The Data Heads

I just got off the phone with Kris Deckard, the Director of Ready Indiana. Ready Indiana is my state’s effort to help Indiana businesses “Engage, Elevate and Educate our Workforce.”  In the last few months we’ve seen a modest uptick in customers calling us from across the country with the news that they’ve received a training grant from some regional or state agency for training and workforce development. I wanted more of that, so I had tracked Kris down using Google.

These training grants seem like such a win-win.

I don’t think we have any customers who are over-trained; people will always be able to get more value out of a tool that they really know and understand.  Knowing more about the tool can translate directly into higher individual worker productivity and effectiveness. If you’ve been following my last few posts you know that that can turn into huge increases in throughput and quality, and huge decreases in downtime, rework, repair, and other wastes.

But in a recessionary economy, a lot of manufacturers are squeezing every gram of copper out of every penny they have. Training budgets are one of the first things to get slashed. So investing in training is one use of stimulus money that makes an awful lot of sense. Of course I’m biased, because the money eventually trickles down to me and enables me to create and retain jobs. Like I said, I wanted more of this.

Kris confirmed that American Recovery and Reinvestment Act (ARRA) does have substantial funds available for workforce development. Actually the buzz word these days is “Incumbent Worker Training”.

In Indiana there is a special grant called the Skill Enhancement Fund (SEF - these people seem to be huge believers in the wonder of acronyms). SEF will pay out up to $200,000 every two years to employers so they can train or retrain their workers.  The grants are especially supportive of manufacturers. Eligible training activities specifically mention “Quality-Assurance Skills: Skills that are intended to increase the quality of the company’s product (Statistical Process Control [SPC], Total Quality Management [TQM], ISO and QS).”

So if you’re one of our Indiana customers, contact me and I’ll introduce you to Kris. She’ll guide you through the application process maze.

Which brings me to the bad news, if there is bad news. There is no centralized clearing house for this information. It seems very regionally based. Actually Indiana seems progressive compared to some other states where grants are administered through regions that may be as small as a couple of counties. So navigating the maze may be difficult.

Have you checked what’s available in your area? What is your company doing to develop you and your staff? Use the ShareThis button below to mark this page, leave a comment, tweet me, schedule a conversation, or call 800-958-2709.

This week MSNBC moved in next door and started a series called The Elkhart Project. Elkhart is our neighboring town, and it has become the poster child for the impact of the recession on middle America. President Obama has visited a couple of times.  After his election Obama chose Elkhart for his first trip outside of Washington in order to promote his economic stimulus package.

Our town, Goshen, is a little sister to Elkhart, and there is no doubt that the entire county has been hard hit in the last year. In February, unemployment in our county topped 18%. Our economy is heavily dependent on manufacturing jobs, and many of those are - excuse me - were in the recreational vehicle, manufactured housing and mobile home industry. Another sizeable segment of the economy serves the auto industry. So, as this blog post points out, we’ve had most of our eggs in one basket.

It doesn’t take a lot to imagine what an 18%+ unemployment rate does to ancillary businesses. These days you probably don’t need to make a reservation at a restaurant, and my friends in plumbing and construction businesses are - well - hurting.

As I’ve read all this coverage I want to say “Yes, but…”

Yes, but it’s not all doom and gloom. There is a little diversity in our economy. Our business, for example, helps manufacturers cut costs and improve efficiencies. We find that if we tune out the main stream media, we don’t see much difference in our activities or the demand for our products and services.

It’s oversimplified, but we’ve found that the manufacturing world has split into two camps. Some people are hunkering down and conserving every penny they can. This is understandable in a world where all the rules about credit that we’ve become accustomed to have been turned upside down.

But the other camp is retaining and even cautiously investing in people and systems that help them improve their operations. We’re talking to this second group.

This is the group that sees the opportunity to reduce material costs by 10% to 30%.

This is the group that wants to improve overall equipment effectiveness by 15%.

This is the group that wants to improve process cycle times by 90%.

Some of these are even located in Elkhart.

There are other success stories in our county. For example, The Red Post has a cool electronic signage product they’re delivering all over the country.

Another exciting business is Lucid Energy, which intends to revolutionize the way the world creates and delivers electricity.

I don’t know anything about the finances of either of these companies, but they’re demonstrating the innovation, wonderful entrepreneurial spirit that is so prevalent in our county, and I’m betting they’re doing just fine. We are.

What about you? Is your company seeing the opportunities, or only the bad news?  You can leave a comment, tweet me, schedule a conversation, or call 800-958-2709.

I love this post from Thomas Wailgum at CIO.COM. His title says it all: “Wake Up People! Forget Twitter and iPhone Apps, and Focus on SAP and ERP Apps.”

I’ve been on Twitter now for several months and I confess that I find it addicting. I still can’t decide if it is irrelevant or useful.

