Tag Archive: Labor

Inventory or Capacity?

November 18th, 2019

Inventory has emerged as a hot topic lately. In today’s Amazon-impacted business environment, customers expect rapid, customized deliveries, the ability to change their mind anytime and easy interactions (placing orders, returns etc.). Since clients are growing, they are also concerned with keeping up with the increasing volume. Thus, they have responded  by stocking more inventory to support increased sales and to respond to these increasing expectations.

However, as clients are taking a step back, they see inventory tying up bunches of cash unnecessarily.  Just because they have more inventory doesn’t mean they have the ‘right’ inventory in the ‘right’ place at the ‘right’ time. Inventory not only ties up cash, but it also increases costs. We are hearing about concerns regarding space, efficiencies, transportation cost impacts and more. In essence, there is a double hit to cash and profit yet the appropriate level of inventory (varies by network and strategy) is required to meet customer expectations.

In addition to pursuing inventory improvement programs to maximize your service, cash and margins such as SIOP (sales, inventory and operations planning) and proactive vendor managed inventory/ collaborative inventory programs, you might want to consider your capacity.

We had a client a few years ago who called because service issues had started to arise and customers were angry. Leadership thought the the operations team was under-performing because there must be something wrong with them since sales revenues were not increasing over 5% a year.

As we dug into the issue, we found that the product mix changed significantly which drove a greater level of operations requirements for the same dollar volume. When this occurred in the past, it didn’t create a problem (lending support to the perception that the operations team was at fault).  Yet, it turns out that as people left, they stopped replacing them because they wanted to bring down costs.

In the past, since they had excess capacity (machinery) and a small excess level of trained, highly skilled direct labor resources, they could produce what was needed as conditions changed without a problem. They no longer could use this magic bullet!

Would it make sense to maintain excess capacity/skills in a key bottleneck area of your operation (whether manufacturing, technical or office)?

If you’d like to talk about your inventory and/or capacity situation further, please contact us.

Global Manufacturers Struggle to Keep Up with Demand – Are You?

January 17th, 2018

Supply Chain Briefing

According to an Industry Week article, factories across the globe are showing signs of strain in keeping up with demand. China, Germany, France, Canada, the UK and the US all show that capacity might not be keeping up with supply. In fact, the U.S. reading from IHS Markit has reached its highest level since March 2015. Inflationary pressures are surfacing.

Are You Prepared?
This certainly coincides with what we are seeing in the market – if you aren’t preparing in advance, you are likely to be left in the dust. Customers are unwilling to wait or dampen their experience. They’ll find someone who can meet their needs. Are you prepared to meet your demand – and your competition’s?

Details and Planning
I used to work in a paper mill and converting operation like the materials pictured above. Meeting demand is far reaching – just think about the space constraints in storing these materials? Success follows forethought and preparation.

What Should We Consider and/or What Impacts Could Arise?
Do you know your capacity? It certainly seems appropriate to start by understanding your machinery and equipment capacity, your labor capacity, your storage capacity and your suppliers’ capacity to name a few. How much can you increase your volume without running into a wall? 5%, 20% or 50%?

Driving Profitable, Scalable Growth
One of the issues we partner with clients to address is how to drive profitable, scalable growth. Keeping up with growth is one question.  However, perhaps a more important question is whether you can sustain growth and have a scalable infrastructure.

Do you have the people, development programs/skills, processes and technologies in place so that you can grow without adding people at the same rate as your growth?

First of all, with virtually 0% unemployment, it will prove challenging to find good people. Next, even if you are able to find them, think about your ramp up curve for effectiveness. In most manufacturing environments, it can be 3 months to a year to bring a higher-skilled resource up the learning curve. Also, have you thought about what your customers expect in 6 months to a year? Don’t think about their current needs; look beyond if you plan to be their partner in growth.

So the question remains, are you prepared?

Robots & Demographics

June 7th, 2017

According to Industry Week and Moody’s Investor Service, there could be a significant upside to robots with the near-term demographic time bomb in Japan and Germany. Certainly, work will need to continue to get done; however, as more and more workers retire, that could become a challenge. Thus, robots might have another advantage in addition to automation – as the percentage of workers over 65 is expected to soar in both Japan and Germany, robots might substitute for labor. Also, both countries are early robot adopters. The time is ripe for robots.

Robots & Demographics

What Should We Consider and/or What Impacts Could Arise?

The key question is whether you are pursuing automation, robots and other strategies to meet your objectives – whether it is to increase efficiency, replace labor (as it becomes harder to find) or to increase accuracy. If you don’t start thinking about how to incorporate this type of strategic thinking into your plans now, the opportunity is likely to pass you by.

Technology changes daily. For example, there is never the “right” time to purchase a computer. By the time you purchase the computer, technology has changed. However, if you wait for that perfect time, it could be similar to hanging onto a Blackberry waiting for the perfect upgrade. Instead, think about which technology and automation is important in supporting your business objectives. Don’t just pursue technology for technology’s sake but correlate the appropriate technology with your business objectives to achieve success. Do a bit of research, ask experts, put together plans and ACT while the technology is still ripe.

Profit Drivers

February 4th, 2014
Profit drivers are the key to success.

The key to success isn’t to think about profit but instead to think about profit drivers.

What business isn’t interested in profit? None that I can think of – even non-profit businesses need to be concerned about whether they’ll come out “a wash.” I find that the key to success isn’t to think about profit but instead to think about profit drivers. Not all businesses are the same. Which profit drivers matter in your business?

1. Customer pricing – Of course, customer pricing is always important; however, in a business which is largely devoid of cost reduction opportunities, success will boil down to volume or pricing. Can you add value to your products and services and raise prices?

2. Volume – There are some businesses that are highly dependent on volume. For example, paper mills lose significant money when down. Thus, keeping volumes up to cover fixed costs is essential. Even in less extreme examples, it might make sense to reduce prices for certain key customers which will take you past the break-even point. Contribution margin thinking was one of the keys to success in a healthcare products manufacturer’s turnaround.

3. Raw material cost – I used to run operations for a business with a raw material cost driver. It was 70% of product cost; thus, not only purchase price mattered but also product design, scrap etc. Even though the Board of Directors was suspect of hiring when we didn’t have money, we had to bring on the right talent to address raw material cost to succeed. Invest $1 to save $1000!

4. Labor cost – Those products with a high labor cost component have likely been outsourced to China, Mexico or another low-labor cost spot. Unless the product is also bulky (leading to high transportation cost) or strategic from a value-add perspective, it wouldn’t be competitive to leave in high labor cost areas.

5. Service – Are your customers willing to pay for exceptional service (Mercedes, Lexus) and/or rapid delivery (expedite fees)? There are businesses based on these types of factors that drive success – just think of any of the high end brands. Who needs to pay $1000 for a writing utensil (Mont Blanc pens?)


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