My First Experience With TOC Part 9

 

As I drove back to my plant I had a vision of an offer that I wanted to make to the Corvette Plant Manager.  If he would give us exclusive business for specific fiberglass parts, I would offer him 100% on-time delivery or the order would be free.  I also decided that our quality levels we would offer would be based upon a running average that must be greater than 98% compliance to specs.  I knew we had excess capacity because of all the throughput improvements we had made, so I was confident in our ability to assure flawless delivery of parts.  And since we had a very well defined SPC initiative in place, I felt confident that we could meet the quality requirements as well.

My next thought was about the price of our products that we would offer.  I decided that we would match our competitor’s price minus 10%.  Since we had excess capacity in our fiberglass process, I knew that as long as we covered the totally variable costs which were quite low, nearly all of what we charged would flow directly to the bottom line.  I knew this because we would not be adding any additional operating expenses beyond what we already had.  The beauty of Throughput Accounting is how easy it is to make real time financial decisions.  Since we had set the Corvette Plant Manager's visit for the day after tomorrow, I had plenty of time to create my mafia offer.

Right on schedule the Corvette Plant Manager showed up on our doorstep.  Because we had done multiple 5S events he was quite impressed with not only the cleanliness of our plant, but also with how organized it was.  He told me that the last time he was in my plant there was inventory everywhere, but since we had applied TOC to our facility, there were no longer any large piles of WIP like before.  We had also done a lot of work with visual buffer management and Drum Buffer Rope concepts and techniques, so that we knew at a glance the status of all of our orders.  He was clearly impressed!  What amazed him the most was how little our raw material and finished goods inventories we had at our site.  But the one thing that impressed him the mo,st or should I say the biggest difference to him, was the obvious uptick in the morale of our workforce.

When he had seen enough of our improvements, he simply said, “Let’s go to your office and talk.”  He told me how impressed he was with all of the changes since his last visit here, but that he wasn’t sure if we could do business.  He told me that he thought it would take a while for me to generate an offer that would turn heads at Corvette.  With that, I handed him my single page mafia offer which told him that we would generate a specific SKU at 100% on time delivery, at best cost minus 10% with a greater than or equal to quality level of 98% or the entire order would be free!  He asked me if this was a real offer or simply one to make me laugh.  I assured him that it was genuine and that if he was in agreement, that my accountant could contact his accountant that day and we could deliver our first shipment within one week.  He was flabbergasted to say the least and said that in all of his years he had never seen an offer like this and that he simply couldn’t refuse it!

The following week we delivered our first order and after a lengthy inspection, it was deemed 100% compliant.  A week passed by with the same results every time.  And then a month and six months with the same results each time.  In fact, the only quality issues we experienced in that time period were labeling issues.  Our plant’s revenue and profitability skyrocketed as did our orders from Corvette and BMW and even the Chrysler Viper body and quarter panels were added to our mix of products.  It was an exciting time for our plant and our plant which had been scheduled to shut down when I assumed the leadership of it ended up becoming the model for the entire corporation.

In my next posting, I will complete this series of posts on my first experience with the Theory of Constraints.  I hope you have enjoyed this series of posts so far and hope you have learned about the power of TOC in terms of continuous improvement.

My First Experience With TOC Part 8

 

The final episode in our effort to avoid closure is about one of our other customers (the GM Corvette facility) which was situated within 2 miles from our plant.  Even though we were in close proximity, we really didn’t produce much for them and when I arrived there I wondered why.  I decided that it was time to make an unscheduled visit to see if I could get to the bottom of this.  As I drove that short distance to the Corvette facility, I kept imagining to myself why they didn’t use us as a major supplier.  I knew we had experienced quality problems in the past, so I thought maybe that was the major reason.

When I pulled into the Corvette plant’s parking lot there was a line of these sleek vehicles parked in a line in most of the executive’s parking slots.  I got out of my car and started walking past each one, but their allure made me stop and admire each one.  I had always wanted a Corvette but could never afford to buy one.  I had never even driven one before.  As I continued stopping and looking at each one, I heard a voice behind me say, “You like these?”  I responded immediately without looking back, “You bet I do!”  He then floored me and asked, “Would you like to drive one?”  I immediately turned and looked him in the eye and smiled.  He said, “I’m serious, would you like to drive one?”  Knowing he was serious, I said, “Sure, but who are you?”  He said, “I’m the plant manager here in Bowling Green.”  I told him that I was actually coming to meet him and chat a bit about my plant’s lack of business with Corvette.  He said, “Let’s chat while we drive,” and with that he opened the driver’s side door for me and then walked around to the passenger side and crawled in.

