Why Manufacturing should end its Love Affair with the Crystal Ball

Our Fascination with Predicting the Future

Some say that the definition of insanity is doing the same hurtful thing over and over and expecting different results. If so, then driving actual production from a forecast is insane. Since the dawn of time (back in the 1960’s when dinosaurs roamed the earth), manufacturing software systems have used forecasting and master scheduling to drive actual production of standard and semi-standard products. Today companies still use this approach and continue to carry excess inventory, experience stock outs and miss deliveries. I will not deny that the introduction of this approach was an improvement in the 1960’s but surely we can do better today than live with the drawbacks of a 50-year old methodology.

Good S&OP discipline calls for the creation of a forecast as a target but a forecast is, at best, a guess of what customers are going to buy and when they are going to buy it. It is always going to be wrong. Customers will always buy more of some items and fewer of others than was forecast. Even when they buy the quantity that was predicted, they invariably do it sooner or later than was predicted. Driving production to meet this forecast is operating under a false assumption.

To make matters worse, there’s yet another false assumption: standard lead times used in the production planning process. That seemingly harmless little data field on the part master that supposedly represents the amount of time it takes to manufacture an item from its components. The amount of time it takes to make something is variable. It depends on a lot of factors like load against capacity, amount of variability in the process, dependability of suppliers and phase of the moon.

ERP systems combine the false assumptions of forecast accuracy and standard lead times to create a production plan that from the very beginning has a very slim chance of meeting actual demand. Since meeting actual demand is what we actually get paid to do, we should be concerned about this. Is that what the folks in development at your ERP software company are busy working on improving? I doubt it. Ask your software rep and he or she will tell you about the latest tool to come up with a better forecast or about “the cloud”. He or she may not even understand what you are talking about.

There is a better way, one that challenges the assumptions that were made by my father and the team at IBM that created the Production and Inventory Control (PICS) model at IBM in the 1960’s which served as the blueprint for what APICS has taught for decades. My next blog post will begin to explain this approach. If you can’t wait until then,

click here to find out more!

Who is Mike Lilly?: Mike Lilly is an expert at improving the delivery performance of Manufacturing companies by applying industry best practices – TOC, Lean, SixSigma, the right software tools, and results-driven professional services. Companies Mike works with typically see dramatic improvements in their ability to deliver on-time to their customers, along with the resultant effects of lower WIP, Raw and/or Finished Inventory, and plenty of freed up cash.

Are ERP and LEAN mutually-exclusive?

ERP companies swear by the operational efficiencies that manufacturers attain with the use of software. LEAN purists will say that no software is necessary to deliver performance improvements.

Who’s right?

In the quest to improve the business performance of your company, where do you look for the best answers? We’ve heard the horror stories of multi-milllion dollar mistakes with ERP gone bad. We’ve also heard of LEAN fiascos that taught our people to neaten up the shop floor, and even move some equipment around, but failed to delivery results. But we’ve also seen the case studies of manufacturer’s who’ve grown their companies 5-fold with the use of the right ERP tools. Likewise, the LEAN case studies – with or without software – are often equally if not more dramatic, in terms of the lead time reduction, cost savings through lower WIP, and deliver performance statistics you could take to the bank.

Are ERP and LEAN mutually-exclusive?

Find out the answer!

Ward Leonard holds first Visual ERP Seminar

On June 14, Ward Leonard Connecticut, LLC, held its first Visual ERP Suite Seminar, entitled “Showcasing Achievements, Leveraging the Visual ERP (Enterprise Resource Planning) Suite.”

Teaming-up with Synergy Resources, a professional consulting services firm which has helped Ward Leonard with employee procedures and training for the Visual ERP software, Ward Leonard demonstrated the uses, benefits, and successful results during the last three years.

Attended by 27 people from 12 companies, the seminar presented an educational and enlightening approach toward technically streamlining business growth and efficiency with the Visual ERP software tools.

“Leveraging means updating and getting the latest tools and technically getting our (company) needs met, to revise and improve the basic operations and various employee responsibilities of the company. This allowed us to grow without increasing the amount of support staff,” said Alan Cash, business analyst for Ward Leonard.

Director of Operational Excellence Neil Haggard said that since Ward Leonard has a very complex business, involved with both Navy Department of Defense and the Oil and Gas industries, the Visual ERP system is “flexible off-the-shelf so it allows us to run our business in multiple ways to handle the work more efficiently for each product line.”

