Archive for 2009

Our thoughts on the D’Addario Video

December 28, 2009 by Setpoint

D’Addario, a company from Long Island New York, is in the business of making guitar strings and straps. Under the direction of their CEO, Jim D’Addario, they have seen a lot of changes in the last two years.  They have embraced lean by cutting inventory, stream lining the factory operations, implementing new technology, and saving jobs.  The company has installed automation equipment to help keep the jobs in New York rather than China.  They were featured on CNN, you can view the lean automation video here.

Their lean model is based on Toyota’s waste reduction strategy.  Toyota is known for leading the example in Lean.  The video mentions that “lean relies heavily on automation.”  The terms “lean” and “automation” do not rely on each other.  Lean is known as the practice of reducing waste. Automation may be a choice made by a company to try and become lean, but it’s not required. Automation equipment can be very costly and not as flexible as an organization might hope for. Automation equipment can be justified if the same part is made over and over thousands of times. D’Addario is certainly heading in a good direction if they are seeing progress in reducing their costs, saving the jobs, and creating a more satisfying place to work.  They are able to train someone to do something else as the machine takes their previous role.  Let the machines take the simplistic jobs and allow people to take on more challenging work.

D’Addario’s guitar strap division has managed to keep their business here in Long Island, New York. Under the threat of the current economy and the temptation to send cheap product overseas, D’Addario is working hard to maintain their business.  Peter Morici, an economist from Univ. of Maryland, mentioned in the video that “more can be done in the U.S.”  He is right.  In order to strengthen the dollar and create a strong economy, the American people need to produce more and consume less.  Almost every product you pick up in the store has the Made In China stamp.  We need to be working on getting our products to say Made In the U.S.A.  Every business ought to be looking at their products made in China and work on solutions to bring it back home.  Many companies decide to go with China, because it’s “easier” than automating.  We need to be creative and find solutions to keep the jobs here.  We have plenty of capable American people who are willing to put their minds at work to add real dollars to our economy.  Many companies are doing what they can by becoming leaner without cutting their work force.

D’Addario is on track to continue making progress.  As a company begins the journey of defining their lean system they begin to understand what lean really means and how it’s not just about reducing costs.  Lean is really about creating a better place for people to work.  Employees who feel satisfied and happy about their contributions begin to engage themselves in the success of the company and the quality of its products.  Once an organization understands what lean is, they will come to realize their journey has just begun.

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Project Cash Flow Forecasting

December 16, 2009 by Machel

Bidding on large projects is bittersweet.  If you have an opportunity to bid on a project that could be either a blessing or a burden, it is important to manage the cash flow.  Because cash is King, it has the ability to put you in a castle or a shack.  What kind of living quarters you live in can be decided by cash flow.  A significant number of companies go out of business because of lack of cash, not a lack of great ideas.

When bidding on large projects there are a few questions that need to be addressed.  First, when are the costs of the project due?  Second, when will the majority of the labor be needed?  Third, what size of a down payment do I need?  When do I need progress payments?  Most companies think the down payment question should be answered first, but that is not always the case.  It is necessary to know when your costs are going out so you know what size your down payment needs to be and when your progress payments need to come in.

Let’s assume some facts for our example:

  1. Revenue on the project is $3,000,000
  2. Cost of Goods Sold (COGS) are $1,500,000
  3. Operating Expenses are $10,000 for the first 4 months, then gradually less as the project closes


Cash Flow Forecast Tables


Following the tables listed above, if you change the down payment from a 30% down payment to a 50% down payment, you go from needing $480,000 to not needing any additional cash at all during the entire project.  This is assuming a progress payment is scheduled four months into the project.

A spreadsheet like this does not take very much time to set up.  By putting in that extra time your company can go from living high on the hog to searching the couch cushions for change.

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5 S Process in an Assembly Shop

December 10, 2009 by Kara

Recently we talked about the 5 S process developed from the Toyota Production System.  Some believe that the 5 S process can only be implemented in a manufacturing environment and do not see the benefits of using this process to improve their work environment.  Here at Setpoint we have our design engineers in an office environment and our assembly technicians in a shop environment with both areas using the 5 S process.

We made a video and put it out on YouTube to walk through our shop and show how the 5 S Process can be implemented in an assembly environment where we build one machine and ship it, then build a completely different machine.

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Return on Investment (ROI) Calculator

December 3, 2009 by Joe Knight

The ROI (Return on Investment) calculator is a new tool added to Setpoint System’s web site.  This tool allows you to measure the viability of a potential automation project that Setpoint Systems could provide.  The tool requires the following information. 

First, you need to provide and estimate of the total cost of the automation project.  This cost is more than just the cost of the equipment.  It should include items like installation and support. 

Second, the ROI tool requires your best estimate of the annual savings the automation will provide.  These savings could include added profit from increased volumes, labor cost savings, lower scrap rates, floor space savings, and higher consistency in the output. 

Third, you will provide the number of years the annual savings will be realized. 

Fourth, you will provide the minimum annual interest rate return required for the automation equipment.  This rate is often provided by your finance organization.  It is a measure of the return that the money invested in your business should get.  Some call this the hurdle rate or the cost of invested capital in your business if you want to use finance jargon.