The Corvette facility had a mile-long test track built around it so off we went.  The ride was fast and smooth and the handling was excellent.  I was driving about 65 mph when he said, “Do you always drive this slow?”  With that I punched it and soon we were at 110 mph and it felt so good and natural.  He eventually asked me what I wanted to talk with him about?  So there we were traveling at 100+ miles per hour talking shop.  I had trouble concentrating going at these speeds, but he seemed perfectly comfortable as though he had all of his business meetings like this.  I got right to the point and asked him what my plant had to do in order to do more business with his plant.  He went on to explain parts of the sorted history between the two facilities.  It seems as though even though we were the closest of all supplier plants, we were unable to ship anything on time.  And when we did, our quality wasn’t always stellar.

As I was driving and listening to him, I was thinking about what kind of an offer I would have to make to him that he simply couldn’t refuse?  “It would have to include a guaranteed on-time delivery provision,” I thought.  “It would also have to include a provision for a high enough quality level that would differentiate us from his other suppliers,” I continued.  I didn’t know it at the time, back then, but what I was considering was something we call a mafia offer these days.  He told me that he would love to do business with us again if we could show him that our facility was capable of being a reliable supplier.  With that, I invited him to come visit our plant to which he agreed.

TO BE CONTINUED

My First Experience With TOC Part 7

 

Just for the record, the first month that I took over this failing facility we lost about $600,000, but within two and a half months we were making roughly $500,000 per month.  It was such a joy to see this wonderful team of people doing so well. I was so proud of every single employee, for it was them that made it all happen!!  One of the things the management team learned and something I insisted upon that all improvement ideas would be considered on their merit as long as they didn’t violate company rules, safety policies or customer requirements.  I can honestly say that 95% of all of the solutions came directly from the shop floor workers…..the true subject matter experts.  Since that fateful turn-around, I have successfully used this basic idea….what I call active listening.  It worked for me then as a GM and it continues to work for me as a consultant.  Let’s continue our saga as I will continue to share both good and not so good experiences.

I want to share some experiences that were not so successful, but that we were able to learn from and do them right in the future.  This first experience has to do with a part’s availability problem and what we thought we were doing correctly, but obviously weren’t.  Like most companies who manufacture parts, we purchased numerous SKU’s that were needed to fabricate our products.  So, to make sure we had enough of each part, we used the Min/Max system to replenish our supplies.  For those of you not familiar with the Min/Max system, there are several “rules” as follows:

1. Determine the minimum and maximum levels for each SKU.
2. When re-ordering, never exceed the maximum level for any SKU.
3. Never re-order until you go below the minimum level defined for that SKU.
4. Total part inventory is held at the lowest level of distribution (usually at point of use).

Parts are inventoried once or twice a week and order placed, as required (i.e. when less than the minimum target).

We religiously followed these rules, but it seemed as though no matter how diligent we were, we still had stock-outs.  And when we did, we “stupidly” raised our maximum re-order quantity.  I say stupidly because all we were doing was needlessly tying up excessive amounts of cash on parts we didn’t need.  In the first several months I think our part’s inventory increased something like 40%, yet we still suffered from stock-outs.  What could we possibly be doing wrong?

The assumptions driving the five rules of the Min/Max system are based in cost world thinking.   This thinking believes that in order to save money and minimize the cash you tie up in inventory you must minimize the amount of money you spend for these items by never buying more than the maximum amount and not spending any money until it’s absolutely necessary (i.e. Order parts only when they reach the minimum level).  As I said, we scrutinized our purchases and lived by these rules, but at the end of the day, we still had numerous stock-outs which was beginning to impact our on-time delivery gains and we simply couldn’t let that happen.

One day, one of our hourly supply guys (Jimmie) said he wanted to talk to me about an idea he had to reduce these stock-outs and asked for a one-on-one meeting with me in my office.  I asked him why he wanted this kind of meeting and he told me that everyone thought his idea was silly and that he didn’t want his co-workers to know he had suggested it.  I smiled and invited him into my office and shut the door.  He asked me if he could use my board to draw while he talked and of course I obliged.  Jimmie and I talked for over two hours and I was convinced that his idea would work because it was all based upon common sense.

Jimmie suggested that we go away from the Min/Max system and replace it with a system that is completely based upon part’s usage.  What he really pushed for was ordering more frequently based upon what we had used.  He told me that he got the idea from watching canned goods at a grocery store where he observed as one can is purchased, a replacement can is ordered using their bar code system and they rarely seem to have stock-outs.

