Archive for September, 2008

Keeping a Watchful Eye on your Project Gauges

September 29, 2008 by Roger

Previously in my career I worked as a Project Manager for a large project-based business.  Our product was amusement rides, and we had the tallest, fastest and coolest roller coasters on the planet!  Each of these projects were multi-million dollar in value, and they would generally last between 8 and 18 months from concept to installation.  These projects also were often on the cutting edge of technology, as we were constantly trying to find the proverbial ‘edge of the envelope’ for speed, g-forces and general panic-inducing thrills for the paying customers.  As you can probably imagine, projects of this size and nature were a nightmare for a project manager.  You had to keep the customer happy, the team on task, the project on schedule, and the budget under control. 

That last issue was never an easy task!  Customers in search of the perfect cool ride combined with engineers in search of the ultimate cool features constantly intersected with ever-fluctuating material costs.  to make this messy situation that much worse, you never knew how financially successful your project was until months after it was wrapped up and complete.  The bean-counters would huddle up, crunch all the numbers, allocate your overhead, and then see if you had any cash left over to throw into the profit bucket.  This all equated to ulcers for the project manager, constant worry by the finance gurus, and a general lack of the feeling of “being in control” of these nasty monster projects.  Once, when a particularly discouraging project had just concluded, I remember telling a colleague something like this:  “man I don’t manage these projects…I just get dragged along for the harrowing ride!”  All roller coaster puns aside, it was a pretty helpless feeling at times; and the fact that the financial tracking was so far behind the manufacturing and construction of the rides meant that budget-driven course corrections were almost non-existent.  You had to just spend whatever it took to get to the finish line, and then hope you had something leftover at the end to dump into that profit bucket.

Fast forward to today, here at Setpoint I have many of the same challenges that I did at the roller coaster factory: gray scope of work, customers clamoring for more, engineers looking for the best, etc.  But guess what?  I now have a saving grace.  What could THAT possibly be, you say?  Well I’m glad you asked, it’s gauges my friend!  If you can visualize the project as an airplane, and the project manager as the pilot, it’s easy to see that this aircraft desperately needs some gauges!  Big fancy gauges to measure the projects metaphorical airspeed, altitude and direction.  Without constant real-time feedback on those critical navigational parameters, this plane is gonna be in trouble; it’s just a matter of time, and we’re talking “auger into the side of a mountain” trouble!

So, what are these magical project gauges?  For our business, they are the priceless project whiteboards that we update meticulously and review weekly with our entire company on Monday afternoons.  These boards are a key component of the Open Book Management philosophy that Joe has described in the excellent blog previous to this one.  Here at Setpoint, we love Open Book, we live Open Book.  Each project has a line on the board that details the ongoing project revenue, material costs (both actual and projected), labor hours invested, project gross-profit per hour (both for each week and cumulatively for the life of the project), and forecasted versus actual completion percentages of the project.

Every Monday afternoon we gather our entire company around these boards and the project manager briefly explains to everyone where each project stands on the critical and often brutal scope-schedule-budget trifecta.  This can, on occasion, be a very painful experience for the project manager, as his words are sometimes a forewarning of pending financial impact to the project, which translates directly to bonus money slipping right out of everyone’s pockets.  Obviously, that’s never a fun conversation to have with folds.  However painful this early warning system may be in that respect, it’s MUCH BETTER than just waiting until it’s over to see how your profit score turns out.  Why?  Because once we identify a problem early on we can make course corrections to try and minimize or eliminate the negative financial and/or schedule impacts.

Invariable, when an issue like this comes up in our Monday huddle, it’s always followed by a company-wide discussion/brainstorm session that more often than not presents viable solutions to the problem.  The bonus checks are saved, the project gets what it needs, the project manager is taken off suicide-watch, and the team camaraderie is ratcheted up a few notches on those days.  It’s really quite a wonderful sight to behold.  Our examples of successful mid-course corrections are many, and the ability to do those sorts of things makes life reasonably bearable for a harried project manager.  Instead of feeling like he has to solely carry the burden of the problem, he knows that the whole company will be right behind him to help grab the wheel, pull back on the stick and keep our airplane from auguring into that upcoming mountainside.  In comparison to the old days at the roller coaster factory, the best we could do there was when someone came along months after the crash and said something to the effect of “Hey did you know that you were flying too low when you hit that mountain?”  Well DUH!  Where was that nugget of knowledge 6 months ago!?!?!?!?!?

