By Colin D. Baird
The time has come for improvements to your business, but you’re dreading them. I know, as CEO you don’t like variation-especially since it represents change away from your original thinking, but improving how you look at it may help you grow your business without adding more labor costs.
Lots of smart people have been studying and measuring the wrong things in
One night, a friend, and several professionals with MBA, CPA, and CFO proudly displayed on their business cards are helping you look at your company’s financials. You are looking closely for the obvious diseases so you can reduce the malignant maladies that are most acutely apparent. When you get to labor costs, prima facie evidence of a spreading illness catches your eyes. You stop moving down the page, and begin collaborating.
On the horizon, will our already escalating labor costs continue to grow at the same rate? You stop to think. Where are our opportunities to keep labor costs down in a meaningful, productive way without the need for more layoffs, and command and control in our employee’s lives?
Your friend, a retired Japanese engineer-certainly not the person you normally call on for help with your business suggests, “Reducing variation may be key to achieving your objectives.”
Let me explain, he says.
Variation affects wages, profits, employee engagement, and the need for continuous improvement. “Let’s look at your problems in manufacturing.” He then proceeds to tell you something you can’t forget.
“Don’t dread the SMED,” he says.
“Today’s complex machinery is very capable of doing what you want it to, but it’s also inefficient. It is common for set-up times on a single piece of machinery to exceed 2 1/2 hours…When I worked in Japan, using Dr. Deming’s Plan, Do, Check, Act model, our teams reduced set up times from hours to just single minutes … Single Minute Exchange of Dies, or SMED, enabled us to produce more goods at much lower costs.” He laughed and said, “We beat the Americans to the punch using American ingenuity and Japanese creativity to help us improve… Americans tried to force employees to work harder, we just worked smarter.”
“From my calculations, continuous improvement efforts can shave at least 139 minutes per machine off your current set-up times. Your current average is not visible on your income statement, but its outcome sure is.” “Don’t DREAD the SMED!” he said.
For more ways SMED is helping other stakeholders, visit https://www.youtube.com/watch?v=4Rl9R8vMVA4
If a machinist needs to travel, customers have to wait. This is dead loss in terms of labor expense for stakeholders, and customers. It wasn't the machinist's intent to travel, but circumstances beyond his control required it. This change in your machinist’s plans-variation as we know it, just drove your labor costs up, but the cause behind why his plans changed were not visible anywhere on your income statement.
Your Dreaded Production System
Your machinist isn't responsible for the physical layout of the shop, the distances traveled, where parts travel, or the quality and speed of equipment. He's not responsible for how and when equipment is maintained, when it will break, the effectiveness of lubricants used to machine parts, nor the purchase of lifts and rails that move parts faster and safer. His job is to machine parts; your job is to remove his production barriers, and continuously and forever improve the system that prevents him from doing his job well.
Dreading How Far Employees and Parts Travel
People, parts, and equipment travel. Travel is time that can be applied to your customer’s products. Travel is not what the customer is paying you for, and not what your employees want to do; building a quality part is. Travel is pure waste. Improve your facilities layout, cut walking distances down, and you decrease the time it takes your customer to get his part. Along with it, your money accumulates faster. Your new income will be on the financial statement for everyone to see, but your colleagues won’t know where it came from.
A Dreadful Conclusion
“Executive Management's traditional solution for solving many American production problems has been typical of the disease plaguing American leadership: use layoffs to reduce labor costs, while ignoring the bigger picture of variation that drives costs up. With only one in three employees actively engaged at work, it's obvious, blaming your employees just isn't the answer.”
“Variation- such as going from 2 ½ hours to just 11 minutes in machine changeover times isn’t visible using financial analysis. But the benefits from continuous improvement will always appear on your income statement… It turns out, we engineers understand a bit about variation,” “Don’t DREAD the SMED,” my new Japanese Sensei proclaims.