Once you have entered these inputs into the ROI Tool, you will get an output report.  This report will provide three ROI metrics that your finance guru will love.  They are NPV (Net Present Value), Payback, and IRR (Internal Rate of Return). 

NPV measures the amount of money the project returns in today’s dollars when compared to the initial investment.  A NPV below 0 means you are better off rejecting the investment because the benefits of the automation in today’s dollars do not cover the initial costs.  On the other hand, a positive NPV tells you that this investment beats your initial required rate of return in using current dollars. 

Payback simply tells you how long it will take to get your initial investment back – clearly the shorter the payback the better.  Payback is a simple tool that is used for a reality check.  Since it does not consider the investment to the return in current dollars, it is considered inferior to NPV and IRR. 

IRR measures the rate of return that the project pays out based on the initial investment and the return information.  If the IRR is higher than the minimum annual interest rate, then you are getting a better return than the minimum.  IRR method is a terrific way to present a project to management.  If your IRR is 25% on a project and your minimum required rate is 12%, you can say that this investment beats your required rate by 13%.  You would be crazy not to proceed with this project.

So have fun with this exciting tool.  I know a lot of you working on automation are technical.  I hope that you realize that this tool can be as exciting as running calculations on your old HP 11C calculator.  It can also help your company make more money.

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Whose Decision is it Anyway?

November 18, 2009 by Brad

It is way too easy to say that because I’m the boss, I decide. That is a very autocratic approach, and your company will only be as good as the dictator at the top making those decisions, and there has never been a dictator that gets it right all the time.

The opposite view might be that you require consensus with all those involved before a decision can be made. In my experience, very rarely will everyone agree unless the decision has no consequences or you have a team of suck-ups. Have you ever heard the saying, “if two people in a company always come to the same conclusion, one of them is not necessary”. Not making a decision because everyone is not at consensus can be paralyzing to a company. Being unable to decide is a decision also, which can have disastrous consequences

Setpoint is unique in that our culture promotes ideas and debate regardless of who is on the other side of that debate. Pretty much everyone at Setpoint feels comfortable enough to tell me when they think I’m up in the night, and that happens all the way up and down the organization.

I have worked in other places where there were taboo subjects that you could not talk about in front of certain executives or owners. That has an unbelievable stifling effect on ideas and choices that come forward and can be considered. The worst part is that those executives never engage their organizations brains and get the benefit from those that are working closest to the challenges.

Creating the right environment for deciding:

  • You must create an environment where ideas can flow freely, with no repercussions
  • Make sure it fits into the strategic direction of the company
  • If you are surrounded by smart people and they are telling you not to go the direction you are thinking, maybe you should stop and listen to them because you might not have the best idea
  • At the end of the day what you and everyone in your organization should want is the decision that best fits for the direction you are heading
  • Very rarely will you have perfect information and data to make your decision, nor will the same checklist work for all circumstances
  • In my career it has been more important to recognize when you are off-course rather than holding off deciding until you have all the data you need to make a decision
  • If you do not give credit to those contributing the idea, it’s not hard to know who will decide in the future, it will be you because no one else will put their ideas forward
  • Have milestones where you check the validity of the decision to see if it is on- track or if modifications need to be made

Good luck in creating an environment where good decisions can be made.

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Sustain – the Fifth “S” of the 5 S System

November 12, 2009 by Ken

After the first four S’s from the Toyota Production Systems improvement process have been implemented, the most important work begins.  If you have gone to all the work of setting up the system you must sustain or even improve on it to keep the system working properly.  Things change and you need to be flexible.  If something is not working the way you would like change it and keep changing it until you are satisfied. 

For instance, you should be able to tell at a glance if all the tools are in they place or if your hardware is running low, you may have to walk around and check some key spots each night to make sure the system is being used properly.

We are all very quick to form habits and by repeating these steps over and over it will be no time at all and your employees will be telling you when parts are low or things are not where they belong.

The 5 S System may seem like a lot of work at first and it is, but the benefits far out weigh your initial investment.

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Standardize- The Fourth “S” of the 5 S System

November 5, 2009 by Malorie

Now that the first three 5S’s (Sort, Straighten, and Shine) have been implemented, the next step is to concentrate on standardizing best practices in your work environment, also known as the Japanese term Seiketsu. This involves creating a consistent approach for carrying out tasks and procedures amongst all employees and departments. Orderliness is the core of standardization.

If the first three steps have been followed correctly then standardization should fall right into place with the help of all involved.  Standardization receives the most success when everyone knows their role and rules of their area and therefore can be involved in the development of these standardized rules because they are valuable for the information they deal with on a day to day basis. In the end, everyone should know exactly what their job responsibilities are and they should know exactly how to perform as well.

This process works very well at Setpoint because we work in a very fast paced and schedule driven environment where we usually can’t afford to lose a day when someone has an unforeseen absence. Therefore by following the 5 S system there is usually someone able to step in and pick up right where the last person left off without having to ask a thousand questions and wasting time looking for parts or tools.

