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An important lever for modern organizations.
Sourcing is a key component of your Supply Chain – perhaps the most important part. As companies are navigating an increasingly turbulent yet robust economic climate, businesses in manufacturing, mining and metals, food and beverage, and other industries are looking for ways to reduce raw material procurement spending and offset rising material costs. Faced with these challenges and demand outstripping capacity, purchasers feel an increased need for stronger vendor relationships.
That’s where Strategic Sourcing comes into play. By overhauling sourcing frameworks and opting for an integrated approach, enterprises can foster closer vendor relationships, reduce the total cost of ownership, and lay the groundwork for sustainable success.
Download our eBook: “Understanding the Importance of Strategic Sourcing” to learn more about strategies for dynamic supply chain sourcing.
Are you getting the most out of your current sourcing vendor relationships? Contact us today to discuss how to strengthen your strategic sourcing strategy.
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Marketplace pressures have forced procurement professionals to abandon traditional sourcing practices and implement more responsive strategies designed to promote organizational efficiency, agility and flexibility for growth, not to mention cost reductions. For businesses on the outside looking in, it might be difficult to understand how strategic sourcing differs from other long-established procurement practices. Here’s what differentiates truly strategic sourcing strategies from their predecessors:
Data dominates strategic decision-making
In the past, procurement professionals focused on building and maintaining relationships with suppliers. This makes sense on the surface. After all, vendors are more likely to provide price reductions and special services to loyal customers than they are fickle patrons. However, these connections can become problematic. Service agreements might fade over time as casual collaboration usurps formal partnership. This can lay the groundwork for cost increases and significant breakdowns in service delivery.
Conversely, strategic sourcing strategies place more focus on data analysis rather than relationship-building, according to Insight Sourcing Group. Instead of measuring vendor performance via the quality and frequency of personal interactions, procurement teams utilizing this methodology base their decisions on actionable KPIs and regularly review active contracts to ensure adherence. While impersonal, this approach often generates optimal return on investment as it allows procurement teams to partner with high-quality suppliers and therefore strategically source materials based on real-time marketplace conditions. This operational strategy is essential today because of fluctuating raw material prices, according to analysis from analysts at Knoema.
Growth outpaces gain
Stakeholders in most departments normally gravitate toward operational strategies that net quick wins. Procurement professionals are no different – and for good reason. More than 80 percent manage activities that directly affect the bottom line and contribute to company success, analysts for PricewaterhouseCoopers found. As a result, most are under pressure to appease executives who answer to shareholders looking for immediate, demonstrable progress. Unfortunately, quick wins do not translate to sustainable success. Deals made in the interest of immediate budgetary or operational improvement often lose their luster over time and can become budgetary burdens, the organization discovered. Additionally, some vendors draw up contracts in anticipation of this strategy, front-loading potential agreements with discounts or credits that disappear following the first year or so.
On the other hand, supplier agreements developed as a part of strategic sourcing best practices center on short-term and long-term company needs, allowing vendors to provide services that change or scale with the organization. The benefits that come with these contracts tend to unfold slowly, making them considerably less flashy than deals designed to generate quick wins. However, they undoubtedly have a more lasting affect on operations by facilitating extended growth.
Strategic thinking begets bargains
In the past, vendors had the upper hand when negotiating with businesses due, in part, to the fact that few procurement teams spent time looking into alternative sourcing options, Insight Sourcing Group reported. In fact, best practices dictated that procurement professionals solicit a handful of proposals and choose the cheapest out of the bunch. This was, of course, an immensely problematic strategy that not only increased the likelihood of budgetary overrun but also promoted operational decline. The emergence of strategic sourcing has changed the procurement paradigm, allowing organizations to take back bargaining power via strategic thinking.
Today, businesses confronted with unfavorable supplier agreements are likely to look for other arrangements by mining their supply chains for sourcing functionalities that might negate the need for external partners. Sometimes, enterprises decide to keep things in-house and avoid third parties altogether. In other cases, this practice prompts vendors to reassess their original proposed agreements and draft new contracts with more favorable terms. No matter the strategic method of choice, organizations that pursue methodologies centered on strategic thinking can save money and ensure they can bring in the raw materials needed for production.
These are just a handful of the variables that separate traditional sourcing models and strategic approaches, which continue to increase in popularity due to their effectiveness. Indeed, businesses that embrace strategic sourcing can develop sustainable workflows that facilitate long-term growth and keep costs low – truly the best of both worlds.
