This section examines the requirements for establishing effective manufacturing operations and supply chains.
The increasing importance of Logistics
These are becoming increasingly important as more companies focus on their core competences and reduce in-house manufacturing capacity. Many companies are extending their supply chains to take advantage of low-cost labour economies for the manufacture of components. This allows them to achieve significant cost savings and make their products globally competitive. However, when calculating the manufacturing costs all aspects (shipping, the cost of quality, stocks, acquisition costs and such) have to be taken not just the piece-part price.
The approach to in-house manufacturing capabilities has changed considerably over the past few years with many businesses now focusing on final assembly operations and, in some instances, outsourcing manufacturing completely. However, logistics and resource efficiency, through the management of complex manufacturing operations and supply chains, remain critical processes for most businesses. Some companies have suffered the consequences of long supply chains and have re-assessed the benefits derived from manufacturing their own core components and re-established local in-house facilities.
Supply chains are vitally important. They link raw materials suppliers through component manufacturers, to assemblers and then, through various distribution channels, to the final customer. The stages through which the raw materials pass are responsible for adding value and making the products that generate the cash needed to run the business and hence, create wealth.
If you want to build a successful supply chain for your business, you will need to answer the following questions:
· Which components will your company make in house, which manufacturing processes will be performed on site and where will you source the remaining items you plan to buy in?
- How will your company design and implement in-house manufacturing facilities to incorporate and demonstrate established best practices?
- What training is required to ensure that everyone in your organisation is able to take responsibility for delivering good quality products on time?
- What actions does your company need to take in order to assess, select, confirm and regularly reassess the capability of local and international suppliers?
- What production planning and control systems do you need in order to manage supply chains, reduce lead times and ensure good quality products and services are delivered on time to customers?
- What continuous improvement initiatives must be introduced in your company to shorten lead times, reduce the cost of quality, improve the process capability of equipment and remove all forms of waste from internal manufacturing processes and supply chains?
- How can you ensure that your supply chain is structured and resourced so that it can accommodate changes to product mix and production volumes in order to take full advantage of potential sales opportunities?
- How does your company provide a safe, clean environment that is compliant with all national and international legislation for its workforce?
In Europe, the term ‘logistics’ has been adopted to mean; the management of manufacturing operations and supply chain activities.
The information collected from companies which perform well in manufacturing regard the management of logistics as an important, senior position in the organisation, reporting directly to the managing director. Logistics activities typically account for the majority of the expenditure of a business. Logistics has a direct impact on the company profits and cash flow in your supply chain from the end customers back to the supplier base.
Some computer-based tools are becoming available for managing integrated supply chains, ensuring that relevant information is readily accessible to all interested parties. The management of data, together with its accuracy, however, remains crucial issues for the effectiveness and value of these systems.
Make vs Buy
The make versus buy decision can be one of the most crucial made by a company. It should be taken by the senior managers responsible for the long term viability of the business. This is because it is a strategic decision which can have a far-reaching impact on the future of your company. Once a company decided an item is to be outsourced, the associated technical and commercial knowledge also tends to be lost by that company. This is a major concern as many businesses appear to be sourcing core components into low-cost labour areas, based solely on obtaining a lower piece-part price.
A more long-sighted approach would be to consider which items your company needs to retain in-house in order to protect the intellectual property and grow the core competences. You can then use the total cost of ownership as the basis for deciding where to outsource non-strategic parts.
The increasing trend toward outsourcing manufacturing activities has changed the role of purchasing and the way in which suppliers are identified, selected and managed. Many companies are so attracted by lower costs, they have failed to take into account the increased complexity of controlling the quality and delivery performance of these, apparently, lower-cost sources.
Many of the MX Award winners have, in fact, demonstrated that direct labour is a relatively small percentage (typically less than 10%) of the overall product cost. These well-managedmanufacturing operations manage to operate successfully and remain financially viable while based in the UK and Germany.
With the increase in outsourcing, companies obviously become less vertically integrated. The management of supply chains has, therefore, become a much more significant aspect of manufacturing. The increasing need to work with low inventories to reduce the cash needed to run the business has further raised the importance of many industrial supply chains. Several different approaches have been taken to accommodate this change:
· Embracing the power of the internet to share information
· Using third party providers for the movement of goods
· Employing specialist logistics companies for managing supply chains and sourcing commodity items.
