Category Archives: Productivity

Win an order, lose your company

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Some years ago when I was selling capital equipment we participated in an internet auction. The potential client was one of our bigger customers and the project was around a half a million dollars in value so it was a good opportunity, although internet auctions weren’t our favourite way to sell equipment due to the emphasis on price.

Our primary competitor was the industry leader and this was one of their strongest products, but we had comparable technology and were somewhat smaller so hopefully our lower overhead would allow us to offer a better price. We had a reasonably good ERP system and had a solid handle on our costs, so we decided on a competitive margin and came up with our lowest possible offer. We not only lost the order, but our competitor’s price was so low it was well below our cost, much less our asking price. After much gnashing of teeth and discussion, we had to assume that our competitor knew something we didn’t and just had better control of their costs.

Fast forward a few years and low and behold our esteemed competitor that had once been an industry favourite was bankrupt and shutdown. During an interview one of their former managers said “We never really knew if or how much money we made on a shipment”! Aha! The truth comes out, after all these years!

Turns out they had an ancient ERP system that was so old and clumsy that they couldn’t get any consistent data out of it, their pricing was a total guess. Needless to say, once the technology gap between themselves and their competitors narrowed and the declining economy made competitive pricing a priority, they either lost bids or lost money on the projects they won (including ours), eventually going broke.

The morals of this story:

Your competitors are never as good as you fear. Everyone has to work with the same raw materials and the same people with all their habits and foibles. As industry conditions and the economy change, their weaknesses will eventually come out.

The flower of success contains the seeds of failure. My former competitor had been the industry leader for many years until the economy started to slow down. Once price become the biggest factor for their customers in a slowing economy, what had been a minor problem became a fatal cancer.

Put systems into place before you need them. Business conditions change all the time, you have to be ready for every eventuality. Upgrading software such as ERP or implementing new procedures is a lot easier when you’re on top than when you’re on the way down, it’s tough to fight momentum.

Understand and control your costs. While you might think that selling price is not a major factor in your success today, controlling your costs is. SME’s often aren’t overly concerned with controlling costs as long as they make a profit at the end of the year. As they grow and get involved with larger projects small variations can grow out of control. The sooner you can get control of your real costs and identify what needs attention, the better.

And above all, avoid internet auctions, they’re abominations!

Can ERP solve a service problem?

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While an Enterprise Resource Planning (ERP) software system can provide many benefits to a small to mid-size business (SME), business owners often struggle with the decision to purchase a new system because of the costs. They usually have an accounting software package already, and perhaps another software  system in purchasing or the plant, is it really worth the time and cost to upgrade?

A fully integrated ERP system can have benefits far beyond accounting and inventory, it can open doors to more efficient operations and eliminate problems that you might not think were even related.

As companies grow they often develop systems that are based on the skills of the individuals involved rather than with any overall plan, there just isn’t enough time in a day. As the company grows, it eventually reaches a point where they can’t rely on just the memories of key people, systems have to be developed that operate consistently regardless of the people involved. Companies that introduce systems that take them to the next level continue to grow and prosper.

For example, the owner of a machinery manufacturer was struggling with what he thought was a service problem. He had more clients demanding service than he had service techs and he couldn’t justify finding and training new techs. But was service really the issue? It turned out that the company didn’t have any capacity planning capability. When they were chasing new business, they quoted whatever delivery time they thought would get them the order, based on their experience with similar past orders. As long as they only had a couple of major orders on the go at one time, they could keep a lid on things just by memory. When they got busy, people became overwhelmed, small things were overlooked and the system (such as it was) broke down.

With a paper based order entry system, they were behind before they even started. Engineering would be rushed and unable to create a complete bill of materials, but that would be “fixed on the floor as the guys had made something like this before”. Without the bill of materials smaller parts weren’t ordered and put into inventory so there were constant delays as parts had to be brought in, slowing production. Since the owner had to approve significant purchases, there were further delays as he was often on the road or in meetings. As the delays built up, the customer would start screaming, adding more pressure. When the machine was finally built, the testing was rushed and incomplete as the service managers who normally did the testing were in the field (fixing the last delayed project), so the order was rushed out the door with the hope that the service techs would fix any problems on start-up. Since solving problems in the field takes many times longer and costs more than doing it in the shop, there were cost overruns and unhappy customers, and a service problem.

How did an ERP system remedy the situation? By providing capacity planning capabilities, they could predict how a new order would affect the flow so they could plan where they might have to either reschedule assets, add temporary capacity or farm out work. Even if they had to commit to a shorter delivery time to get an order they could at least see the bottlenecks beforehand so they could plan around them. Since they made similar machines with only a few customized features, they could call up previous orders to quickly develop a complete bill of materials to reduce engineering and have all the parts in inventory before they were needed. This was a major improvement as chasing parts was a primary cause of delays on the floor. Since the owner had access to a daily screen of planned purchases on his laptop, he could approve everything in a few minutes per day via remote access, eliminating another delay. With improved planning and inventory management, even multiple projects were completed on schedule, leaving time for testing and debugging in the plant. And with start-ups taking less time, the service techs were able to handle more projects, solving the service problem, which was never really a service problem at all!