Here at USC Consulting Group, we’ve been working with organizations in almost every industry for 50 years, helping them transform their operations and adapt to marketplace shifts of all kinds. Connect with us today to learn more about our experience and how we can help your company bolster its bottom line by embracing strategic sourcing.
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This holiday season, American consumers are expected to spend more than $720 billion, an increase of nearly 5 percent over sales figures from 2017, according to the National Retail Federation. But as buyers bolt to malls to take advantage of last-minute deals and purchase gifts online, manufacturers here and abroad are navigating a holiday rush all their own.
During peak season, businesses in the manufacturing space – especially those that serve brick-and-mortar and online retailers – pour all available resources into ambitious shop-floor initiatives centered on facilitating optimal output and service delivery.
Finding success during peak season is, of course, no easy task. As competition increases, more production roadblocks materialize. This is why manufacturing organizations must develop and deploy specific operational strategies designed to achieve favorable results during peak season. When they do, their clients can keep their shelves stocked, customers get the products they want and company coffers grow. What exactly are these peak season manufacturing best practices?
Keep an eye on manpower
Worker absenteeism is an acute year-round problem that only grows worse during peak season. According to research from the Society for Human Resource Management, an estimated 72 percent of American businesses said that workers take unplanned time off around the holidays, reducing staff levels and making it harder for businesses to hit production targets.
Manufacturers can fight back against these operational roadblocks by planning ahead and introducing innovative solutions such flexible shifts, which can bolster employee engagement and retention. Moving forward with ambitious hiring initiatives is another proven option, as this allows firms to cultivate corps of willing workers prepared to work to embrace the holiday rush.
Address the supply chain
As customer demand reaches its zenith, supply chain operations become even more critical. Manufacturers that plan for this eventuality set themselves up for success. According to The Wall Street Journal, in autumn 2017, Nintendo began ramping up supply chain processes for its new Switch video console, which had suffered from logistical issues, making it harder to acquire after its release date earlier that summer. Pre-holiday planning allowed the company to meet customer demand during peak season and laid the groundwork for historic sales, according to Polygon. Manufacturers can find similar peak season success by anticipating the effects of heightened demand, safeguarding against issues and ensuring supply chain efficiency ahead of the holiday shopping season.
Prepare for marketplace changes
With every peak season comes unique economic challenges. Manufacturing businesses must take steps to mitigate shop-floor issues stemming from recent marketplace developments. Many companies looking for success in the final weeks of 2018 have begun putting into place processes designed to address the trade war unfolding between the U.S. and China, a conflict that has complicated raw material procurement practices, Logistics Management reported. Some have decided to secure materials and components from China as early as possible, thus beating the implementation of the tariffs. Others are biding their time, developing backup plans and hoping the countries come to an agreement that doesn’t include tariffs.
Manufacturers that implement these and other peak season best practices can end the year strong and make out like so many of the bargain hunters out shopping for holiday sales. That said, implementing these strategies alone might prove difficult for some teams. USC Consulting Group is here to help, leveraging decades of consulting experience to assist manufacturers intent on optimizing their operations and boosting the bottom lines. Contact us today to learn more about our work in the manufacturing space.
Recalls are on the rise in the food and beverage industry, but processors have the power to stem the tide by investing their time and energy into a renewed commitment to operational excellence.
Although recalls happen for myriad reasons, recalls related to undeclared ingredients remain a persistent threat throughout the sector second only to pathogen contamination, according to the Department of Agriculture Food Safety and Inspection Service. Between 2000 and 2016, 3 out of 10 recalls were the result of undeclared ingredients.
When businesses unwittingly fail to disclose the so-called “Big 8” allergens – milk, eggs, fish, crustacean shellfish, tree nuts, peanuts, wheat and soybeans – they expose trusting consumers to life-threatening dangers. So it’s no wonder why food and beverage companies will spend whatever it takes to avoid such risks. According to a study sponsored by the Grocery Manufacturers Association, a food industry trade group, the average cost of a single recall is $10 million in direct damages. This figure does not include indirect losses ranging from settlements from consumer class-action litigation, long-term reputational damage to the brand in question or issues faced during the recall recovery process, such as insurance rate increases and soured relationships with suppliers and vendors.
