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Supplying
the defense industry can be a tough job particularly for tier
two suppliers. The Department of Defense provides a fairly
long term planning horizon that is subject to change based on
who is in congress and in the White House. In the case of the
Navy, new ships are developed based on changing military
needs, fighting terrorists for instance as opposed to
ship-to-ship battles in World War II. The first ship of a new
class (a destroyer is a different class from an aircraft
carrier) are referred to as "first articles" and are
often designed and built with substantial cost over runs.
The
bigger tier one suppliers can sometimes negotiate contracts
that pass on any extra costs to the tax payer. The smaller
suppliers usually are not afforded such luxuries. They often
bear the brunt of excessive engineering, untested
manufacturing processes, and frequent design changes. Because
of this many don't survive and are either gobbled up by others
in the industry or go out of business. It's sort of like
feeding bananas to an 800 Lb. gorilla. When you run out, you
might become a banana.
The
experience of one such supplier, a manufacturer of highly
engineered cranes, doors and elevators for a variety of class
of warships, demonstrates both the challenge as well as the
opportunity for others in a similar tier one/tier two
relationship.
This
particular supplier, whose ultimate bankruptcy causes us to
leave it anonymous, suffered its fate because it overloaded
its capacity with engineer-to-order, first article work for
which it did not have the financial wherewithal to overcome
the probable cost over runs. As a classic job shop company, it
had made some unwise top line decisions to grow sales even
though it lacked the operational control and supplier support
to pull it off profitably.
The
defense industry relies on an array of small suppliers with
special skills and capabilities to provide the kind of
products that protect the sons and daughters who serve us as
members of our armed forces. Our hapless supplier had a well
earned reputation for high quality products. However, its
operational performance was sub par. In an industry that
places great emphasis on contractual dates, its delivery
performance to actual contract date was less than 20%.
The
company's project management function was ineffectual and
primarily served to buffer irate customers. As a traditional
job shop, they made and assembled almost all the 10,000 plus
parts that went into one of their cranes, doors, or elevators
using traditional MRP control systems. As a result, at any
given time the shop floor had over 5000 work orders released
to production, all for the manufacture of less than 20
products in three product families, totaling less than $20
million in annual revenues. Operational complexity was a
double whammy: their ability to be responsive was stifled and
overhead costs were increasing.
While
too late for this supplier, there are operations management
lessons to be learned from their experience. The lessons are
grouped into three categories: Predictability, Flexibility,
and Simplicity. It used to be the absence of any of these in
an operating system was able to be overcome. Now, lacking any
of the three can be problematic. Our supplier lacked all
three.
Before
we discuss the three lessons, let's re-establish the universal
operating goals of any customer-driven manufacturer.
Regardless of size, industry, or product, all manufacturers
ought to have three operating goals supporting the ultimate
goal of profitability: being a reliable supplier, being
responsive to customers' needs, and being cost effective.
Other operating goals such as quality, scrap reduction, waste
elimination, safety, or people development can be grouped into
some or all of these three main ones.
The
problem for some, including our shuttered company, is in the
execution of the efforts to achieve reliable, responsive, and
cost goals. Take a closer look at each of the lessons learned:
1.
Predictability- Despite a seemingly sophisticated material
management system using fairly up-to-date MRP tools, there was
no connection to customer delivery requirements. For all you
MRP advocates it was not the fault of the tool but in the use
of the tool. Finite scheduling won't work when there was no
real understanding of capacity or of requirements. Since
project management was disconnected from the release
commitments, the back end became a chaotic expediting frenzy
that resulted in virtually nothing being shipped on time.
Since there has to be a root cause, let's look at the second
lesson: Flexibility.
2.
Flexibility- The nature of engineer-to-order work is that
things change. If, as in this case, there is concurrent
engineering, meaning engineering on the fly, the problems of
predictability are exacerbated. Knowing this, it seems to make
sense to develop the discipline to support product and
production change while minimizing disruption. The reasons are
often varied, ranging from internal quality issues to customer
changes. In one case, half way through the construction of a
crane, it was decided that the quality needed to be beefed up
so it could operate without maintenance on the other side of a
solid steel/concrete wall (the wall being part of a vault used
to contain radioactive material and in which this crane would
be sealed in perpetuity). Such a change caused costs to
skyrocket from the disruption as well as the people tasked
with re-engineering the changes. This leads to the third
lesson learned: simplicity.
3.
Simplicity- As a college student taking operations management
courses, my instructors often talked of the manufacture of
"widgets". They sounded so simple and easy to make.
So far, I've never built a widget. In fact, some of the
products companies build are amazingly complex. But simplicity
can be engineered into any production line by the disciplined
approach to process control. Maintaining disciplined shop
floor control becomes a major contributing factor to getting
costs down, both from a direct as well as indirect
perspective.
You
can't be reliable if you're not predictable, responsive if
you're not flexible, and cost effective if you're not simple
(disciplined). For those of you who have two of the three
(predictable and simple), you're probably finding that's not
enough anymore. As customers become more demanding,
flexibility has to be part of the characteristic of every
operating system. It's why the shift in manufacturing thinking
toward flexibility challenges both "efficient mass
production" lean and job shop build-to-order.
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