Mr. Haggard added that Ward Leonard’s specific needs for the Visual ERP system were to manage and improve the operational business needs of the company by utilizing Visual for quoting, material, scheduling, financials, quality, time and attendance, forecasting and ECNs.

“It’s a truly integrated system from the quote to production and quality performance results. We’ve been aligning our processes and tools so that everyone’s integrated and using the same system at the same time, allowing for more efficient, consistent productivity and results,” said Mr. Haggard.

Yoram Shahar, vice president of operations for Ward Leonard, looks at things not only from a business perspective, but from the “lean philosophy” approach. Lean is the practice and philosophy that targets reduction of wasteful resources and creates value for the end customer.

With a lean manufacturing and production focus, combined with the integration of the Visual ERP Software, the two processes complement each other resulting in added value and efficiency for businesses such as Ward Leonard.

“Through Synergy and Infor (Enterprise Software Solutions and Applications), the Visual ERP Suite Seminar allows us to network with other  manufacturing businesses and technical industries, associates and individuals who can both help us to develop and improve the way we do things in the day-to-day operations of our company and help attendees get some ideas of how they could use the tools to help their business,” said Mr. Shahar.

Joining the marketplace with competition such as G.E., through the Visual ERP system, optimizing their lead times, customization and streamlining how they do things, Ward Leonard has nearly doubled the size of the business in three years, according to Shahar.

Mr. Shahar added that there was a waiting list of businesses and individuals wanting to attend the seminar and (Ward Leonard) plans to have more seminars in the future.


About Ward Leonard CT LLC
Ward Leonard CT LLC provides highly engineered motors, controls and integrated solutions customized to solve difficult challenges for our customers in the Military, Energy and Heavy Industry worldwide. For more than 120 years, our products have harnessed power for complex, technical and mission-critical infrastructure applications in harsh environments. We are dedicated to total customer support and satisfaction, and to delivering benchmark performance, productivity and durability to our customers. To learn more about our products and services, or to speak with a Ward Leonard engineer, visit http://www.wardleonard.com

Are you growing for growth’s sake?

Growing, of course, is much better than the alternative, but when we are in growth mode, we are often so satisfied (perhaps even thrilled) of that specific direction, that we fail to keep an eye on the bigger picture and the bigger question – is our growth enabling better performance, or hindering it? Are we experiencing growing pains such that our customer service metrics – delivery performance,customer response time, product quality – are all suffering as a result of our company’s rapid growth? Is the profitability of the company also growing in relation to revenue?

Companies that focus on top-line revenue growth at the expense of operational efficiency, may find that the perceived improvements being made aren’t necessarily translating to their overall purpose of better serving their customers and not contributing to as high a stakeholder return the process.

Can a manufacturing company maximize top-line revenue growth while at the same also increase the bottom-line percentage for the best of both worlds?

We certainly think so, click here for the whitepaper and find out why

Why Is Lean More Popular Than Six Sigma And The Theory of Constraints?

I think there is much more in common between Lean and the Theory of Constraints (TOC) than we’d like to admit. As big and broad as Lean is, the real benefit of implementing it the right way attacks the same problem with the same benefits as TOC.

And that is in the Value Stream of the Supply Chain. In fact, if you read “Lean Thinking” by Womack and Jones, the first several chapters discuss exactly this: the tremendous opportunity most manufacturing companies have because they are still manufacturing like we were all taught we were supposed to: Optimize local efficiencies, and maximize people and machine utilization, by processes work in batches. Big batches. Keep people and machines as busy as possible, and by gosh, if material is available, get it out on the shop floor, because the faster we get material out on the shop floor, the faster it’s going to come out as finished product, right??

Unfortunately, no.

Both Lean and TOC address this problem in fundamentally the same way: by implementing “pull” of (ideally single-piece) material, instead of “push”ing batches out to the shop floor, in essence, holding back on the release of material until it is necessary to feed the cell or bottleneck resource.

TOC implements Drum-Buffer-Rope (DBR), which by definition attacks this problem head-on. I think a lot of Lean implementations get stuck in 5S, or stop with one or two Value Stream mapping sessions. If you don’t get to the Value Stream Mapping session where you’re including the bottleneck resource, you won’t see the dramatic benefits as outlined in Lean Thinking.