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SHINE – the Third “S” of the 5 S System

October 29, 2009 by John

Following Sort and Straighten in the Toyota Production System 5 S System is Shine.  Shine is going through and cleaning up the work area.  At the end of the day each person needs to clean up their workstation, sweep the floors, clean off their desk, and return tools to their proper place.  This should be incorporated into every day routines.

When you take the time to “shine”, you are preparing for the future. Today’s workplace is full 0f inconsistencies and infractions.  There needs to be order and organization desperately.   Without the shine chaos starts to take control. 

So when you use it be sure to clean it by puting it back away every day so as to make everybody’s everyday tasks easier to complete.  That will make the world turn smoother than it did before.

To catch up on the series, here are links to the other posts:

Overview of the 5 S System

Sort – the First “S” of the 5 S System

Straighten – the Second “S” of the 5 S System

Standardize- the Fourth “S” of the 5 S System

Sustain – the Fifth “S” of the 5 S System

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STRAIGHTEN – The Second “S” of the 5 S System

October 26, 2009 by Machel

The first principal of the 5S system, Sort, is where you take and identify those items that are needed for you to accomplish your work.  Those necessary items are what we will now focus on.  Straighten, or Setting in Order, is the second principal of the 5S system.  In order for you to have an efficient work place, you need to have the correct tools and supplies close at hand and you need to be able to quickly find them.  Everything must have its place, and be in its place.

Looking at the desks in our building, mine has to be the most disorganized.  When I am done with a book or an item it is pushed out of they way rather than placed back where it belongs.  It’s a good thing the engineers are moved around so my desk gets cleaned up once in a while.  I’m forced into compliance, although I’m no where near as bad as someone who worked here several years ago.  On the other hand, my garage at home…  let’s just say that sometimes it takes more time to find the tools that I need for a project than it does to complete the project.  This principal of 5S is all about making your work area more efficient.  Setting up work stations or areas for work and having the correct tools and supplies in those areas are keys to becoming more efficient in the tasks that you do.

In the area that you have to work set aside areas for the storage of supplies and tools.  Keep the tools that you need more often closer to hand than those that you use less frequently.  Set aside a place for them and label it.  Shadow boards or cut outs in foam in your tool box are good examples of this.  Doing this allows you to quickly find the tool that you need.  It also allows you to know at a glance if you are missing any tools needed for the job at hand.  Totes or bins can be labeled and placed in the areas that are needed.  If you are working on an assembly line only have the tools and supplies that you need in your area.  Arrange them in a fashion that facilitates the work flow.  Minimize the clutter. Put tools in their designated place after they are used.  Keep a clean and organized work area.

By organizing and cleaning your area, you can maximize your efficiency and increase your work flow.   Greater efficiency and more work done makes for happy people.  For me this means more time to do an extra item on the honey-do list at home.  And this does make the Boss happy.

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SORT – The first “S” of the 5 S System

October 19, 2009 by Bob

In using the Toyota Production System to improve your organization you need to integrate the 5 S processes from your desk to the production floor. The first “S” is to sort out what is and is not needed to do the required work in the work area.

Sorting the things you need to do your job on your desk, in receiving, in the production area, on the assembly floor, and any work area helps you work more efficiently and less prone to misplaced parts and tools. What do you sort? What do you need to do the job or task including tools, parts, and paperwork? If you don’t need it to do your job, it shouldn’t be in your workspace. Not only do you need to sort out what you need, but evaluating the proper quantities of each is also very important. One way to determine what you should have at your workspace is to use the 24-48 hour rule. If you are not going to need it in the next 24-48 hours, it doesn’t need to be in your workspace.

Here at Setpoint, we sort just about everything that comes in the doors, including our engineers. When parts are received a label is attached and the part is placed in a subassembly tote and the tote is placed on the projects rack. When there are enough parts for assembly to begin, the rack is moved to a specific assembly area designated to that project. The assemblers can go grab a tote and take it to their work area to begin assembly. When the assembler needs screws, wire, air hose, or a tool he can go to that rack or cabinet where everything is sorted by type and size. He takes only what he needs and continues working. When he reaches a stopping point or completes the assembly, everything is placed back in the tote and back on the rack. He then grabs the next subassembly tote and begins the build process again. At the end of the day everything is put back in its place, including totes, tools, and paperwork so it is ready to go the next day.

This sorting process has allowed us to be very efficient at building our projects. Any one assembler can go to any project and determine what can and needs to be worked on. We know where to find any tool, wire, hose, or fastener without searching the shop floor. I have worked at other companies where this sorting was “sort of” used (pun intended), and it makes for a long day when you are searching for the part or tool you need because it was not returned to its sorted place.

As I mentioned before, not only do we sort the products coming in our door, but we sort our engineers as well. Depending on our current projects, our engineers get sorted into different teams to utilize their talents and experiences. Yes, this means moving our computers and our stuff from one area to another. I have been sorted at least five times in just over three years. Sometimes this can be a pain, but this sorting helps the team’s communication and makes the design process much more efficient. It also gives us a chance to sort out the accumulation of stuff from our workstation and place it in the proper place–the garbage.

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