At the 4th annual Manufacturing First Conference & Expo in Green Bay, Rajan Suri of UW-Madison and Nicolet Plastics president Bob MacIntosh will present a case for quick-response manufacturing. Suri, emeritus professor of industrial engineering and founding director of the Center for Quick-Response Manufacturing, or QRM, discussed ways that manufacturers can benefit by reducing lead time in production, the main issue solved by QRM, with Insight Associate Editor Nikki Kallio. Suri is the author of “It’s About Time – The Competitive Advantage of Quick Response Manufacturing.” Manufacturing First will be Wednesday, Oct. 22 at the KI Convention Center in Green Bay.
Q. What are some of the ways manufacturers waste production lead time?
A. We’re dealing with 100 years of cost-based thinking, which came from the age of Henry Ford, who had his first moving assembly line in 1913. Many of the other pioneers of the Industrial Revolution showed us how to make a lot of products cheaper and cheaper. In today’s world, we’re really looking at individualized products, high mix, a lot of variety, and a lot of custom options. Cost-based thinking makes you want to minimize your resources, so all your machines and people are running at 100 percent capacity. But when you have that, you have long queues building up everywhere. If you invest in extra capacity, even though it costs you money, you get a lot more back from the reduction in all the other things that you have to do.
For example, a company called Alexandria Industries (Alexandria, Minn.) actually plans for 25 percent excess capacity, and most people would say, ‘That’s crazy, how can you make money if you’ve got a $10 million machine that’s idle 25 percent of the time?’ In fact, they’re making more money now because of their fast response and their ability to take a lot of costs out of their entire business.
Q.What are some of those other costs that companies incur?
A. When you have long lead times, you need to do a lot of planning and scheduling and forecasting. And then you re-plan and reschedule and reforecast because you’re planning out three to six months. You have warehouses full of inventory, and then you have products that become obsolete, customers that change their minds, and you have to make engineering changes. So you have layer upon layer of costs that companies start to incur because of their long lead times. Phoenix Products in Milwaukee used to have production meetings several times a week because of all the things that needed to be changed. After implementing QRM, they were able to eliminate these meetings. If you think of a meeting with 15 to 20 people for an hour in the room, that’s 2.5 days of time. If you meet three or four times a week, you raise it to 10 days of meeting time. That’s all costs that you can apply more productively elsewhere.
Q. Why haven’t companies recognized the impact of lead time?
A. Because a lot of this is not easy to quantify. How do you quantify the amount of time people spend in meetings and expediting and so on? With the current cost-based system, a lot of those costs go into overhead. We track labor costs, and we track material costs. Our current metrics don’t do a good job of tracking costs back to the root cause of lead time.
People are so worried about labor costs, but if you look at the lead time for a typical product, it’s only being worked on 1 to 5 percent of the time. We are so worried about labor costs and its impact and so on, and we are really missing the big picture.
Q. Are QRM principles the same for small and large manufacturers, and companies that make, for instance, high-tech vs. industrial equipment?
A. The principles are pretty much the same, but QRM really focuses on low volume, high mix and custom productions. So if you’re an automotive supplier and you’re making a million spark plugs or something, then you don’t need the QRM methods. But if you’re really doing a low volume/high mix, like (Mountain-based) Nicolet Plastics is doing, then QRM does work. We have companies that make small plastic parts all the way up to those that make oil drilling equipment, huge rigs that are on offshore platforms – and anything in between.
Q. Why is it more important now for American companies to make this shift to QRM practices?
A. First of all, the world is changing. Everybody wants an individualized product. The second is if you look at competition from low-cost countries that have low labor costs, we have a huge advantage because there are three to six months of lead time in shipping products from those countries. If I could make a custom pump in a few weeks, then I’ve really got a competitive edge. The last thing is, it turns out that labor costs are only 5 to 7 percent of what a customer pays for when they buy a product. Let’s say you’re a manufacturer and you pay $1,000 for an aircraft component – chances are only $50 went to some guy on the shop floor who was doing the machining. A lot of that other $950 is related to lead time.
Q. What do you hope to convey to New North companies at the Manufacturing First conference?
A. Companies here in the Midwest that have really truly adopted a mindset change and have said “Yes, we’re going to find a new way of running a business,” have achieved some truly amazing results. We’re not talking about 5 or 10 percent. Companies in the Midwest, other small- and medium-sized companies have achieved some pretty amazing results, and what it requires is a willingness to step back and open your mind to new ways of thinking about how to run your manufacturing business.