What can your food or beverage processing plant do immediately to prevent recalls related to undeclared allergens from wreaking havoc on your bottom line, customer loyalty and continued success?
Review labels against ingredients
Labeling errors, according to the aforementioned USDA FSIS study, represented 63 percent of all Big 8 recalls between 2005 and 2015. Combined with ingredient errors – formulation changes without updated labeling, etc. – the two caused three-quarters of all reported Big 8-related recalls during that time.
As such, food and beverage companies should perform a preemptive audit of all product labels by verifying them against actual ingredients. Stakeholders in this effort ought to pay close attention to ingredients that recently underwent reformulations or arrive at their facilities already processed. Although processors may have removed one allergen by way of a substitute, they may then inadvertently introduce new allergens or other contaminants. Other areas to address include:
Because the Food and Drug Administration does not preapprove food labels, it’s up to the food and beverage industry to keep up with current labeling regulations. Whether an organization chooses the phrase may contain milk or processed in a facility that also processes milk is the discretion of the labeler, provided it accurately portrays operations. But remember: No overly cautious language on the label compares to adhering to good manufacturing practices.
Companies must break down all ingredients listed on their labels to their most basic levels in order of predominance by weight. For example, the FDA recently sent a warning letter to a bakery in Massachusetts for not itemizing the sub-ingredients in its “Natural Sourdough Starter.” The bakery also included “love” as an ingredient. While a nice attempt at out-of-the-box marketing, there is no creative license when it comes to properly labeling ingredients. Be clear and precise.
Third-party manufacturing is an excellent method for preventing cross-contamination at a facility, but it does not automatically free the processor from liability. To know for sure what substances all ingredients contain, food and beverage companies must establish good internal process controls supported by transparent supply chain relationships.
Investigate areas of possible incidental contact
Food and beverage plants should do everything in their power to isolate segments of their production lines where risk of incidental contact are high, not to mention any other areas unrelated to production where such accidents can occur.
But isolation isn’t limited to placing physical barriers between operations with and without allergens. These facilities also need to take a behavior-minded approach to process control:
- Target rework: Every time allergenic materials are handled, the risk of contamination increases. Employee must receive comprehensive training on how to perform processes involving allergens, but companies should also develop a standard strategy allergen-specific rework just in case.
- Use lockouts: Follow lockout/tagout procedures for any equipment that comes in contact with allergenic ingredients until staff can properly sanitize it. Similarly, establish strict rules about single-use protective materials, such as gloves.
- Visualize dangers: Create a system for drawing attention to all allergenic materials on the shop floor and equipment that regularly comes in contact with allergens.
Strengthening the resilience of your food or beverage company against allergen-related recalls may come at a costly premium if your teams don’t know how to roll-out initiatives efficiently. Talk to the operations management experts at USC Consulting Group to learn more.
Food and beverage companies need to meet customer expectations and optimize operational processes to succeed in a new market. However, not every business has the means to contend in this new environment, nor the internal processes to counter evolving consumer tastes. Still, there are strategies organizations in the industry can implement to help keep them modern and marketable.
For more insight on how trends in the food and beverage industry impact manufacturers today, download our e-book, Trouble at the Table.
Who knew a little label could cause such a big commotion? Food and beverage labels in the U.S. will become battlegrounds over the next year as the industry reinvents itself in the wake of a new political regime and shifting consumer expectations. How might these changes impact how manufacturers operate?
Recent regulatory rules under the Trump administration
Perhaps the most seismic change of late regarding how all businesses in the U.S. will be regulated, President Trump recently signed an executive order requiring the removal of two federal regulations for every one instated. Should this one-in-two-out rule hold, food and beverage producers may find themselves altering not only how they label food but how they produce it.
A new president means a new approach to food and beverage regulations.
For example, last summer then-President Obama signed a bill mandating the use of labeling for genetically modified foods. However, the bill allowed food and beverage companies to use a QR code on their products instead of an outright designation identifying GMO products. Currently, neither side of the issue is wholly content with the final decision, so the matter will likely come up again for review or restructuring in the near future. But now under the Trump administration, further discussion may have to include a selection of regulations for the proverbial chopping block.
Although Trump’s regulation-loosening executive order may make things easier for affected businesses and their abilities to produce cost-effectively, there’s no arguing these companies will already require lean, streamlined operations capable of flexibility to benefit from changes as they come while still upholding safety and quality standards. And with consumers more focused than ever on what they eat and how it’s processed, labeling could be at the heart of this volatile transition period.