Though many companies are still learning how to exploit these alternative services, they are becoming established across an increasing number of industries particularly for sourcing spare parts and commodity items.
Internal Manufacturing Operations
Internal manufacturing operations remain at the heart of many excellent businesses and are responsible for managing the key activities that govern:
· How products are designed for manufacture
· The retention of core manufacturing competencies
· The sourcing of materials and components
· The design and layout of internal production facilities
· Investment in modern plant and equipment
· The process capability of equipment and measuring systems
· Customer scheduling and production planning
· The control of materials and work in progress
· The flow of materials from suppliers, within the factory and to customers
· The quality of the products delivered to customers
· The delivery of items on time and in full to customers
· The cost of manufactured goods
· The selection and training of people
· The introduction of continual improvements and cost reductions
· The elimination of waste
· The health and safety of the workforce
· The environmental impact of manufacturing processes
The expert design and layout of in-house production facilities remains a neglected area. Many businesses consider the selection and installation of equipment to be the major task. A more long-sighted approach to the design of manufacturing operations, however, would be to consider what aspects of your products and services are important to your customers and design facilities to meet these criteria. This can result in more flexible supply chain operations where people work as a team, undertaking a wider range of tasks.
The layout of equipment should be focussed upon:
· maintaining a consistent flow of materials
· minimising the amount of material in process to free up money
· keeping production very visible for easier management
· the ability to quickly change production to accommodate a different mix and volumes of your defined product ranges.
Planning and Control Systems
Your facilities will need to be supported by appropriate production planning and control systems. Computer-based systems are useful for planning overall schedules and establishing the material requirements plan, but often fail when used for controlling the movement of materials through the factory and generating work-centre loadings.
The optimum approach can be to use a combination of techniques for managing key processes, for instance:
· use computer based systems for overall planning
· use simple, visual techniques, such as Kanbans (where appropriate), for control
· obtain low value commodity items in pre-determined quantities (based on lead-times) using an automatic replenishment system and remove them from the materials requirements plan.
The main aim is to shorten manufacturing lead times to reduce stocks and the cash needed to run your business.
Health and Safety
All of the MX winners reported that they consider the health and safety of their workforce to be paramount. They will not, under any circumstances, compromise this.
To achieve an excellent health and safety record you will need to consider the following:
· Develop well documented procedures for determining the levels of risk
· Undertake routine risk assessments and implement all necessary corrective actions as rapidly as possible irrespective of the cost
· Ensure that actions are taken to minimise the likelihood of potentially dangerous incidents and accidents
· Report potentially dangerous incidents and accidents at the highest level in your company.
· Prevent accidents by ensuring that your factory is a clean, safe place to work
· Make significant investments in controlling:
o waste materials
o dust and such, to create an environmentally acceptable and sustainable manufacturing facility.
Japanese Manufacturing Techniques
Good manufacturing practices that were pioneered by the Japanese automotive industry in the 1970’s are now accepted as being of benefit to a wide range of industries. The most widely recognised is “Lean Manufacturing” which was originally developed by the Toyota Motor Company. This technique is aimed at eliminating all forms of waste from manufacturing, but its champions are advocating a wider remit than was initially intended.
Most of the manufacturing techniques:
· Total Productive Maintenance
· Rapid machine changeovers, or SMED (single minute exchange of dies)
· Elimination of bottlenecks
· Just in time manufacturing
· The introduction of Kanbans
· Statistical Process Control (SPC) including process capability
The aim is to make the manufacturing process more predictable and components able to consistently meet specification, resulting in higher quality products that will be delivered on time.
Manufacturing operations remain a key aspect of most companies entering the MX Awards. In the past, industries and nations have become rich based upon strong manufacturing operations. The ability to effectively process materials and make them increase in value has been the foundation of wealth generation since the industrial revolution. The premise that people can create world class products without investing in both product and manufacturing technologies remains questionable, but in any event it is manufacturing, as is currently being demonstrated by the Chinese, that creates the economic wealth. Low cost labour undoubtedly provides a competitive advantage but this still represents a relatively low proportion of the overall product costs.
If the UK continues to retreat from taking ownership and responsibility for making the things people need and want to buy, we are in danger of losing our ability to sustain our wealth-creating capability.