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It’s no secret that low-cost competition from overseas, soaring energy prices and the continued strength of the Canadian dollar have combined to expose several weaknesses in the Canadian manufacturing sector. Companies are under the gun as never before to become more efficient and optimize production. The glory days are over and the time has come for companies to realize that they can no longer rely on layoffs alone to stop the attrition.
In 2007 alone, 132,000 Canadian workers lost their jobs in the manufacturing industry. More than double the statistics of the previous year’s 2006 total of 59,000 jobs lost.
For years, we ignored the rise of overseas competitors, and took advantage of the favourable exchange rate when exporting goods in US dollars. This resulted in a certain degree of complacency and gave little reason to address poor productivity levels.
It’s no longer just the design that matters, but more the ownership of the design’s application with respect to how it affects the entire organization. The engineering department cannot do it alone, however, and must be backed by an executive team that actively promotes continuous improvement and cost reduction initiatives from initial conception right through to finished product.
Given the new realities, companies must empower their engineering teams to take a more active role in cost reduction strategies and begin approaching their position with more of a business mindset. As stewards of design, engineers must balance quality and selling features with price, but they must also be aware of how ease of manufacturing and assembly contribute to lowering costs. That being said, companies should never endorse cost-cutting measures at the expense of quality or safety.
Instead of simply reducing prices and sacrificing margins to compete with low-cost competitors, companies should concentrate on lowering internal costs by streamlining product development, manufacturing and procurement, thereby allowing them to lower prices without sacrificing profit margins.
Every company’s goal is to speed up new product development (bring products to market faster), minimize idle time, lower production cycle times and maintain a cost efficient inventory. Process innovation and collaboration between engineering, manufacturing and procurement is essential to making this happen. Minimizing design flaws from the prototype stage, and ensuring they are fixed before moving on to full scale production is one component. Another is having a clear understanding of what those design revisions mean for both manufacturing and procurement.
One of the earliest adopters of this approach was the American Motors Corporation. After years of declining sales throughout the1970’s, AMC faced a daunting task of competing against much stronger and larger competition. In the early 1980’s, AMC came up with a process called Product Lifecyle Measurement or Management (PLM). Using PLM techniques, AMC introduced the Jeep Cherokee and later the Jeep Grand Cherokee – both credited with launching the SUV Market (Sport Utility Vehicle). The system was so successful that after AMC was purchased by Chrysler in 1987, the process was adopted throughout the corporation allowing Chrysler to become the lowest cost producer with development costs that were half the industry average at that time.
Product Lifecycle Management is an internal principle centered on product development and proper documentation of engineering changes within a common data-base. PLM is responsible for the introduction of CAD
(computer aided design) software, which allowed engineers to make immediate changes to designs. Before
the availability of CAD, these changes were extremely
costly as they were more manual and time consuming.
PLM is a company-specific philosophy and not a simple
cut and paste solution for all. The over-arching idea is
to have a system in place that ensures the continuous
reporting and measurement of all engineering changes
as well as all design and manufacturing improvements.
PLM is a continuous feedback loop. Manufacturing
reports back to engineering on production and assembly
cycle times. Engineering reports back to purchasing on
potential changes in material and parts, and the resulting impact those changes will have on current inventory.
Manufacturing and assembly cycle times are driven
largely by a product’s design. Suppliers with quick turnaround times on materials and parts are an essential
component, as they help to reduce inventory costs and
improve product to market lead times. Engineering can
play a pivotal role in both these areas by working with
purchasing and QA (quality assurance) to create a short
list of preferred suppliers and by taking an active role
in witnessing and discussing how the end product will
be manufactured and assembled.
To accomplish this, companies may use an Engineering
Change Notice (ECN) as a way to initiate and document changes. These ECNs allow engineers to change
processes and instructions for production and assembly,
review quality issues, and ultimately reduce downtime
and rejected products. They can also be used to help
ease the financial burden of unused or outdated parts in
inventory, which we showed to be extremely expensive
in our previous article, Understanding the True Cost of
Inventory. This is accomplished by documenting what
current inventory of materials and parts can still be
used prior to implementing any design revisions. Purchasing and the appropriate suppliers are then made
aware of the need to change the part on future orders.
