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Winning the recession and the recovery
By Steve Jackson of Synchronix Technologies Inc.
Even in a strong economy, it's astonishing just how much argument there can be in a manufacturing business on the topic of Inventory. The usual role play is that sales want more, as the best way to service their customers; production never want to be short of materials and components because that interferes with their performance according to a variety of measurements, plus being able to make to stock (even when something isn't yet really needed ... thank you, forecasts) helps smooth the load on the shop; and, Finance are usually unhappy with what they perceive to be too much inventory already in the system, at every level. For companies affected by a downturn, the pressure is even greater. Sales know that there are a lot of companies out there wanting to take business away from them, and they can't afford any slips in service to customers. So their perceived need to carry inventory remains high. While Finance are desperate to free up some of the cash tied up in inventory ... especially when they can prove that much of that inventory isn't moving so is clearly unrelated to keeping customers happy. And Production, already probably under pressure to lay-off workers as demand is low, see that a plan to let inventories run down even a little means even less work for the plant for a period of time, and a worsening of the pressure for lay-offs. The usual response to this is to arrive at a compromise that fully meets no-one's needs and simply means the same battles get fought over and over at every management meeting. The no-compromise solution is to implement fast, massive performance improvement, in line with the results typically yielded by the Theory of Constraints technology (and sometimes, by Lean Manufacturing, too). When lead times are reduced by 50% or more and on time delivery (or service level) is boosted to close to 100%, a manufacturer is in a position to both protect existing customers against competitors, and to actually take business from those competitors. And at the same time, the same actions reduce inventories in the system by 50% or even more, and increase productivity such that the company can take on more of the competitor's business without increasing costs ... the same improvements mean they can produce and ship more with the same resources. This also positions the company beautifully to capitalize on the eventual turnaround. The challenge is that the compromise is a long-established habit, and requires little change; whereas the no-compromise solution calls for some serious changes to be made, and this of course represents "risk" and discomfort for managers and their companies. It is those manufacturers who are willing to learn how little risk there can be in making such serious changes, and those willing to see their managers move out of their comfort zone, that will win the recession and the eventual turnaround. |
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