Wailgum argues that:

They are nothing more than a costly distraction, stealing your attention from the massive problems that you, your company and the business world now face: We’re in a deep recession (perhaps a depression), and your company’s core IT systems are going to be called on to do more and more (with less and less).

If you’re a Twitter fan, you’re likely to bristle at this argument.

I’ve certainly had fun following people on Twitter, and I’ve even made some connections and learned some things that I wouldn’t otherwise know. But it doesn’t drive my business. In fact, I think Wailgum hit the nail on the head: Business enterprise software will drive value in your business, not Twitter or Facebook.

Recently we sponsored a research study by the Aberdeen Group.  The report looks at specific practices and technologies that manufacturers have in place, and look at the productivity and profitability of those businesses. Here is a key finding from this research that supports Wailgum’s argument:

This is the first benchmark produced by the manufacturing practice (Aberdeen Group Research analysts) showing a direct correlation between Best-in-Class operational performance across On Time Delivery, OEE and Yield metrics that enables significantly higher profitability. In fact, the Best-in-Class enjoy over 33% higher operating margins than both Industry Average and Laggards.

So what is it that Best-in-Class performers do that generates a 33% higher margin than Average or Laggards? What behaviors drive this kind of performance benefit?

A glance at the top four or five high impact differentiators between Average and Best-in-Class performers reveal a common theme: real-time data. Here are the top differentiators of Best-in-Class performance in manufacturing companies:

• Continuous Improvement Teams leverage analytics and real-time visibility into operations
• Production release and control leverages real-time data
• Production optimization uses real-time data from production processes and responds to process deviations
• Plant floor exceptions are monitored in real-time

Twitter isn’t on the list. Neither is Facebook.

Nothing on this list is very sexy or even new. Nothing is based on derivatives. It is all the fundamental block and tackle stuff that actually makes a difference to the bottom line. A 33% difference in the bottom line.

If you want to read more, please download the Event Driven Manufacturing Intelligence Report and my companion white paper, “The Role of Real-Time Data in Improving Profitability and Customer Satisfaction.”

Then tell me whether you think Twitter and Facebook are irrelevant. You can leave a comment, tweet me (ironic isn’t it?), schedule a conversation, or call 800-958-2709.

Now I need to tweet about this new post!

Recently I met with my friend and board member, Dennis Blyly. While he is quick to point out he is not a macro-economic expert,  Dennis is a very smart guy with his fingers on the pulse of a lot of businesses.  Dennis brings a really useful 50,000 foot view of the economy.

We were discussing the current spate of bad economic news and told me he thinks we are at or near the bottom of the sharp downward trajectory. This isn’t to say that things are about to turn up soon, but at least in the manufacturing sector, it won’t get much worse.

When I asked if he could point to data, he said: “Its mostly anecdotal. I’ve been talking with CFOs in mid to large-sized manufacturing companies. They’re telling me that their shipments have been lagging retail demand for several months. Anxiety about banking relationships has made everyone in the supply chain very focused on managing for cash, and that  means reducing inventory to a bare minimum.  That would suggest that production (at least for consumer goods) could improve without much help from consumer demand in several industries as this process winds down.”

I was both surprised and not surprised by his comments. One the one hand, it seems like bad economic news is drowning out good news at a ratio of 1000:1. Today’s unemployment numbers say my county has the highest rate in the state at 18.3%. My town is actually at 18.9%. Darn near one in five.

On the other, I’m talking to customers and prospects who see this as a time to invest to improve efficiencies, quality and productivity. They are watching cash, but making prudent investments where they can. Some business will not survive this recession. Those who do will be better, more productive companies. They’ll have to be to pick up the slack left by the ones who didn’t make it.

What about your company? Hunkering down? Investing? Panicking? Please comment, tweet me, schedule a conversation, or call us at 800-958-2709.

With all the economic doom and gloom in the main stream media, let’s take time to celebrate Del Monte Foods’ Third Quarter Earnings report, which boasts a 14% profit increase for the third quarter.

In a Del Monte Foods press release, Richard G. Wolford, Chairman and CEO of Del Monte Foods, said the company’s aggressive focus on cost reduction is a key part of their strategy:

“The work we have done, combined with continued marketing and innovation investment and an ongoing, aggressive focus on cost reduction, position Del Monte to deliver our fiscal 2009 goals and drive shareholder value.”

During the Third Quarter conference call, Wolford provided more details: “We are focused very aggressively as a company on cost reduction programs and that’s key for us and we’ve got a good history of that, and we plan to redouble our efforts there and that’s going to be important for us going forward. Our target is 2% to 3% of costs, and we’d rather see a three handle on it, and so would our operating guys.”

This dovetails nicely with this news story describing how Del Monte’s Milk Bone Division used GainSeeker Suite to drive a 3% improvement in performance across all packing lines.

Congratulations to the entire team at Del Monte.

How does this compare with your 3rd Quarter profitability? Please comment, schedule a conversation, or call us at 800-958-2709.

