Sunday, February 24, 2008

Profit motive run amuck – Foreign vs. Domestic

manufacturing erp software
This global economy is really hurting us in our own neighborhoods and few are willing to look at why. Formula manufacturing is often in the center of this firestorm.
As I travel from one formula based manufacturer to the next I sense a real turmoil over the profit driven decisions to import foreign packaging and materials versus employing people in our own local economies. "I can get it 25% cheaper from country X versus domestically."
Given: The profit motive drives all businesses to find the lowest cost alternatives to producing products given a similar quality. After all, the purpose of a corporation is to maximize the wealth of the stockholders.
I just don't buy the argument that because the component is cheaper per unit that it is the best decision for your formula based manufacturing company. There are many more factors that should be considered.
So let me share some insights that need to be taken into consideration in determining the decision to buy locally or import foreign.
  1. Scheduling – go to any procurement officer and ask them if everything was equal would they prefer to source their components 1,000 miles away or 10,000 miles away? Simply from a scheduling and logistics discussion – it is much easier to deal with a 1 week lead time vs. a 12 week lead time. These variables that the scheduler must address are not trivial. Because of this there is a strong argument that because your supply chain reaches across the ocean you are placing significantly more work on your procurement group. In the end that costs you productivity and money.
  2. Quality – as quality concerns continue to grow from imported products the testing requirements for those using these products also grows. By bringing an imported product into your supply chain you are subjecting the quality of your products to standards not customary for your market. In other words the quality standards expected in your market may be far higher than the quality standards normal in your trading partner's market. To keep quality to the appropriate level will require additional oversight, testing of inbound components and a more complicated recall process. Each of these will cost you time, efficiency and eventually money.
  3. Cost – when evaluating whether an imported component truly costs less than a domestically supplied component make sure to address the known and potential costs associated with that business relationship. How many trips overseas will it take to ensure a reasonable relationship? What is the cost of managing that relationship? What will it cost you when a shipment is delayed by natural or political reasons? Can you really absorb those costs? How much additional inventory are you going to carry to buffer the variation in foreign availability? What is in the political water related to tariffs and import fees? If there is a problem what will it cost for you to meet with someone in authority to address the problem?
  4. Customer – More and more of your customers will not take delivery of product that is produced from components sourced from certain countries. We are seeing a strong push toward Country of Origin disclosure. What will you do after you have chosen to source a material from one of these countries that your larger customers have banned? Will you source from multiple locations and what will it cost you to verify that you can track the source of each lot by country? Sourcing domestically addresses these concerns.
So in the end I am not convinced that the price per unit is the only consideration in determining the source of certain components. In addition to price per unit consider what changes will take place in logistics, quality assurance, hidden costs and the mind of your customer.
Sadly I am seeing many companies ignoring the additional data and they are changing their supply chains without considering all the facts.
If price is the only reason to source from a foreign market I think it is prudent to consider the factors above. Profit motive is important but it is not the sole consideration.
As a last point – is it possible that a current domestic customer yours could outsource your business because they can get it cheaper from a foreign source? If so you may want to give all of this a second thought before it happens to you as well.

