention. They may fight against what is thrust upon them from management on-high, but they will never struggle against nor undermine the solution that is the invention of their own thought processes.

Don’t put the emphasis in the wrong place

Far too many SMEs considering the purchase and implementation of manufacturing software spend some 90 percent of their efforts in what they call “software selection,” and then end up taking whatever consulting firm comes along with the software. We believe this is a wrong-headed approach and has led to many of the horror stories with which the ERP (enterprise resource planning) software industry is rife.

Remember these three critical aspects necessary for a manufacturing implementation with high return-on-investment:

clip_image001[5] The ability to unlock “tribal knowledge”

clip_image001[6] The ability to reduce complex problems to simple solutions

clip_image001[7] The ability to help your organization “design” its own solution

If the software reseller cannot bring to your SME firm these three critical elements, perhaps you should look elsewhere.

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