New labels provoke conversations regarding sweeteners
In mid-2016, the FDA updated the ubiquitous nutritional label to both emphasize things consumers should be aware of and include data that had been left off in the past.
According to the FDA website, two changes in particular could greatly affect producers of sugary foods and beverages. First, labels must now include a “declaration of grams and a percent daily value (%DV) for ‘added sugars.'” Second, products containing between one to two servings per package must drop down to one and adjust data accordingly, since many people consume these goods in one sitting.
Most manufacturers will have until mid-2018 to comply. Others that make less than $10 million in annual food sales have until mid-2019. Presumably, many in both camps will spend time this year planning how best to reduce added sugar levels or what alternative sweeteners they could feasibly substitute without altering taste dramatically. Either way, these food and beverage producers will need to rethink raw materials sourcing and chart out new partnerships with suppliers.
This could prove difficult for popular sugar alternatives such as stevia. In early June 2016, U.S. Customs and Border Protection seized shipments of stevia from China because of a ban on imports produced through forced labor, according to Fortune. In giving up straight sugar, F&B manufacturers may be forced to seek out a more transparent means of managing its supply chain and a long supplier vetting process. These could prove excellent opportunities to simplify these processes as best as possible for all raw materials involved in production.
The U.S. food and beverage industry will have a lot to chew on in 2017, but some challenges may be harder to swallow than others.
Rise of the meal kit
For families everywhere, the all-in-one complete meal in a box delivered to your doorstep seems too good to be true. And in a sense it is – according to a 2016 study from market researcher NDP Group, only 3 percent of adult consumers in the U.S. have actually tried meal kits. Granted, that’s still millions of people, not counting the millions more who will follow suit when big-name food companies join in on the venture. And they definitely will.
While many meal kit startups struggle to scale with a meteoric spike in demand over the last few years, their presence alone has irreversibly reshaped the food and beverage industry and revealed a value proposition for the F&B establishment. Another study performed by Fast Casual found millennials “are twice as likely as their older counterparts to have used a meal kit service within the last three months.” Meal kits have piqued the interest of the now largest generation of consumers. The industry will have to respond somehow. But is the meal kit phenomena more than a mouthful for F&B companies? Can their appetite for high profits be more than enough to digest this new market?
“Evolving operations to accommodate meal kits has already proven risky.”
Evolving operations to accommodate such a product and service has already proven risky. While big names in food and beverage may possess the capital to survive the disruption, this seemingly small shift in consumer demand actually affects the full length of the traditional supply chain, from sourcing ingredients all the way to end-user distribution. With so much in flux, the potential for profligate spending or exorbitant management costs are high.
Businesses that have subsisted for decades on legacy suppliers will have to forge new partnerships. Production teams may require new assets to prepare and package their own meal kits, or at the very least, contend with a slew of new machine changeovers in need of standardization and continuous optimization. Direct-to-consumer delivery will, in most cases, assuredly call for an expansion of current logistics network, reliance on a third party for that crucial last mile, recruitment, and job training. It is reasonable to expect the food and beverage industry to focus its attention on reducing costs for conventional operations while it works out the kinks in new processes. Only then can they rival popular meal kit startups and familiar competition also looking to adapt.
Fall of the sugary drink
In 2016, the World Health Organization released a study calling for a 20 percent tax hike on sugary drinks to significantly reduce consumption and thus prevent health conditions like obesity, diabetes, and tooth decay from corroding global health.
Sugary drink taxes will push beverage makers to think outside the bottle.
Even though opponents to the WHO’s recommendation cite lack of evidence that regulation will actually curtail consumption, cities in California and Colorado have instituted taxes, according to Food Business News. Sugary drink taxes have also come to vote several times over the years, albeit unsuccessfully, and F&B interests will no doubt challenge taxes as government overreach.
Nonetheless, beverage makers targeted by such taxes should prepare for the worst and hope for the best. Operational cost-cutting measures today could feasibly soften the blow from a steep drop in consumer demand and free up funds for innovating new products that appease the thirsty masses and their low-sugar standards. To start, beverage producers should map out their production lines and look for major areas of material waste. Use the milk industry as an example: Research from Design World Online revealed inefficient plant designs can lead to about 3 percent product losses daily. Business leaders should focus their attention on equipment cleaning operations and packaging, then continue on from there.