Tuesday, February 12, 2008

10 reasons manufacturing software projects fail

manufacturing erp software
Every project, no matter the size, has a certain level of risk - the bigger the project the bigger the risk.
The best way to manage project risk is to understand the causes of project failure.
In the 1990's I read an article that resulted from a study commissioned by APICS. The article spoke about how often manufacturing software projects fail and the top 10 reasons these projects fail. This study interviewed manufacturing companies that had recently implemented a new manufacturing information system and attempted to quantify success or failure. The results were worse than the author expected.
That study indicated that 1 in 8 projects was deemed a success by management – 7 in 8 were deemed a failure.
That is a very low number and seems a bit worse than I would believe. The article did go on to provide some insight that I really agree with and would like to share with you. The author followed up with the 7 in 8 companies that deemed their project as a failure and identified the common themes across these companies.
Below is a list of these common characteristics:
  1. Lack of management commitment
  2. Part-time or no internal project leader
  3. Limited input from various departments in the organization
  4. Lack of project focus or goal of the new system
  5. Project seen as an IT project and not a business project
  6. Lack of training on new system
  7. Limited feedback on project status
  8. Selected the wrong software to address the business issues
  9. Inadequate outside resources
  10. Financial resources inadequate to achieve results
So after 20 years of performing implementations I have to agree with the above list. The projects with the greatest challenges have often had one or more of the above items. The good news is that most of these items are completely in your control. So let's focus on addressing the items you can influence.
To reduce the risks in manufacturing software projects here are some items to consider.
  • Is this the most important project on your company's agenda for the next 6-12 months and can management articulate that fact?
  • Do you have a near full time project leader that understands most parts of your business? How long has this person worked for your company?
  • Do you have a cross-functional team that can support the project leader?
  • Does this team universally know the purpose and focus of this project? If you ask each member why we are doing this project, do you get the exact same answer from every team member?
  • Is the focus something other than IT? Is there real business benefit that everyone can rally around?
  • Have you considered how different people learn? Some require one-on-one, other require manuals and others repetition – does the plan account for each learning style?
  • How organized is the project leader and can that person report the status of the project in a clear and concise manner? If so, can the organization change course if needed?
  • Have you talked to other users that are using the exact system you are implementing? Did these companies have similar business issues before they started and have the issues been addressed by adding the new system?
  • Does the outside firm supplying training, support and programming have a clear understanding and experience in your industry?
  • Can you really afford the upfront costs to achieve your desired results?
Most companies are not able to address every issue on this list prior to their project. The key is to limit the number of them and manage the risks of the ones you can't. But based on my experience if you do not have management commitment, a near full-time project leader, a cross-functional project team and a clear and concise project goal – you should not continue.
Aside from that - keeping an open dialogue before, during and after the project with your team (including outside consultants) will take you a long way to reducing risks.
Best of luck on your project and I hope these insights provide a certain level of clarity.

Sunday, February 3, 2008

Bar coding – the misunderstood technology

manufacturing erp software
I spend a lot of my day talking with formula based manufacturing companies about their business issues. About 50% of these conversations involve the request for bar coding. When asked about what business issues they are trying to solve with bar coding I typically get some of the following expectations:
  • Increase physical inventory accuracy
  • Reduce effort to identify inventory location – Bin tracking
  • Reduce lot expiration
  • Increase accuracy of usage/yield reporting
  • Provide real-time access to usage and production
  • Support lot tracking from material usage through shipping
Each company believes they have real issues around inventory control and solving these issues may yield tremendous results.
The problem is see is often in the definition of bar coding. Bar coding by itself does not solve any of these issues. Bar coding as a technology needs help from other applications and processes. What they are describing is a Warehouse Management System (WMS). The simple act of scanning a bar coded item is nothing more than a data collection exercise – what you do with that data is the key to solve the issues.
Well designed and implemented WMS systems can assist a formula manufacturer gain a better understanding of inventory levels, rotate lots prior to expiration by directed picking and improve the inventory accuracy through faster cycle counts. They do this by setting best practices for inventory movement and assist users to follow the business processes. Every time a person touches inventory the user must notify the system and that inventory must be tracked from the time it arrives on a truck to the time it leaves to a customer.
In my experience the key challenge is to ensure timely and proper application of the bar code label. Once that is done much of the remaining work is in execution and discipline when inventory is touched.
As soon as a company introduces flawed business practices the WMS system falls apart. A formula manufacturer must be able to perform all its processes to a high level of excellence prior to expecting positive results from the WMS system. Unfortunately few companies really understand this.
So for my clients we implement in this order: Financials, distribution, production, compliance, scheduling and then WMS. Only until the business processes are clearly understood and implemented will a WMS solution truly yield the results they expect.
I once heard a mentor of mine once say – "Bar coding (WMS) is great. It can screw you up at the speed of light". Do yourself a favor and get your processes under control prior to introducing WMS.
When you are ready - there are some terrific WMS systems to assist you achieve your desired results. While picking an ERP solution you should make sure there is a solid WMS solution as part of the deliverable. If you already have an ERP solution make sure your systems are well under control before adding WMS. Failure to do either of these may cost you dearly in the future.
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