If you would like to find out  how we can help your business grow to the next level, contact us today!

Small businesses can use ERP to find hidden costs and increase profit

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Keeping control of costs is crucial to the success of any business, but it’s particularly important for an SME (small to mid-size business) as any errors can have a greater impact on them than on larger businesses.

Most companies have a good handle on the “big ticket” items, the major components that go into either a discrete manufactured item or a chemical process. It’s tracking the lesser costs that can create problems as freight, customs and a host of many other charges are hard to track and split amongst many items, especially if they come in after the project has been shipped.

Many companies will just gather these costs into a “slush fund” often called overhead, and recover it by applying a fixed percentage against the bigger costs of a project, such as a markup on estimated costs or labour. While this can save time and effort, it can have major consequences as the company grows and takes on larger projects. Those “minor” costs tend to grow out of proportion to sales and can lead to a nasty surprise at the end of a project or accounting period. As you quote on bigger projects where there is more competition just adding a fixed percentage could make your prices uncompetitive. Also, it can hide the difference between profitable and unprofitable products.

Our ERP software allows SME’s to track each individual cost and assign it to a specific project so they can know the real cost of every item that is bought or produced. Even if the cost needs to split amongst several orders or if it comes in after the order is shipped, anything that relates to a specific order can recorded and tracked.

The results of this greater insight can be surprising. One client in the chemical processing sector found that his real cost on a specific item was actually 80% higher than the number they had been using with their old software system! Once he had overcome his disbelief and confirmed that the numbers were indeed correct, he came to a couple of realizations. First and most obvious, it explained why their year-end summaries never seemed to reflect what they thought were good sales.

More importantly, once they took a close look at the numbers they not only realized how much more significant some costs had been than they had previously believed, but now they could see a plan for moving forward with effective cost cutting programs. previously, they had introduced initiatives to lower their costs but were frustrated by the lack of results which they now knew was because they had been targeting the wrong items. Once they knew what was actually affecting their costs they could identify and target  specific areas with much greater effect.

At the end of the day, the greater insight provided by the software gave them a far better understanding of the factors that affected their prices, identified areas for cost savings and made them more competitive in their markets giving them a fast return on their investment in ERP software.

If you’d like to find out how we can help you become more competitive, contact us today!

Increase Productivity and Overall Equipment Effectiveness

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Operational and Enterprise Intelligence solutions acquire data in real-time and provide enterprise-wide visibility, including key operating data, consumption, profitability, efficiencies, capacity and cost data. These systems are easy to deploy, asset agnostic and have payback periods of only a few months.

When a leading manufacturer of quality packaging materials in North and Central America wanted to improve plant performance and reduce operational costs, they faced two main challenges. The first was transitioning to an automated  data collection process without significant downtime, the second was to translate the automated data into a measurable value that could tie-in with their operator’s incentive program.

Our OEM provided a real-time reporting and analysis solution that was rolled out to nine plants in total. Management was provided with real-time reporting and analysis capabilities that provided visibility into operations to support planning and strategic decision making. At the plant level, they provided real-time visibility of equipment performance to each operator with an LED display located above assets on the plant floor which empowered the operator to take immediate action to improve machine performance as issues occur rather than after the fact.

Installation of the equipment in each plant was easy and completed in only half a day with virtually no downtime. According to the client’s project manager, “The product was highly intuitive and within a few hours our operators were trained and interfacing with the system without skipping a beat”.

As a result of the implementation, the client achieved their goals of improving plant performance and reducing costs. Make ready times were reduced by 36% and run speeds increased by an average of 23%.  This was accomplished with significantly reduced operator involvement as there was also a 65% reduction in labour required for reporting.  “Eliminating our manual data took out the guesswork. We no longer question the reliability of our machine data so we are able to make production decisions with confidence”, according to the project manager.

The client had incentive programs in place where operators received bonuses based on individual accomplishments. With the new system installed the company was able to assign accountability and identify key contributors to reward them appropriately during performance reviews. As a result, operators aspired to higher levels of operational excellence, promoting a culture of continuous improvement.

“Our operators are more proactive and better equipped to improve the output of their machines while supporting our productivity goals. At the same time, our management team is able to make better and more informed decisions based on real-time equipment information. Within the first few weeks of installing the system we identified a significant amount of unused capacity on our die cutting machines. Knowing exactly where to focus our efforts, we increased our Overall Equipment Effectiveness (OEE) by 40%. With this additional capacity, we deferred the purchase of additional equipment, saving us millions of dollars in capital investment” according to the client.

The client’s project manager said  “We are truly leveraging the skills and knowledge of operators with this system. It has elevated us to a whole new level of productivity and we are closer to our vision of manufacturing excellence”.