Companies manufacturing hardwood flooring have struggled to right themselves since the housing market crash in 2008. After all, when real estate underperforms, so too will home goods producers of all kinds. Though the housing market has been slow to recover, wood flooring manufacturers have risen to their challenges and recovered in significant ways in the years following the recession. Floor Covering News research revealed U.S. businesses grew their sales by 6 percent in 2015 to more than $2 billion, or 830 million square feet at wholesale, even at a time when many potential homebuyers still rent.
What challenges await hardwood flooring producers in 2017? Will the momentum the industry generated over the last few years be enough to overcome these hurdles?
Rising raw materials costs and increased supply volatility
According to an industry survey conducted by the National Wood Flooring Association through Hardwood Floors Magazine, 46 percent of all responding NWFA members reported raw material cost increases between 2015 and 2016.
“White oak surpassed red as the most sold species of wood in 2015.”
What could be behind this fluctuation? If the recent popularity of white oak is any indication, the culprit is a confluence of outside-market competition and consumer demands. White oak, a highly durable and rot-resistant material according to The Wood Database, provides customers with an all-natural product that competes well with high-strength composites without much processing. So it’s no surprise white oak surpassed red oak as the most sold species of wood in 2015 according to the aforementioned NWFA survey.
“This is the first time white oak has overtaken red oak in our survey results,” says the study.
However, other industries seek out white oak for its attractive properties. Whiskey producers, for instance, require casks and barrels, and red and white oak are operative base materials. The New York Times reported U.S. whiskey production has increased over 40 percent in the last decade, no doubt affecting barrel use on its own.
Furthermore, extramarket competition also means contending with a rival’s regulations. In this regard, contentious wording in the Federal Alcohol Administration Act requires spirits producers to use their barrels only once, forcing these businesses to churn through these products at a faster rate, buttressing sales for industrial coopers and increasing raw materials costs for all other industries hoping to get their hands on white oak.
In light of this, flooring manufacturers would be wise to examine their product lines, consumer trends, what other industries greatly consume these supplies and recent activity impacting demand in their respective markets. As housing goods producers recover from a downturned global economy, leveraging this pertinent data for guiding intelligence will ensure a steadied rehabilitation.
Manufacturers beware: Laminate flooring may have fallen out of favor thanks to Lumber Liquidators.
Tightening regulations and high consumer scrutiny
In the wake of a recent wood floor manufacturing scandal, regulatory bodies are cracking down hard on the industry and effectively adding to upstream supply chain costs through an increased demand for source visibility.
Earlier this year, CBS News exposed industry giant Lumber Liquidators for selling Chinese-made products containing high levels of formaldehyde, a recognized carcinogen. Who knows what will happen to Lumber Liquidators, but many flooring manufacturers believe this represents a watershed moment in the industry and how it manages imported goods from the forest all the way to the consumer. Data must traverse that entire supply chain as well, as the Lumber Liquidators controversy no doubt spurred consumer awareness in the dangers lurking in noncompliant flooring.
As wood flooring producers incorporate more technology into their supply chain designed to reinforce strong reporting and vendor accountability, they will need to position these changes as value propositions for their customers, especially if these initiatives will eventually affect sale prices. Demonstrating a commitment to safety and consumer protections will not only allow an organization to capitalize where competitors fell short, but manufacturers can rest assured knowing their investments into transparency will pay off in other ways. These are not empty gestures, after all – the right reporting and analytics tools could prevent a less-than-reputable vendor from harming your brand and your customers.
Home remodeling can serve utilitarian purposes as well as personal aesthetics. Because of this, market success for businesses that produce kitchen cabinets, bathroom fixtures, doors, and windows is highly contingent on consumer trends. Let’s examine a few recent consumer developments that could affect cabinetry production.
Is housewares rightly hesitant to dive into millennial marketing?
Strong growth in the housewares sector typically aligns with growth in the housing market. After all, if people buy homes they’re more likely to spend on appliances and fixtures. According to the Kitchen Cabinet Manufacturers Association, cabinetry has seen steady sales increases over the last two years, 8.5 percent since 2014. KCMA cites a recovering housing market as a remarkable catalyst for those gains.
