One way to achieve your primary job function as a CFO of resolving problems and implementing changes to be more profitable involves implementing lean manufacturing. A lean six sigma certification is not required to become more lean in manufacturing. Your company can become more profitable by asking this question, “Does this activity add value or detract from the product?”
Focusing on One Area Produces Biggest Result in Lean Manufacturing
The 7 most common areas that detract from a product or companies profit is known as TIMWOOD: Transportation, Inventory, Movement, Waiting, Over-production, Over-processing, and Defects.
Today we will be discussing the the worst of all the 7 wastes: over-production. In essence over-production obscures all of the other problems within your business.
Too much of a good thing is always a bad thing and the production process is no exception to this tried and true rule. Making more product than you need may sound like a good idea, and it is to a very short extent, but if you’re making more product than you’re selling you are wasting time, money and resources. Not only that but, overproducing causes you to tie up your capital:
- in stock
- raw materials
- work in progress (WIP)
- finished goods
Your cash is what you rely upon to run your business, so you either leave yourself short or you end up paying interest charges to your bank.
Another cost associated with overproduction is to do with the storage and movement of the inventory that you have created, as it requires:
- equipment to move it around
- containers and space for storage.
One of the biggest customers I have worked with just flat ran out of room with no plans to move as they couldn’t even lose one day of productivity. They have trucks lined up all day to move finished goods to an outside company / 3 PL (3rd Party Logistics). The customer then sends out EDI orders for the 3 PL to fulfill the finished goods and ship to the customer. Not a bad idea in the short run, but expensive when considering waste. Raw material usage and inventory control is even more important in these scenarios.
Remember all of this is a cost to you, if you could eliminate it the savings would go straight back on your bottom line improving your profit.
Causes of the Waste of Overproduction
Why do manufacturing companies overproduce? Common answers include:
- “This is how we have always done it!”
- Large batches are produced because of long setups on machines.
- Distrust of supplier’s ability to supply what is needed, so more is ordered
Whatever the cost or cause, Dynamics AX can help your company see direct and indirect costs of manufacturing more closely as it can monitor these tasks and possible other areas of waste:
- Route: what it is and how it is created
- Operation: what it is and how it is created
- Route networks: simple operations, independent operations, and simultaneous operations
- Route operations: what they are and how they can be created
- Jobs: what they are and how they can be generated
- Time consumed by an operation: how the start and end time is calculated for a production order, what the consumption calculation formula, operation link type, simultaneous operations, Qty. of work center, calendars, and Gantt chart are.
- Cost of operations : how a price for the production order is calculated, what indirect costs, costing sheet, cost category, cost group are
- How an operation is treated in Microsoft Dynamics AX: what a route group and capacity load are
To see detailed instructions on how to set these criteria follow this link: http://www.dynamicsaxtraining.com/production_training/routes-and-operations#CostOfOperation
The above step of cutting over-production alone is a very good start in being more lean, but Dynamics AX can track KPIs as well. This will help your company see wastes more clearly whether it be the employee Tim Wood himself or one of the wastes in the the acronym TIMWOOD: Transportation, Inventory, Movement, Waiting, Over-production, Over-processing, and Defects.
Clients First operates both nationally and internationally, our AX consultants headquartered in Minneapolis/St. Paul, Minnesota and Dallas/Fort Worth, Texas are committed to your successful Dynamics AX implementation (Click on the links to email us). We are Microsoft Gold Certified Partners who know that there is no such thing as “universal” ERP solution. Dynamics AX must be tailored to your company’s needs, organizational culture, staff capabilities, and project’s characteristics. Call us at 800.331.8382 so we can put your company first, too.