What are your project gauges?  Can you tell when the mountain is coming at you, or are you destined to know of the crash only when you’re picking up the pieces of the aftermath?  Get yourselves some gauges kiddies, today, or sooner for that matter, and watch them closely.  Keep that nice shiny project-plane in the air where it belongs!  And what do you call a non-airborne project-plane?  A scrap pile!  Please, stay off the pile if you can.  Your sanity will thank you for your efforts, I promise.

Keep your eyes on those project gauges folks!!!

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Open Book Management at Setpoint

September 22, 2008 by Joe Knight

Setpoint Systems, Inc. is an open book company, which means we open our books to our employees.  Every Monday at 1:00 pm we gather together to see how the prior week went financially.  It’s been that way at Setpoint pretty much from the beginnings of the company in 1992.

After arguing with their CPA and trying to understand QuickBooks, the founding Joe’s became confused and were looking for help.  I was working as a financial consultant after starting my career at Ford.  Joe Cornwell called me and asked if I could help him with his challenges in finance.  I remember Joe bringing me into Setpoint Systems which at the time had 5 employees, the two Joe’s and three others.  It was in the evening and it was just me and him.  He said “why do you finance guys have to make this so hard?”  He then went to the white board and said this is all that matters.  Then he wrote the following on the white board:

– Stuff to Buy
Aggregate Remainder

I told Joe C. that in finance we called aggregate remainder gross profit.  Joe told me that it is so great you finance guys have a name for that number because that is an important number in business.  So instantly I became the gross profit expert for Setpoint.  Later I would become a co-owner and CFO for the business.

Over the years we have developed our own system for tracking financial success in our business.  We have used Joe C.’s philosophy to keep it simple.  I told Joe that we did not need to follow GAAP (the Generally Accepted Accounting Principles) which is what his CPA was requiring.  Since we were a private company, we could present the numbers in a way that makes sense to our employees and managers.  I could take our home cooked numbers and present them to our banks and the IRS for taxes in the right format after the fact.

We developed three training courses on the income statement, balance sheet and cash flow.  We started a bonus plan based on our financial performance.  Along the way we realized that we had developed a unique open book approach to manufacturing automation equipment.  We now realize that the weekly board and our tracking system that is behind us is our single best asset in the business.

Over the years we have seen competitors come and go.  We have seen our employees work through problems on our books.  Recently one of our project engineers was under on the accrued profit on a very profitable job.  When it was presented on our board several of our shop employees challenged the numbers.  They knew that the conservative reporting understated the profits of the business for the month which would affect their bonuses for the month.  So our project engineer was forced to update the profit on the project more accurately.

I could tell several stories like this one.  Over the years our system has kept us honest.  When the board looks bad we have all worked together to solve the problems and when the board looks good we share in the success through bonuses.  If you are interested in learning more about Setpoint Systems open finance approach you are welcome to visit us on a Monday at 1:00 pm in Ogden, Utah.  Our system was featured in an article in Inc. Magazine, September, 2001 issue.

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Why Lean Automation?

September 16, 2008 by Clark

I’ve been in the Industrial Automation business for over 15 years now and have seen quite a swing in the way manufacturers produce their products.   About 12 years ago I was working for a major tier 1 automotive components supplier as a process engineer.  The production lines were comprised of these large sophisticated machines that were all linked together with conveyors.  Parts were transported from station to station on small conveyor pallets and would stop at each station to either have value add work done or some sort of test or inspection performed.

There were several key issues with the large fully automated systems that produced our company’s products.

  1. The lines were very expensive.  Many times ranging between $10-$15 million each.
  2. The lead time for getting a full production line in place was anywhere between 15-24 months.
  3. The machines were very complex and required a high level of engineering and maintenance support to keep them running.
  4. The inventory of spare parts required to keep the systems up and running was huge
  5. The systems, although “fully automated”, required more operators and support than expected to keep the systems running and clear all the faults, jams and other issues related to a complex system.
  6. Changeovers took shifts if not days in some cases.  (Loss productivity and lots of labor for the CO)
  7. The overall systems up time was terrible and in most cases ran in the 60-65% range
  8. If one machine in the overall system went down, the entire line stopped while issues were resolved
  9. The lines took up a huge amount of floor space and impeded process flow in many areas

Nice overview of traditional factory automation huh?   Well, the leaders of the company realized that this was not working out.  By the time a system was ordered, built, installed and commissioned, up to 2 years had gone by and many changes in both their product’s technologies and customer demands had changed. 

