Dexter Electronics is one of OBS Manufacturing’s preferred clients. Dexter negotiated a standard 25% markup on a number of OBS products. With the pricing pressures from overseas competitors, OBS is using this strategy to successfully retain a number of preferred clients. Today Dexter Electronics is ordering 100 assemblies with a delivery date of next Friday. Mary, the Customer Service Representative, feels good about the order, knowing that the plant is slow at this time and this product is one of their best selling products.
Producing the Order
Jerry and Mike have been working in the Production Department at OBS Manufacturing for the last two years. Jerry was “written-up” about a year ago for tardiness but since then he has performed without incident. Both men are cross-trained to build multiple products and are certified to run a number of different machines across the many product lines at OBS. Both are considered dependable employees who work overtime when necessary to meet the varying demands generated by the OBS National Sales Team. The OBS motto is “We Deliver At all Costs!” and their clients rely on OBS to deliver quick-turn products whenever necessary, with a high level of quality.
On this day the shop is not very busy. Jerry and Mike are working on the 100 assemblies work order #2468 that is not due until Friday. Jerry and Mike are engaged in a conversation; after all, they build this assembly all the time and the discussion helps the day go by. Nancy, their team lead is nicknamed “The Hawk” and is keeping a close eye on the floor activities of her team. From her vantage point, Jerry and Mike are moving at their traditional pace, pausing from time to time to see who is on the shop floor, and where she is.
Reviewing Performance
Finally, the day is coming to an end and Nancy reviews the Daily Work Order Report for her team. She notes that Jerry and Mike completed their work 15 seconds per assembly slower than the standard work specified for that assembly, but notes that their performance is well within the 10% tolerance allowed by the company. She thinks back over the last two days and doesn’t recall any unusual activities while Jerry and Mike worked on the order #2468. In testing, this work order revealed only two errors, which were quickly corrected, allowing the order to be shipped this evening, on time. Nancy feels proud of the performance of her team and plans to tell them so at their next team meeting.
Mark, VP of Operations, has a constant case of heart burn. The continual pressures from the CEO to cut costs, produce at a faster pace, and be more competitive, never seem to let-up. Mark is not a big fan of the preferred client agreements and from the start has voiced his opposition. However, he knew even then, his concerns were falling on deaf ears!
The Real Cost of 15 Seconds
Bob, the CEO, has run OBS Manufacturing many years and is very “hands-on” with the Sales Team. His instincts are usually reliable and he knows from the years of being in the business that a 25% mark-up will keep the company alive, as long as other products make up the difference. His sales philosophy is “Never leave money on the table!” and he makes sure his national sales team does the same. He is very proud of his company, especially his national sales team. At most of Bob’s management meetings, you can be sure; it is the sales team that saves the company from inevitable doom!
Mark asks Brian, the Quality Director, to take a random sampling of preferred client work-orders and determine the “real” impact on OBS. One of those orders is #2468. Here is the result of that study. The 15 seconds of conversation across all 100 assemblies resulted in:
- Reducing the sales margin from 25% to 15%
- A loss in profits by $200
- The cost of completing the order by Jerry and Mike was double their normal Salary (i.e. in terms of their salary, they cost the company 4 salary days to complete 2 days of work!).
Conclusion
No one really works to put themselves out of business. Most everyone at OBS Manufacturing works hard and has the best of intensions. There are a number of checks and balances in place to control the manufacturing process and it is easy to see everyone’s genuine concern for their clients. However, in this order, as in most cases, it takes very little (as little as 15 seconds per assembly) to move a work-order from the profit to the loss column.
Success in a manufacturing company is all about numbers. The difference between success and failure can’t be measured by hard work or good intentions, and is rarely seen with the naked eye. At OBS Manufacturing everyone is working hard – hard enough to put themselves out of business.
Filed under: Manufacturing Excellence (All), Success | Tagged: B2B, Business, custom dashboard, excel dashboard, Excellence, Manufacturing, Manufacturing BI, Manufacturing BPM, manufacturing dashboard, Six Sigma Dashboards, SMB, Success, technology, TSL9000 | 1 Comment »
