Posts by Kyle Stemple, CPA, CGMA Director of Manufacturing Services:
Those in the manufacturing industry are familiar with the significance of implementing tactics to increase efficiency and effectiveness throughout the organization. But did you know that these same concepts can benefit businesses outside of the manufacturing realm?
Consider the five key principles identified in Jim Womack’s book, The Machine that Changed the World and think about how they relate to your company.
- The customer defines value.
- The company must focus on eliminating waste. (Waste is defined as any activity that doesn’t add value to the company.)
- The customer establishes pull.
- The company must involve and empower people who add value.
- Total cost is the ultimate performance metric.
Now, reflecting on these principles, how can you optimize performance of your people while optimizing the customer experience?
Focus On The Big Picture
You want to be successful. To do that, you must have a clear understanding of what “success” looks like to you. A good way to do this is to identify challenges (present and future) that may hinder you from realizing your maximum potential. Once you know what you are looking for, you can generate proactive solutions – ultimately increasing your efficiency.
You may consider Lean Six Sigma to be a tactic solely for manufacturing companies. But Lean can actually be very valuable to all types of companies. But first, you have to understand the Lean concept. First, Lean is not “headcount reduction” and thinking of it as such could result in greater long-term problems. When you decide to embrace a Lean approach to business, you should actually be committed to:
- Understanding your customers better and making sure the processes your business adopts meets (and exceeds) their expectations.
- Harnessing your employees’ knowledge to better serve your customers.
- Continuous improvement while building greater business capacity.
Things Are not Always What They Seem
When you embark on your Lean journey, financial struggles early on are normal. It can be scary at first, but if you are persistent, you will ultimately realize positive results. Think about it this way, traditional absorption accounting allocates overhead to inventory. As inventories are reduced in the interest of becoming lean, prior period costs are expensed in the current period. When your finance experts and executive leadership team aren’t aware of this transitional lag, they may mistakenly associate Lean with declining profits. Instead, keep going – pretty soon you should be able to notice improvements to your company’s cash flow.
Take The Plunge
Your Lean initiative will only be successful if management commits to its success. Therefore, they must fully commit to the concept while taking the time to become familiar with the benefits of Lean. Sure, dipping your toe in and testing the waters may seem like a safe bet, but unless you take the full plunge, you will never realize your company’s full potential and world-class results.
Lean continues to evolve from a manufacturing concept to one likened to secret weapon used to boost the effectiveness of office and administrative processes (and so much more). In this era when continued improvement is idealized, Lean has emerged as the answer. Could your company benefit by becoming Lean? Listen to this 17-minute podcast to find out.
Learn more about Lean and how it can transform your business. Listen to Don’t Settle For A Plate Of Spaghetti on Unsuitable on Rea Radio at www.rea.com/podcast or on iTunes or SoundCloud.
Today, millions of hard-working men and women will celebrate Manufacturing Day across our nation. United in their mission to address common misperceptions about the industry, manufacturers will rally together to take charge of the industry’s public image, address the industry’s skilled labor shortage and promote the ongoing prosperity of manufacturing throughout the U.S.
Manufacturing has always been the backbone of Ohio – and Rea has been proud to support many companies throughout the state. In recognition of Manufacturing Day, here are five ways you, as a manufacturer, can overcome challenges facing your industry.
Be The Leader You Want to Be.
As a seasoned manufacturer, you know your business inside and out – when there is a problem, you provide a solution; when a ball drops, you pick it up. If this sounds like you, then it’s time to get out of your comfort zone. If you always find yourself in the middle of daily business operations, you’re unlikely to get out in front of opportunities that could maximize your company’s long-term value. Be the leader your company needs. Stop putting out fires. Instead, make waves.
Tell Your Story, Invest In People.
The manufacturing industry has had its share of problems when it comes to attracting and retaining a talented workforce, but you can alter how people think about a career in manufacturing by simply sharing your own stories and experiences. Unless you take the time to personally promote the manufacturing industry, your would-be employees may incorrectly associate the industry with unprofessional, dead-end jobs in dirty factories. Get out and connect with local vocational schools and other educational entities and community groups to tell your story.
Embrace A Strategy; Minimize Risk.
Every company should have a strategic plan. From financial objectives to operational goals, your strategic plan should provide your workforce with an overview of the company’s operational and growth initiatives. Formal plans should also address the company’s budget and financial forecast. Proper utilization of these plans will help you reap optimal results by providing you with the information needed to make better decisions. Below are initiatives you can include in your strategy to gain greater insight into the industry and to learn how you can better manage your current financial and operational objectives.