So lean thinking was introduced into the company and embraced by senior management.  This is ABSOLUTLY!! key for lean thinking to even have a chance.   The first task, after the basic 5’s stuff was out of the way was to find a better way to manufacture parts with simple, flexible equipment solutions that would address all the above listed issues.  Here is what happened.  I actually took part in this transformation and can vouch for how real and powerful Lean is.

  1. The cost of the manufacturing lines went from $10-$15 Million to $850k-$2.5 million
  2. Lead time for a lean line was around 6 months instead of 1.5 to 2  years
  3. Machines were simple, flexible and easily reconfigurable because they were no longer connected via a vast network of conveyor systems.   Most machines were set up in cells in some sort of “U” shaped arrangement that allowed for easy access, flow and visual reference of what was going on in the cell at all times.
  4. Spare parts inventory was cut by over 80% due to simple machine solutions.
  5. Operators worked on the line to pass parts through the process but it offered the flexibility needed to handle a huge variety of products within a family.  We found that even though there was a manual interface requirement, the overall labor minutes per unit actually went down dramatically.
  6. Changeovers from one model to the next were fast, efficient and mistake proofed.
  7. Because the equipment was simple, easy to maintain and far less complicated, the overall uptime typically went from 65% to near 95%. 
  8. If one machine in the overall system went down the other machines had small buffers that allowed the cell to keep running while individual machine issues were dealt with.
  9. The floor space required for the cells was cut by over 75% in most cases.  This freed up valuable floor space for expansion for future business.

All in all, Lean Automation has made a huge impact for those manufacturers who have adopted the Lean philosophy and have strived to keep their competitive advantage intact through out the years of their specific business evolution.

So the theme I’m seeing here is, Go Lean or Go to China.  You decide.

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Going Beyond Mass Production to Lean Systems

September 8, 2008 by Nate

How are you going to take your business into the future?  How will you compete with price-cutting competitors?  How will you reduce overhead costs and increase profits?  Every business struggles with these same questions.  The book The Toyota Way by Jeffrey Liker suggests that the answer to all of these questions is operational excellence.  What is operational excellence?  It is being the best at what you do, improving the speed of your business processes, improving the quality of your products and services, and cutting unnecessary steps and costs from your operations.

The Toyota Way lists 14 management principles that Toyota uses to achieve operational excellence.  These principles focus on eliminating waste, standardizing processes and learning from experience.  They facilitate a continuous flow of quality parts and information precisely when they are required.  By following these principles, hidden problems are brought to the surface and employees are trained to solve these problems.  The best part is the process is circular, it’s continually improving.  Kaizen!

Setpoint believes in Kaizen, which is a Japanese term that roughly means “continuous improvement.”  As part of the continuous improvement here at Setpoint, we have studied this book to identify ways to implement these 14 principles within our own company and for our customers.  One area that we are focusing on is the way we receive parts.  We are moving towards Just in Time so the parts are available to the assembly technician precisely when they are ready for them rather than having them sit for a week or two before they start working on the project.

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Lean Thinking in Industrial Automation

September 2, 2008 by Malorie

If there was an easy way to make your company more profitable would you do it?  Most people know that a solution is out there but they are either too afraid to venture down that path or don’t adjust well to changes.  Unfortunately, in order to even survive in the business world we must adapt and be ready for change on a continual basis.  For the past three weeks Setpoint has given me the opportunity to read a very interesting book, Lean Thinking, written by James P. Womack and Daniel T. Jones, which puts the focus on changes that most any business should do to achieve greater success and profitability.

Lean Thinking is dedicated to guiding the reader by showing us how to get rid of “muda”, or waste as we know it, from every aspect of the organization by following five small and simple processes which are Value, the Value Stream, Flow, Pull, and Perfection.  You must begin by determining what is valuable to the customer from their perspective, then map out all the necessary steps to achieve the value stream.  The next step is to make sure the parts flow through the value stream in the most efficient way so that once a customer places an order it can instantaneously by pulled through the stream.  Finally, always remember to strive for perfection.

This is a proven method that has worked time and time again.  Womack and Jones used case study examples from mass production organizations across the world and in different industries but their thinking could literally be applied to any business or process.  There are always ways to look at processes and eliminate waste.  Setpoint has a great team working towards this ultimate goal that I know we are going to achieve and I’m glad I had this opportunity as it has really opened my eyes to old but new ideas that I can begin implementing in my department.

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