Assume Nothing: 5 Tests Every Manufacturer Should Run Quarterly
By John Mills | Industry Week
Spring brings showers, flowers and a fresh round of decluttering at homes and offices all around North America. Others will use the time to perform an annual review of broken work processes. Manufacturers can’t wait that long; conditions change too frequently.
North American factory activity has been trending down for months after entering the fall of 2014 on a sustained rally. In the U.S., the Institute for Supply Management said its index fell from 52.9 in February to 51.5 last month — the fifth consecutive monthly decline. In Canada, the RBC Canadian Manufacturing Purchasing Managers’ index ended at 48.9, a small improvement from record lows in February but also a net contraction for the industry overall. (A score of 50 or above signals sector-wide growth.)
Preparing for these sorts of shifts is never easy, but these five common sense tests can help to determine factory readiness before changes begin to take hold.
1. Utilization versus capacity
Chances are you’re already running this test at least weekly. Managers who don’t have a clear sense of the mix are bound to have a tough time winning new business while keeping existing clients happy. This metric can also be used in context. Do complaints rise along with utilization? If so, your factory may need training and support to handle new business and cut down on churn.
2. Per-project profitability
How will you know whether your factory has the right mix of projects if you don’t measure per-project profitability? Calculate materials, hours worked, and other incidentals for completing projects and generate a figure. Estimates are fine; the key here is to have an apples-to-apples way to measure projects against each other. Then, dig deeper to look for patterns. Do certain clients always cost more to serve? Are certain industries more profitable?
3. Client mix
Of course, making decisions purely by the numbers isn’t always advisable. Your aim is to grow, and that means acquiring new skills for serving a broader mix of clients across industries. Studying the mix quarterly and then investing to broaden your scope — and paying up for the necessary training can make it easier to pick up new work when business slows down in core markets.
4. Workload diversity
Unless your factory specializes in a certain type of work, you’ll want to regularly take stock of the types of projects your floor is handling. Is your floor’s output a mishmash of nearly-identical products? Survey your clients about their other needs. You may benefit from investing in new tooling for offering new, related services.
5. Sick time and personal time off
While there can be no doubt that tools and process help drive floor-level productivity, the long-term success (or failure!) of any factory begins and ends with people. Are yours happy? Are they doing their best work? No single test will tell you for sure, but excessive sick leave and personal time off could indicate rising levels of disengagement. Set a schedule to check in with your floor leaders regularly and install a peer recognition program where workers can nominate each other for small rewards tied to stated values that encourage high performance and exceptional teamwork.
Predicting the future with any measure of precision is difficult under the best of conditions. Manufacturers tend to have less visibility than most. Prepare by testing factory readiness at least quarterly.
Are utilization and capacity running even? Is per-project profitability acceptable? If not, where? Could the client mix be improved? Will the current and expected workload allow for learning new skills and expanding the business? And finally, are workers motivated to deliver exceptional work? If not, why not?
Addressing these questions won’t always be comfortable. But for the enterprising factory manager building a business, they’re crucial and unavoidable.