- Benchmarking is a proactive way to stay in line with, or ahead of, the competition. It’s important for you to understand how your company stacks up against the competition, as well as gain insight into current trends, future opportunities and potential risks.
- Key performance indicators (KPIs) are critical to the management of your daily operations. In order for you to deliver results, you and your management team must understand the resources you are working with and how you are affected. Key indicators also provide management with insight into production and can alert leaders to potential areas of risk.
- Get to know your ERP system. Many companies have implemented some type of enterprise resource planning (ERP) system in the hopes of streamlining their accounting, production, benchmarking and KPI efforts. Unfortunately, many are unable to actually use the system in the way they would like. You must take control of your ERP system and insist the vendor meet with your team to set up the ERP system in a way that makes sense to your company. An ERP system that is set up properly will provide your company with the data you need to manage your business more effectively.
- Understand your cost structure. For example, understanding what it costs to make, distribute and/or sell each unit of each product line, will give you a better grasp of how much you’re spending on material, labor and overhead, which will better equip you to allocate your efforts and resources. Unfortunately, many managers don’t understand the company’s cost structure, which puts the company at risk of losing money in the long run.
Back-Up For Safety.
Many companies in the manufacturing industry have taken steps to embrace technology and have added hardware and software to help collect data and streamline workflow; however, with the introduction of new programs and equipment comes the introduction of additional risks. Some companies have chosen to back-up their information as a way to avoid losing important data, but if the back-up isn’t tested, there is no guarantee that it will actually work. Unfortunately, some companies lose critical data simply because they fail to test the back-up.
Consider Going Lean.
The manufacturing industry underwent a significant transformation in the 90s with the wide-spread practice of Lean Six Sigma, which helps companies become more efficient and effective by introducing better processes throughout the organization. Many companies, however, have yet to incorporate Lean Six Sigma into their operations. Much has changed over the course of two decades and new uses for Lean Six Sigma have been discovered and applied to additional departments outside of just the manufacturing floor, the service and transactional functions of businesses have really benefited. You should consider Lean Six Sigma as a way to become more efficient and effective in every aspect of their business. Especially while the industry struggles to attract new talent, Lean Six Sigma may be just your company needs when you need to do more with less.
These are just a few examples of challenges facing the manufacturing industry where a trusted advisor can help you navigate through possible solutions. If you own a company in the manufacturing industry or if you want to explore ways to improve your business’s efficiency, effectiveness, profitability and risk management systems, email Rea & Associates. Our team is passionate about helping manufacturers reach new heights, mitigate risks and attract and retain employees.
Author: Kyle Stemple, CPA, Director of Manufacturing Services (New Philadelphia office)
Contrary to popular belief, the manufacturing industry is alive and well. For years, we’ve heard that it’s a “dying” industry. But that’s just not so. In fact, many manufacturers are enjoying higher profitability than 2008 pre-recession levels. However, if your manufacturing business is still young or you’ve hit a rough patch and are starting to see a downward shift in your sales and employment, there’s assistance that you may qualify for to help you get out the rut you’re in.
If you purchase equipment in 2011, you can take advantage of greater depreciation bonus expensing, but you have to plan ahead. Here are some considerations. Read the rest of this entry “
Ask any kid where he or she wants to go on vacation. Most, without hesitation, would say Disney World. (The same goes for a number of adults, too.) Disney World isn’t just an amusement park – it’s a place to escape and enter into a different world. A magical world full of fun and experiences you’ll remember for a lifetime. Read the rest of this entry “
The management philosophy of Lean Six Sigma is centered on improving efficiency and effectiveness in your business. We use the acronym Downtime +A to describe to nine categories of waste that is commonly found in processes: Read the rest of this entry “
In better economic times, banks were the only ones concerned with the financial statements of manufacturers. Today, however, a manufacturer’s customers may also make access to financial information a condition of doing business with them. Read the rest of this entry “
The recent economic downturn forced many companies to reduce their workforce to a level more commensurate to revenue. And now that a few “green shoots” of recovery are beginning to sprout, some of them are considering hiring more workers. However, they’re cautious, and not sure the current uptick will last beyond a few months. Is there another way to address your increasing work load? Read the rest of this entry “
As you work to improve efficiency and effectiveness in your business, are you fully engaging your employees in helping you? If you follow the management concept of Lean Six Sigma, your employees become a key ingredient to achieving world-class results.
Lean is about harnessing the knowledge of your employees to better serve your customers – both internal and external. There is an important human element to Lean enterprises. Your company’s management, as well as your employees, must be fully committed and understand what Lean is all about – because without their buy-in and true leadership, your Lean efforts will fail. You can pick and choose certain “Lean projects,” but without fully embracing Lean, you will not achieve your company’s full potential. Read the rest of this entry “