Dec 9, 2012 | Branding, Change, Lean, Operations
Tim Cook, the Apple CEO has just come out and announced that Apple will restart manufacturing in the US, starting with an unnamed Mac computer model, some time in the near future.
The driver of “offshoring” to sources of cheap labour to escape the high manufacturing labour costs in developed countries, has been a convenient excuse for a lack of ideas by the management of many companies. Virtually all the manufacturing businesses I interact with have an operational labour cost of substantially less that 20% of total BOM and operational logistics costs, so why not work on the other 80%? Often I suspect because it is easier to join the herd charging towards China than do the hard yards on their own business model.
“Outsource the manufacturing, and let the capacity utilisation be someone else’s problem”. Clearly this happened in Apple’s case, as the business tanked in the late eighties, cost cutting led to the closure of factories, and outsourcing of manufacturing and key parts of the technical design, remained the model through the revival led by the ipod, iphone, ipad, and siblings.
However, the competition has now caught up, and volumes are not growing the way they were. Apple may be hugely profitable, but as they no longer ship the volumes, capacity utilisation in their supply chain must now have swung away from over utilised to underutilised in a very short space of time. Android is rapidly becoming the OS of choice in both phones and tablets as Apples share drops, so the Apple profit bubble must be getting a bit fragile.
It is significant (I think) that Samsung is a major supplier to Apple, what a competitive advantage they have been handed by foreknowledge of component specifications, and delivery dates, and now the supplier has become the major competitor, competing on the ground they are in a position to choose.
This boom/bust cycle of manufacturing volumes imposes huge costs on the supply chain. Having too much capacity and carrying the unrecovered overheads is as bad having too little, and chasing output targets that end up in carrying high logistics and operational costs while compromising quality. Weather this is owned capacity, or outsourced, it remains a part of the supply chain, and somebody is paying for it, generally the consumer who has little motivation to pay for stuff that does not add value.
Perhaps I am a cynic, certainly I have no insight into the workings of Apple, but the move to announce the re-opening of manufacturing in the US without any detail at all sounds a bit “iffy” to me, perhaps a PR gesture to deflect some of the odium from the ongoing saga of Foxconn. Just put the word Foxconn into the search engine of a media outlet, this one Huffington Post, and you get over 6000 articles in response, and not one is doing the Apple brand any good at all.
Too little too late, or the beginning of another swing in the cycle?
Dec 6, 2012 | Lean
There are three types of activity in any business, from the small one man service operators to BHP.
- Doing all the things that generate revenue, today, tomorrow, and into the future,
- Doing the necessary things that support the generation of revenue,
- All the other crap that takes time, costs money, and does not add any value to anyone, just costs.
Every person in business should be maximising 1, ensuring that the time and resources spend on 2 are as productive as possible, and eliminating 3.
I had a carpenter at my home a while ago, building a deck. Watching him prepare a joist, I noticed the rule of three operating.
- Cutting the joist was adding value, and ultimately what I was paying him for
- Setting up his drop saw, organising to feed in the timber to be cut, measuring the wood for the cut point, and a few other things were necessary in order to cut the timber accurately.
- The walking back and forward to his van to bring in things he had forgotten, looking for his pencil, then leaving it in an inappropriate spot, and a whole lot of other stuff, was waste.
- It took 10 seconds to cut the wood, probably 3 minutes to do all the necessary stuff, and another 15 minutes to do all the unnecessary stuffing around. For a 10 second cut, I paid for just over 18 minutes, of which 15 minutes was waste.
The rule of three at work.
Nov 20, 2012 | Lean, Management, Operations
Have you ever calculated yours?
It is a pretty simple performance measure that carries a lot of weight, and contains the seeds of success, and destruction. In addition, if you know your industry well, it is pretty easily calculated for competitors, so acts as a useful competitive benchmark.
Break your P&L up into a few categories:
Ingredients
Direct labour
Administrative Overheads,
Divide the results by sales, and you have the value adding ratio. Just ask your customers what parts of your cost base they are happy to pay for to get the product they buy, unlikely many will answer with a positive to the fancy headquarters building, the boss’s new car, or the off-site strategy meeting at the Casino in Hobart.
To be fair, there are many costs that are necessary, but do not necessarily add the value that consumers are happy to pay for at the supermarket. Things like R&D spending, market research, IT expenditure, freight costs, and many others fall into these categories, but a debate about how they can be reduced, and how the productivity of the expenditure can be increased, is extremely valuable to have.