He further explained that the grocery store keeps a minimum amount of stock in their stock room to replenish what was used that day, but they frequently re-order 2-3 times per week to replenish their stock room.  I thought the idea was fantastic and asked Jimmie if he would lead the effort.  He was hesitant at first, but then agreed to do so.  We tried it and over the course of the next six months we reduced our total inventory by nearly 50 percent while virtually eliminating stock-outs.  It wasn’t all smooth sailing, but as we ran into problems, Jimmie always found a way to fix it.  What I didn’t know was that Jimmie had worked for a grocery store as a stock boy, but had obviously paid attention to his surroundings.  I later promoted Jimmie to the new job title of Logistics Manager.  It was such a proud day for Jimmie.

TO BE CONTINUED

My First Experience With TOC Part 6

 

Our team went against the company culture when we decided to use Throughput Accounting, but believe me it worked.  And because of the simplicity of the definitions for each, we were able to teach our workforce how to use them as well.  Before you ask, yes, we had to continue using Cost Accounting to satisfy GAAP reporting requirements, but for daily decision-making, we found Throughput Accounting to be vastly superior to Cost Accounting.  Let’s continue the saga of our plant in Kentucky and as I said earlier, some of our experiences were positive and some were very negative.  We celebrated our positives and learned from our negatives.

One of the pleasures of being a part of a turn-around is seeing the transformation of the systems, people, product and customer.  On this last point, the customer, I want to relate an event that took place about five months after we began our transformation.  This event was a visit we had from one of the purchasing executives from BMW in Germany.  Since we had improved so rapidly, he decided to pay us a visit to see first-hand just what we had done to improve our quality and delivery.

I mentioned earlier in the explanation of our problems with our fiberglass hardtops that there were 48 measurement points to determine how well the hard top mounted to the vehicle.  We greeted the executive team that had accompanied the purchasing executive, exchanging pleasantries and getting to know each other until he announced that he was going to our manufacturing area and that he would randomly select a completed hard top and have it mounted on their Z3.  He further stated that his quality manager would inspect all 48 control points for conformance to specs.  The quality manager took his time, inspected each point and concluded that all points met BMW’s specs.  The purchasing executive’s eyebrows rose in disbelief and with a very heavy German accent said, “Mr. Sproull, the measurements are only part of what we expect.”  He then said, “Mr. Sproull, you will drive me on the Interstate at a high rate of speed and I will listen for air entering into the vehicle.”

He and I drove to the Interstate and he instructed me to accelerate until he told me to stop, which I did.  His ear was pressed close to the hardtop mounting area as he listened for the slightest sound of air passing under the hardtop.  At 65 mph there was no sound, so he instructed me to accelerate again up to 75mph, but still no air entering the vehicle.  He had a very disappointed look on his face so, on my own, I continued to accelerate to 90 mph, then 100 mph and finally to 105 mph.  He looked at me with a fearful look on his face and instructed me to return to our facility.  We had passed his functionality test with flying colors!!

When we returned, he explained that he wanted to mount a black hardtop on his vehicle so that he could compare our paint job to his.  Painting at our facility was something we now took pride in, but not so in the beginning.  When I had arrived at the Kentucky plant I saw first-hand just how bad our paint jobs were.  We had a very old paint booth which was apparently full of dust particles that ended up on the surface of our vehicles.  I put together a team of maintenance mechanics and explained that we needed to figure out a way to keep our paint booth free of particles and that I needed some good ideas.  I also explained that we couldn’t go out and purchase a new paint booth.  To make a long story short, one of the maintenance mechanics had a side business for lawn sprinklers.  He had this bright idea that if we mounted such a system in the paint booth, we could actually clean the air between paintings by emitting a fine mist of water.  We tried it and it worked like a champ!

Back to our story.  The purchasing executive randomly selected a completed black top and we mounted it on his vehicle.  We parked it in a highly lighted area and he scrutinized it for a good 30 minutes.  When he was finished, he summoned me to the vehicle, looked me in the eye and said, “Mr. Sproull, we have a serious problem!”  I asked him what the problem was and he told me that our paint job did not match the paint job on his vehicle.  I was shocked because I knew our painting was the best in the industry.  When I asked him, what was wrong with our hardtop’s paint job, he sneered at me and said absolutely nothing!  The problem was with his own vehicle.  There was an enormous amount of orange peel on his vehicle’s surface.  My response to him was, “Would you like us to add orange peel to our hardtop’s surface?”  He looked at me and simply said, “I don’t find any humor in that remark!”

Yes, this day was one of our great days for our plant.  All of the hard work and dedication of our employees had paid off as the purchasing executive from Germany told us that he wished all of his suppliers were as good as we were.  I asked him to speak to my employees and let them know his feelings which he did.  That day was clearly a turning point for our plant both in our reputation and the morale of our workforce.  They had pride for the first time in years and I’ve always believed that “people who feel good about themselves….produce great results.” 

TO BE CONTINUED