It’s true: Lean is MUCH more popular than TOC. And it has been for a while. When we released our implementation of DBR in our ERP system VISUAL, it was initially called VISUAL DBR. But then we realized from a marketing standpoint, wasn’t going to fly, so we renamed it VISUAL EasyLean  (http://synergyresources.net/products/visual-scheduling/)

But what it really is, under the covers, is DBR, or Simplified DBR, attacking that usually very big opportunity for improvement. To determine HOW big that opportunity is, like in Lean Thinking, we ask a manufacturing company:

1. What’s the lead time you’re quoting customers for your product? (typically, 6 – 8 weeks)
2. What’s the actual touch-time (direct value-added steps in Lean terms) to make that product assuming any and all material, tools, fixtures, machines, people are at the ready?

Answer: typically “a couple/few days”, sometimes “hours”!

There is so much opportunity out there.

Why Everything You Know About ERP is Wrong

ERP has been the backbone of manufacturing IT for so long that it has taken on its own myths. The trouble is that these myths are now ‘accepted wisdom’, despite being anything but acceptable or wise. Destruction of these misconceptions is long overdue.

Misconception 1: ERP is costly
“For manufacturers with multiple sites, subsidiary companies, international facilities and specialized production processes, connecting systems into an ERP framework soon builds to the point where rip and replace seems the easier option. For those looking to invest first time around, the costs of an ERP expert to analyse and align business processes to match the ERP system and train employees is prohibitive.”

This is simply not true. The technology to connect disparate systems and deliver the information in a clear, meaningful manner is already available. It does not matter if these are cloud, hybrid or on premise so the lower upfront investment options of cloud computing are there for manufacturers looking to expand or invest for the first time. Expensive ERP expertise is a thing of the past. Dashboards and analytics based on familiar, industry standard platforms have replaced complex proprietary options.

Misconception 2: ERP is complex and always results in projects running over time
Manufacturing is a complex industry. Research shows this will only increase. Analyzing business processes and developing software to automate them should eliminate complexity but when it doesn’t, we have to throw time and resource at the project and use brute force to crack the nut.

Now we know better. Firstly complexity is no bad thing – it is a mirror of the business. It enables operational precision and commercial opportunity. But complexity can inhibit innovation so focus on making processes tight and lean before they are automated. As a result, an ERP implementation delivers value earlier and is completed quicker.

Misconception 3: ERP implementations are invasive and disruptive
Connecting the mass of data and information to deliver a working ERP system is a huge task. It is dwarfed only by the ongoing use of ERP that demands software upgrades, training, security patches and a lot more besides. This is a huge drain on the resources of the company.

Wrong again. Intelligent deployment delivers consistent, meaningful information to the end user regardless of the deployment method, so a business can be up and running with ERP in days. A modular, event driven approach means manufacturers can get the capabilities needed in the order they want without disrupting other areas of the business.

Misconception 4: ERP vendors are inflexible and notorious for their lack of support
Some software vendors can disregard the pains of manufacturers, ignoring the realities of budget and IT resource limitations as well. Believing that the software is always right, business processes have to be changed and people retrained.

Well I cannot speak for others but not at Infor. We spend thousands every year researching the issues and challenges facing manufacturers. We spend millions developing solutions to help solve these problems and we are in this for the long haul. That goes for both the software and services.

So why have these myths never been slain before? There are many possible reasons but I believe it is because manufacturing has rarely dared to think differently. Thankfully, this is now changing. Operational directors are not just accepting what the software industry tells them they can have.

Savvy manufacturing leaders now start with an outcome – for example a 20% cost decrease – and ask software vendors what they can do to make it happen. Thinking differently, daring to push manufacturing technology beyond current limits should be encouraged. Destroying myths and accepted wisdom will be a hallmark of those manufacturers set to succeed.

More on Selecting ERP

Why Are A Handful of Leaders Better At Performance Improvements?

Assuming you have effectively answered the 4 questions that every business must continuously ask themselves during and after setting the company’s strategic plan and objectives:

  • “Why” is it important to change now?
  • “What” must improve & what will it mean to our business?
  • “Who” will need to be involved in the execution?
  • “How” will we achieve the stated objectives & how will we measure success?

Then the answer to your question is somewhat simple: You should focus on alignment and visibility.

From the high level strategic plan, a strategic plan must formed for each department and it must align with the company’s overall vision and objectives. Failure to align these plans to the overall vision and objectives of the company will stall or halt progress, Then the management tools must provide visibility of how day-to-day activities support the each department strategic plan and contribute to the company’s overall goals and objectives. Finally, there must be a concentrated effort by management to constantly monitor at both the strategic and operational level to ensure that decisions being made and projects being executed are aligned with the strategy.