If your supplier is using the Kan Ban Blanket Order
Hybrid agreement that was covered in the above mentioned article, then they will have materials and parts
boxed and waiting to be shipped to you. It is in your
company’s best interest to ensure design changes coincide with future inventory replenishment. You certainly
don’t want your supplier to ship parts you can’t use
and you can’t expect them to assume responsibility for
changes that render your inventory unusable.
Incorporating new parts or materials due to a design
change should never proceed without first considering
the implications to your current inventory as well as
that of your suppliers, especially if they have finished
units waiting to ship. You should also be aware of how
fast your supplier can respond to the new request initiated through your ECN. Documentation of ECNs along
the Product Lifecycle Management (PLM) principle
provides an historical reference to help avoid problems
with future product development, inventory management and manufacturing. With a history of problem
solving and cost cutting measures properly documented,
the motivation to continue reducing costs should spread
throughout your entire organization.
Purchasing should collaborate with engineering to
establish an approved vendor list. Without them, purchasing is left with few sources of supply and almost
no competing criteria with which to base their buying
decisions. Price alone should never be the single deciding factor in a purchasing decision. It goes without saying that quality, service, technical ability, and overall responsiveness are equally important.
Engineers today must be encouraged to work closer
with purchasing to identify those suppliers who bring
more to the table than price alone. Identifying suppliers whose price is competitive, but whose products also allow for ease of assembly and low cycle times in
production, will result in significant savings. Identifying
suppliers that are willing to invest the time to become
an active partner in solving design flaws are also an
invaluable resource within PLM systems. The goal here
is to foster strategic partnerships with suppliers who
understand all aspects of your business and who are
willing and able to provide solutions.
Purchasing must also understand that those suppliers who put in the work up front to provide cost effective solutions should never be sacrificed to get lower
pricing versus other supplier bids. Price shopping is
entirely different from price negotiation. Competitive
bids are essential when making purchasing decisions,
and serve to keep current suppliers’ pricing in line and
competitive. Having more than one point of reference on
pricing is a must. However, why reward a supplier who
is unwilling to do the homework and punish those who
do? Would you rather deal with the one who can simply
match pricing once the bar has been raised, or the one
who goes above and beyond price and offers added value
with an entire solution?
Alienating a supplier who provides the entire solution
in favour of one who is willing to undercut their price,
will eventually force the full service supplier to abandon pursuit. In the end, it will only hurt your company,
since a valuable supplier who can help mitigate your
risk of production problems is much harder to replace
than one who views sales as a simple transaction. Vendors who are actively involved in lowering production
cycle times are always preferred over any lower priced,
transactional supplier who could be here today and
“It is unwise to pay too much, but it is worse to pay
too little; you sometimes lose everything because the
thing you bought was incapable of doing the thing it
was bought to do. The common law of business balance
prohibits paying a little and getting a lot on a consistent
basis; it can’t be done. If you deal with the lowest bidder,
it is well to add something for the additional risk you run
for things going bad. And if you do that, you will have
enough to pay for something better in the first place”
-John Ruskin (1819-1900)
Writer and lecturer on social and political economy
Engineers who are only concerned about design can
sometimes be perceived as being indifferent to the overall needs of the company. Meanwhile, engineers who
take full ownership of their designs and work alongside
manufacturing and procurement can be seen as being
meddlesome, since they involve themselves in areas
that some co-workers may feel is not their responsibility. It is these engineers, however, who are essential to
success given the reality facing Canadian manufacturers. Executives must recognize engineering’s role in
helping to reduce costs and improve productivity.
The key is for engineering, purchasing, quality and
production to work in unison with one another. This
continuous support and documentation helps new
product development, eliminates issues in manufacturing, and takes into account the impact on inventory.
Other benefits can include quicker development times,
lower manufacturing costs, reduced downtime and more
importantly improved cohesiveness and responsiveness
among all departments.
Eric Leclair is co-founder and President of Vicone High Performance Rubber. With over 15 years of management experience in the rubber industry, his expertise ranges from product design, supply chain management and logistics, to lean manufacturing. firstname.lastname@example.org Copyright 2005.