That said, some naysayers will point out low home buying on behalf of millennials as grounds to be wary. After all, if population estimates from the U.S. Census Bureau hold true, millennials surpassed baby boomers in size in 2016, making them the largest and perhaps most lucrative consumer opportunity for businesses. However, as home buying rates continue to stay low among younger consumers, how can manufacturers in the housewares sector expect to justify innovation tailored toward the next generation?
The truth is, everyone loves a bargain – increasing operational efficiency at your facility could ultimately benefit unit pricing in a way that’s beneficial to distributors (and thus customers) without impacting profit margins. An excellent method for innovating that will pair well with this idea is investment into simple, perhaps unfinished, contemporary designs made from eco-conscious materials like recycled particle board or low-VOC finishes and adhesives. Going au naturale also reduces processing requirements for manufacturers.
Productivity gains through equipment require training and proactive maintenance
Although housewares continues to see sales growth – even though market factors could, at any time, pull the decorative Oriental rug out from under its manufacturers – businesses should not invest in productivity-centered capital-intensive assets without first allotting proper consideration for processes which bolster equipment reliability. With so much riding on customer service these days, unforeseen complications could do a number on a business’s ability to meet expectations.
Paul Downs, founder of Paul Downs Cabinetmakers, shared his cautionary tale regarding asset management with The New York Times back in 2011. His lesson bears repeating. Downs was able to integrate a high-capacity splicer and veneer-gluing machine onto his production line and increase monthly sales by about 42 percent, but only after learning how to overcome complex setup issues and convincing operators of their importance, which took considerable time and effort. But in the end, it was obviously worth it.
No investment happens in a vacuum, an integration may be a much higher hurdle than sticker price. So, cabinetmakers thinking about redirecting their recent windfall toward new assets, establish an asset management and implementation plan first, lest your purchase get the better of you.
New cabinet styles could disrupt materials procurement for cabinetmakers.
Mismatched cabinetry could impact portfolio and materials
Uniform cabinetry is passe. According to the Woodworking Network, many homeowners shopping for cabinetry today express interest in mixing different styles of cabinets in their kitchens. Different materials, wood species/products, stains, even colors – everything is fair game, and from a manufacturing perspective, such boundless variety could have a noteworthy impact on not only production, but inventory management.
With every product portfolio expansion, manufacturers can expect additional time spent on changeovers unless facility supervisors drill best practices:
- Create/augment a standardized system for equipment changeover
- Train all equipment operators on the same methodology
- Emphasize reasons the standard trumps alternatives
- Collect and analyze operational data to confirm adherence
Furthermore, with more customers picking and choosing their own cabinet styles product by product, manufacturers ought to anticipate a slight leveling between materials needed to produce top sellers and more exotic offerings. Theoretically, this model for change follows the same course as other home remodeling trends like “accent walls” in the paint industry. As more consumers follow the fold and spice up plain-colored rooms with a splash of color on one wall, hardware stores stocking paint will see customers reach for smaller cans of neutral paints and more colorful options that hadn’t sold well in the past. Thus, demand shifts.
But while many paint producers have passed the challenge onto their distributors by way of in-store paint mixing stations, cabinetry cannot – especially when customers aren’t just mixing colors, but base materials. Popular cabinetry woods like oak and cherry may see slight reductions in demand while other less popular materials receive slight boosts. It’s up to manufacturers to consult inventory specialists to see how procurement should respond, not just to wood, but to bonding and curing agents as well.
Cabinet manufacturers, as well as other housewares segments, should always consider how the latest interior design trends might impact their operations down the road and work to preempt adverse effects to customer service and line efficiency.
Six Sigma hates waste. If a manufacturing plant plans on getting any leaner, its executives, managers, and supervisors should be on the prowl for areas to streamline workflow and cut out unnecessary steps.
Depending on the industry in question, inventory may play a vital role in on-site operations. Whether inventory is used for holding spare parts for the company’s most important assets, managing SKUs awaiting completion or transportation, or storing raw materials integral to the manufacturing process, inventory management can be pivotal to efficiency.
Inventory can also, however, become a breeding ground for waste, and the stresses of an unkempt inventory can permeate throughout disparate operations, creating backlog, downtime, and unmet expectations. Let’s take a look at a few examples of how an inventory without proper curation can lead to all different kinds of waste.