What must be overcome is that many companies today are very reactive and focus on the next week, month or quarter. This causes them to lose sight of the long-term strategy. As a result, the strategic plan is no longer practical as progress will be obstructed. The most important part of a strategic plan is alignment and visibility. When the day-to-day management systems are not linked to the strategy then managers (and employees) are not considering strategy when they make decisions. In this case we cannot expect to see progress.

In conclusion, if the long-term strategy begins at the corporate level and if each department contributes their own long-term strategy which supports the overall business strategy and our daily activities are aligned and visible then it is likely an organization will see rapid change that is stainable over time.

More info: http://synergyresources.net/consulting/strategic-business-services/

SBS – Business Revolution Through Evolution

In a time where manufacturing companies in America are struggling to survive, Synergy Resources Strategic Business Planning Program has provided our company with a roadmap to achieve World-Class performance. This program has re-energized our employees and our management team and focused our company on growth and efficiency through operational excellence. Through the execution of this program we now understand the opportunities we have for improvement and we are excited about our future and the prospect of continuing our partnership with Synergy’s Strategic Business Services team.

– Richard Meisenheimer
President & Second Generation Owner, Spectrum Associates

Continuous improvement amounts to an ongoing effort to improve products, services, or processes. Incremental improvements over time coupled with “breakthrough” improvement all at once. Delivery focused– customer-centric– processes are constantly evaluated and improved. Internally, this can be seen as more efficiency and flexibility. Externally, customers will appreciated shorter lead times and better products.
SBS is the purpose of strategic planning is to determine where an organization is going over the next three to five years (vision) and to ensure the goals and objectives of the current year are driving the company forward in this direction (mission). The focus of a strategic plan is on the entire organization, its people, its process and its products. This is different than a business plan where the focus is usually on a particular product, service or program. The way that a strategic plan is developed often depends on the nature of the organization’s leadership, culture of the organization, complexity of the organization’s environment, size of the organization and expertise of the facilitator.
Synergy’s 4-Steps to Success strategic planning program forms the foundation on which visions can be realized. We apply emphasis on building a
culture focused on a mutually supportive, highly visible, result oriented, employee driven system of continuous improvement.

Throughput Accounting

Welcome to Synergy Resources’ Continual Improvement in Manufacturing (CIM) Journal. Over the next several months, we will be exploring here a variety of techniques that can be used to continually improve manufacturing operations. We strongly encourage you to post questions and leave feedback.

The greatest benefits come from addressing problems in fundamental areas. An important element in continually improving is the ability to accurately predict the benefits that an improvement will bring to the company. To accomplish this, we recommend a school of thought known as Throughput Accounting.
Managerial accounting is the process of gathering and analyzing data for the use of managers in making decisions. Throughput accounting is a school of thought put forth by Dr Eli Goldratt (1948-2011), author of “The Goal” and several other excellent books. Dr. Goldratt invented Throughput Accounting to replace the more traditional Cost Accounting approach that had been in use since the early part of the 20th century and which had begun to fail managers. The purpose of the measurements called for in Throughput Accounting is to give managers clarity: to predict the effect of proposed actions on the profitability and health of the company.
A primary measurement in Throughput Accounting is called “Throughput (T)”. If we think of the company as a money generating machine, T measures the amount of money that the company generates through sales. It is not the same as the sales of the company. The throughput value of what is sold is the selling price less the “Truly Variable Cost (TVC)” that was incurred in order to make what was sold. TVC includes costs of materials, purchased components, sub-contracted services and sales commissions paid for what was sold. TVC does not include any labor that was paid for by the hour or salary nor does it include any costs associated with running the company that cost accounting typically call “overhead”.
In essence then, T measures the value that was added to the elements needed to accomplish the sales that were paid for with a unit price.
Here is some data about Alpha Bravo Manufacturing Company (ABM):

Sales value of orders to be shipped this month$33,000.00
TVC for orders to be shipped this month$10,000.00
Expected Throughput this month$23,000.00
Cost to operate plant each month$21,500.00
Expected pre-tax profit$1,500.00
Capacity hours per month$688.00
Cost per capacity hour$31.25

