Managing Short-Term Production Loss

For many years, our team has been pushing the need for flexibility in manufacturing operations and today still meets significant resistance to this concept. The recession of 2008 proved the need to flex your business to avoid catastrophic consequences. Most companies did well during this challenging time and learned how to survive.

 

But what happens when your company experiences a temporary significant loss of volume? Are companies able to sustain this impact? Take the tragedy in Japan as an example of a short term but major impact to many organizations around the globe. Numerous industries have been affected substantially by this crisis, such as consumer electronics: TVs, video and computers, semiconductors and the automotive industry. 

 

Regardless of how much content from Japan is on your TV, computer or vehicle, the fact remains that it only takes one part coming from Japan to be impacted by the crisis for it to be impossible to manufacture the end product. This is why there is so much suffering in U.S. manufacturing as a result of the tragedy in Japan. Honda and Toyota are operating their plants at 50 percent or less of capacity, and at this time there is limited information as to when this will increase again.

 

Back to flexibility, why is it important? Numerous suppliers in the U.S. produce components that go on these vehicles. Because of the lack of availability of certain parts and the cutting of production for final assembly, these suppliers have had their production cut to levels similar to the fall of 2008 when the faucet turned off. Just when things appeared to be looking up and volumes for many consumer products were on the rise—boom—the crisis halted production. 

 

Many small to large companies are grappling today with not only how to manage the short term loss of production, but more important, how to ramp back up when the issue is resolved and companies need to refill their pipelines with product. The following are the key strategies that are critical to flex your business in a time similar to this short-term volume crisis. 

 

• Capitalize on the downturn and plan for the upturn: Companies must use the downturn as an opportunity to trim the fat and improve the foundation while planning for the uptick of volume;

• Focus diligently on capacity planning and its accuracy during this time;

• Develop new min/max inventory levels, and build inventory on labor intensive jobs so you can bring back labor in a more measurable fashion;

• Eliminate some of the underachievers and focus on keeping only the best and brightest people. Use the downturn to your advantage;

• Temporarily reduce workforce if necessary and plan to bring them back;

• If there is no cash, they go to their bank and negotiate interest-only payments to get them through the crisis;

• When it is time to hire again, hire back one if you think you need two because it is always easier to add more but difficult to take away later;

• Reduce salaries, explain why, and make sure you give the salary back as soon as demand picks up;

• Implement a robust preventative maintenance process to optimize capacity and drive improvement;

• Look at cycle times to maximize throughput, machine use is not the issue during these times. It is the throughput per person to maintain effectiveness and cash flow.

 

These strategies may seem difficult, but with focus on these key elements your organization will not only manage the downturn effectively, and hopefully make money, but more importantly will be able to manage the large uptick without throwing waste at the problem and losing money.