Before we go any further
Though it may seem rather obvious, inventory management really only impacts industries that actually maintain a comprehensive inventory. With the rise of just-in-time supply services and kitting, many inventories across a number of different industries have been thoroughly rationalized to the point where harping on them any further would be, in a word, pointless. Sure, organization throughout a company is an ideal worth promoting, but further investing time, money, and energy into an inventory after taking certain measures will not provide an ample return.
According to a study on the link between operational performance and inventory management published in the Journal of Operations Management, only two-thirds of industries investigated experienced substantial gains with a leaner inventory. As the authors of the study suggest, understanding the role inventory plays in an individual business and measuring how deeply ingrained it is in ancillary processes. Otherwise, companies attempting to adopt a leaner mindset will expend resources unnecessarily, resources better spent on making actionable changes in other areas where they’re needed. Managing inventory waste for some will merely be a surface adjustment, but for others, it can clue them into subcutaneous operational deficiencies that can return serious value if unearthed.
Waste in waiting
In an interview with IndustryWeek, Frank Hill, director of manufacturing business development for Stratus Technologies, said 3 out of 10 manufacturers run into unplanned downtime, the number of large downtime events are on the rise, and each one costs roughly $17,000 to navigate. With so much at stake, it’s no wonder why manufacturers push to keep their assets continuously operational.
That said, downtime for many in the manufacturing sector only pertains to failed assets or big-time disruptions. That isn’t always the case. Downtime can also include any time spent not performing the value-added tasks at hand. Machinery can be fully operational, employees can be at the ready, but downtime can still occur. Rooting out the culprit might lead lean teams right to inventory.
Builds or repairs might require components held in inventory, which means employees tasked with these duties will need to locate them as fast as possible to complete their respective jobs. Without a regimented, intuitive system for hunting down these things, workers waste time between tasks. While it may only be a matter of minutes, these gaps in performance add up incrementally. To prevent these undercurrents of waste from siphoning successes, ask: What systems or procedures would a manufacturer have to enact to ensure its employees find what they need exactly when they need it?
Moreover, in the event of a large-scale downtime event, what sorts of low-tech, high-value activities can employees perform until they can return to their work? Manufacturers should develop fail-safe measures against wasted opportunities. In fact, so long as it integrates well with a company’s downtime objectives, inventory management – like cleaning, organizing, and shelving – can be something employees attend to during the wait to return value to the company during a downtime deficit.
Waste in damaged materials
Shrinkage is like a monster with many heads – a single swipe of a sword might not be enough to take the beast down. However, everything has a weakness, and for shrinkage, it may reside in catalysts entrenched in peripheral operations and processes.
Root cause analysis might confirm shrinkage directly correlates with administrative shortcomings or underutilized metrics during the procurement stage. For instance, if a manufacturer’s inventory is lousy with a specific type of fastener, it could be because orders for that component don’t legitimately reflect updated supply/demand data. As such, administration has been placing orders for parts employees don’t need and already have too many of. Additionally, supplier-manufacturer relations could also play a role in waste. If a particular component is rare or difficult to produce, suppliers may pigeonhole manufacturers into procuring more than they need. Without an effective system in place auditing and monitoring said inventory, manufacturers could be overspending upfront.
So how can manufacturers determine if their shrinkage is bad enough to devote serious resources toward? According to a study conducted by Supply Chain Visions and the Warehouse Education and Research Council, it’s all a matter of finding what percentage of an inventory is lost to shrinkage. The average inventory sheds between 0.046 percent and 0.07 percent of its contents to shrinkage, while a score of less than 0.005 percent would be optimal and industry-leading. If, however, a manufacturer’s shrinkage hovers above 1.46 percent, they stand to reap the most out of reining in its inventory.
Waste in avoiding the real problem
Similarly to the aforementioned section, inventories overburdened with spare parts could signal manufacturers aren’t addressing major issues with their on-site assets. If inventories must maintain an above-average stock of replacement components for subassemblies constantly wearing out, supervisors have essentially made a habit out of treating the symptoms and not the disease.
Instead of worrying about additional spare parts, manufacturers should instead focus on the reasons why their valuable assets aren’t performing as they should. Tracking down the primary cause of even the most minor malfunctions will not only save on costs related to managing spare parts, but also completely eliminate the downtime required to replace the worn out component, returning considerable efficiency back to the manufacturer who takes the time to truly investigate.