Pretty basic management stuff, but so easy to ignore. It is also very easy to produce an infographic that everyone can buy into, by simply breaking up a picture of the end product into its percentage categories. This has an enormous visual engagement value for anyone embarking on a Lean initiative.
Oct 18, 2012 | Lean, Management, Operations
Of all the resources we have, time is truly the only one where there is no chance of technology making it replaceable or renewable. We all know that, so why do we continue to waste it so indiscriminately?
Seems to me the answer is that we cannot see it messing up the floor, count it as it comes back as rework, or feel as engaged as when something tangible disappears before our eyes. The passing of time is usually only noted in the past tense.
It makes sense therefore to manage time obsessively, simply because it is so hard to do so, and if it was easy, everyone would be doing it. This simple observation implies that time management may be the source of real advantage.
If you just take inventory for instance.
Inventory and WIP is a tangible measure of the time you have to pay somebody for the failure in your demand forecasting, and extended process times. If there is any truth at all in the cliché, “if you cannot measure it, you cannot manage it” then the greatest opportunity for improvement in most operations I have seen is in measuring, and as a result improving, the productivity of time that has already been paid for.
Jul 5, 2012 | Lean, Management, Marketing, Social Media
It has always been so.
The father of the modern manufacturing revolution, W. Edwards Deeming probably said it first in a management setting, that led to lean, the TPS, 6 sigma, and a host of management articles, cliches, and learned papers, but it has been said before, in many ways. It is also a core component of the Balanced Scorecard.
Measuring advertising has always presented a challenge, throw an ad schedule on the box, and hope it works, has been the dominant method for many years.
Now we have the net , and a whole new set of measurement possibilities across websites and social media platforms. Like anything, simplicity is the gold standard, finding a few measures that get to the heart of the performance is a real challenge for management, as differing measures for differing platforms, differing markets, and platform/market/interest dynamics are always required, there is no pro forma to be used here.
Avinash Kaushik‘s great blog Occum’s Razor concentrates on measurement of digital performance, this entry on the measurement of social media, which should engage the minds of all marketers.
Jun 5, 2012 | Change, Lean, Management, OE, Operations
Robust, repeatable, and easily taught processes are the foundation of good outcomes. It therefore makes sense to consider the factors that separate good processes from poor ones, the effective from the ineffective.
The measure of the process has two parameters:
-
- Repeatability. The outcome is repeatable, it has become the way things are done, so has an element of “automatic” about it.
- Agility. In apparent contradiction to the above, effective processes must also be sufficiently agile to accommodate the short term stuff that just happens, and flexible so that they can evolve to continue to deliver optimum results in response to the changes in the environment in which they operate.
Over 35 years of participating, observing and analysing processes, there appears to me to be a small number of enablers that drive effective processes. The weighting of these factors is different from situation to situation, but all are evident to some extent in every successful location.
- Deliberate Design. Successful processes are the outcome of a deliberate design. Sometimes the design comes after a process has evolved, and it is modified and optimised post birth, other times, the design is a deliberate response to a situation that requires a process.
- Infrastructure support. Processes do not survive in a vacuum, so the organisational and operational infrastructure, and the culture of the organisation play a significant role in their success. Without any of these three infrastructure foundations, a process will become sub-optimal.
- There is an “owner”. This is just another way of saying that someone in the organization takes specific responsibility for the effective management and support of the process. The more important the process, the more senior the process owner should be. In almost every situation, a process adds to other broader processes, and each component should have its own owner. Eg. An inventory management process has many sub-processes, from the documentation of deliveries to the appropriate allocation of purchase order numbers and general ledger postings. The “Inventory Management” process may be owned by the CFO, but the supporting components will be owned by others at the more operational levels.
- Process metrics are in place. The old saying, “you get what you measure” is accurate, without performance measurement against current criteria, as well as some that may reflect how the organisation expects the process to evolve, it will solidify at sub optimum performance levels.
- Process improvement. Continuous improvement of processes is a feature of successful businesses, the environment in which businesses operate is subject to ongoing change, and therefore the enabling processes need to evolve to best reflect the environment. In an apparent paradox, improvement is really only possible in a situation of stability. To improve a process you need to be able to identify the impact of a change in the process on the outcome, and you can only do that when the impact of all the existing variables are known.