Over the years I’ve had many conversations with people who own or run plastics molding companies. Persistently I’ve heard them say:  “We don’t worry too much about scrap because we can always regrind it. It’s not waste.”

I’ve always found myself stuttering in response to that.

On the one hand, it seems obvious to me that any time you have to do something more than once, your costs have to go up. On the other hand, these are smart people and they know their business. I make software, not plastic.

Recently I got into one of these conversations with the owners and the CFO at a molding company. They had told me they have a 10% - 12% scrap rate, but “We don’t worry too much about scrap because we can always regrind it. It’s not waste.”

At one point the CFO grabbed a pocket calculator and started punching numbers. In about 30 seconds he announced: “I come up with __X__ dollars.” (I can’t tell you what the number was, but I will tell you that it made all of us sit up in our chairs.)

Here is how he came up with his numbers. (This example is for a fifty million dollar company with a scrap rate of 11 % and a COGS (Material Cost of Goods Sold) of 52%).

Use this information to calculate the Scrap Material Costs, and then use that to calculate the number of Regrind Pounds produced each year.

With this estimate of Regrind Pounds produced each year, we need to calculate the actual cost of regrind:

Now that we know the number regrind pounds produced each year and the actual cost of regrind per pound we can calculate the annual cost of regrind:

This process made a lot of sense to all of us, and put the true cost of regrind at this company in a different light. In today’s economy, can anybody afford to squander over six percent of their revenue on a non-value-added activity like regrinding scrap?

I thought you might be interested in running these numbers for your own business, so I put together a little spreadsheet that you can download and plug in your own figures and come up with your own cost of regrind value. Are there any other costs of regrind that we should have included in our model?

The spreadsheet includes a space to show the impact of stepwise reductions in regrind. Obviously you can’t eliminate regrind because of job change overs, planned or unplanned down time, and so forth. But what is the value of reducing scrap by 1%” or 2% or 5%?

Does this model apply to your business? Please comment, schedule a conversation, or call us at 800-958-2709.

Yesterday the ASQ (American Society for Quality) issued their Quarterly Quality Report for December 2008. If you haven’t read it already, I encourage you to take a look. Based on a survey of only 47 persons, you have to wonder about how far you can take the conclusions, but I found the findings helpful.

Over 75 percent of the respondents were seeing specific responses to the economic downturn. These include reduction in force, reduction in training efforts, a reduction in budget for quality activities, and backing away from quality initiatives. This was in line with what I expected.

I was surprised, however, to see that when presented with a list of negatives, 20% of these respondents wrote in more positive responses. These include:

a noticeably increased emphasis on quality, especially in the area of preventive action; an increase in continuous improvement activities designed to provide competitive advantage; concerted efforts not to cut back, but rather improve and add programs and take a sharper focus on quality now; and also an increased desire to use quality improvement activities to reduce expenses.

This seems to be what lead the authors to conclude:

Quality practitioners say that over the past year they were more likely to have more opportunity rather than less opportunity to become involved in business development activities (such as new product development, establishing business strategy, meeting with customers, and working with sales and marketing). Perhaps this means there is some hollowing out among the quality troops - fewer people and less budget - but not necessarily a shrinking in the size or ambitiousness of their quality programs in a strategic sense. They still have big ambitions, but they’re forced to do more with less.

The survey asked how the downturn is impacting what people are paying attention to. Not surprisingly, ‘Cost Cutting’ ranked at the top and ‘Growth Through Acquisition’ ranked at the bottom. The question for me is how will cost cutting be achieved? If through downsizing, then quality staff should be concerned; if through Becoming More Efficient or Waste Reduction, then there may be hope.

The proof may be in one of the statistics presented near the end of the report. I was disappointed to see once again the gulf between the quality professionals and their leaders. Nearly 80% of the quality pros believe their profession confers a competitive advantage, while only 34% of top management agree.

With that kind of gap it’s going to be hard to connect quality efforts to top management’s interests.

The report concludes that organizations are reacting in fundamentally different ways to the economic challenges:

On the one hand are those going into crisis mode, cutting back and de-emphasizing quality initiatives. On the other hand are those that continue to invest in quality and innovation as a competitive advantage even in the face of economic uncertainty… Organizations that refuse to panic, that move ahead judiciously with new initiatives, and that don’t cut too deeply will be better positioned to excel when the economy rebounds.

So far our experience is that Hertzler Systems is connecting with this latter group. Our customers continue to see opportunities to invest in real-time data to help reduce costs, improve efficiencies, reduce waste, and incrementally improve existing processes and products. We’re especially finding that asset utilization and Overall Equipment Effectiveness (OEE) are valuable. We’ve been able to support our customer’s intent to pay more attention to these issues.

But what is your experience? How well are you aligned with your leadership? Or if you’re in leadership, how well are staff lined up with you?