Let’s suppose that we are managers at ABM and we are in a meeting on the first day of our month. We are being asked to decide whether or not we should take an order. This order will increase our monthly sales by $3,500. The material will cost $1,600. Manufacturing the order will take 68 hours of capacity which will not cause any of our resources to be overloaded.
Traditional managerial accounting would look at the cost to make the order and compare the cost to the sales value. In this case, 68 hours of capacity would equal $2,125 in manufacturing cost. Add to this the $1,600 in TVC (material) and the total cost of manufacturing would be $3,725. Comparing this number to the sales value of $3,500 would lead us to decide to not accept the order since accepting the order would cause us to lose $225. Better to leave the resources idle than to lose money!
But wait: it costs us $21,500 to operate the plant whether it produces or not. We do not expect to have our workers to take unpaid time off on days there is not a full day of work for them to do. Let us look at this question through the lens of Throughput.
An order bring $3,500 in sales that uses $1,600 material would generate $1,900 in Throughput. Our new expected T number for the month becomes $24,900. Manufacturing this order does not increase our cost of operation. We will only use capacity that otherwise would have been idle. Therefore our expected pre-tax profit would increase be $3,400, an increase of $1,900. The entire increase in T brought on by this order would be profit! By accepting this order, we would not lose money; rather we would more than double our profit!
This example is only a brief glimpse into the power of Throughput Accounting. Please come back for next week’s blog post to learn more.

Sherwood Turns Up The Heat With VISUAL ERP

With Integrated Financials, KPI Dashboards and streamlined Material Planning and Operations, Sherwood will really be turning up the heat with VISUAL ERP.

Sherwood IndustriesSynergy Resources today announced that Sherwood Ind., a Victoria, BC-based manufacturer and distributor of wood pellet stoves and barbeques has selected VISUAL for their ERP initiatives. With plans to streamline operations, and enhance customer service, Sherwood becomes another of the hundreds of Canadian manufacturers securing their future with VISUAL.
During their extensive 12 month ERP evaluation, Sherwood reviewed many popular offerings including SAP, MS Dynamics NAV, Industrios, Job Shop and Epicor. VISUAL was the only system that combined all the integrated manufacturing and operational functionality needed, without the risks of an untested, ‘bleeding edge’ ERP.

About Sherwood Industries
Sherwood Industries Ltd. is the manufacturer of the ‘Enviro’ brand of heating products. We are located in Saanichton (approximately 16km north of Victoria) on Vancouver Island in British Columbia. Sherwood Industries has an extensive manufacturing facility where we employ cutting edge technologies such as CAD (computer aided design) and a state of the art steel cutting laser, all designed to give you the best design for your home with the highest standards of engineering.Since 1988, Sherwood Industries has been a leader in its field producing high quality gas, wood, and pellet appliances.
More on Sherwood Industries

“As Sherwood continued to grow, legacy systems were not meeting our information needs. We needed a system that supported our current growth, as well as optimize our business improvement changes,” said Steve Davis, Sherwood’s Production Planning Mgr. “We selected VISUAL because it includes more ‘out of the box’ functionality than any other system we reviewed. VISUAL was the only system that all our key players agreed upon.” “Advanced tools such as EPAK (automated SOP/user documentation creation and training tools) will help us keep up with our ever evolving processes.” As Sherwood’s products are distributed worldwide, they needed a financial solution that accommodated multiple currencies at both ends of the supply chain. VISUAL’s Financials module is completely integrated with operations and meets their accounting needs today and into the foreseeable future.

At the click of a button, real-time data will not only assist customer service with VISUAL’s user-friendly CRM, the Advanced Material Planning system will also help Sherwood ensure they are carrying the right inventory mix at the right time. And VISUAL’s real-time material planning tools will help reduce both raw and finished goods inventory.

VISUAL ERP quickly converts customer requirements into manufacturing requirements and then executes them efficiently. Lean concepts eliminate redundant or wasteful steps that users may be forced to go through with other manufacturing software.

It provides a compelling visual presentation that shows how each part of the manufacturing process relates to the other parts-helping to resolve bottlenecks, schedule effectively, and price jobs accurately.

It supports manufacturers mixed-mode production strategies, including engineer-to-order, make-to-order, assemble-to-order, and make-to-stock; and it displays all key statistics on a single screen, helping ensure that schedules are met, materials arrive on time, and costs are in line with estimates.
Targeted at small to midsized manufacturers, VISUAL includes core capabilities that will optimize Sherwood’s organizational resources, strengthening its competitive positioning. VISUAL supports Sherwood’s entire business lifecycle, from planning to producing and shipping. With the use of VISUAL’s intuitive user interface, it handles all operations including, CRM, material requirements planning, scheduling, costing and manufacturing execution.