Manufacturing Productivity for Beginners
The more complicated a factory production process becomes, the more there is to go wrong with it, and the harder it is to manage. Managing and increasing manufacturing productivity needs to be simple and natural. The owners of manufacturing companies must develop the management skill to see complicated things simply, in order to maximise efficiency, productivity and profit.
Improving manufacturing productivity in a small or medium business is achieved by consistent management attention on improving a few numbers that make a real difference to the business profit margin.
Small manufacturing businesses can quickly become complicated as they grow, especially if they have multiple production processes and products.
People, materials, machines, storage and space, are a few examples that need careful continual improvement management.
Manufacturing businesses need to convert raw materials efficiently to meet their estimated costs and customer deadlines.
The universal force of entropy means that factory productivity will tend toward chaos, which means losing money and customers.
Brendan Barrow, a business mentor and consultant who has run several manufacturing businesses, explains some practical ways of improving efficiency, productivity and profits of a manufacturing business.
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Experts are not always business owners
If you are new to production or manufacturing, you will hear experts fight over the merits of kanban, lean manufacturing and six sigma. Some experts become more focused on ideology than the business; after all, a lot of these experts do not run or own a business. Experts tend to know more and more about less and less. In contrast, a new business owner needs to know more and more, about more and more!
As a manufacturing business owner, you must be a “general manager” across many functions in your company. Keeping your focus on a few significant productivity Key Performance Indicators (KPIs) will help you enormously to manage and improve your operations.
How do you improve manufacturing productivity by keeping things simple?
Based on my own experience over many years, I used a single A4 weekly sheet or dashboard that told me at a glance, every key aspect of my factory that employed over 100 people.
My one sheet dashboard information included:
- the mix of work in process, by value and volume,
- the expected sales value of work in progress,
- each machine’s output in the factory’s bottleneck,
- my overall material waste,
- my labour cost, regular and overtime hours
- any rework or quality events.
From a simple dashboard, I could see my predicted sales income and whether my factory was operating within its budget. My dashboard showed where my attention needed to be to achieve my budgeted output and profit.
Separate to this dashboard, I had several productivity initiatives to improve specific jobs or processes. I selected each initiative to continually improve one of my 6 Production Key Performance Indicators (KPIs).
What is a Key Performance Indicator (KPI)?
A KPI is a numeric measurement of something significant in your business. Consistently measuring a KPI will show a trend and will indicate if your management is being productive. If you choose your KPIs wisely, you can track how your business is improving in production efficiency, productivity and profitability.
KPIs can be for anything such as materials cost, materials waste, labour efficiency, added value or production overheads. The item tracked does not have to be a financial number to indicate improvement; for example, the number of customer complaints received per month or OTIF (on-time delivery in full).
The trick is not to pick too many KPIs.
Here’s a proven, simple and effective example of production management KPIs
In a manufacturing business, your factory is the engine, and you need to know how well your engine is running.
Here’s a real case study where I used these 6 Production KPIs for a printed packaging, folding carton factory to manage in increase efficiency.
A folding carton factory has multiple processes, each with high-cost equipment and staff. The processes have different set-up times, tooling, runs speeds and waste. In larger folding carton operations hundreds of jobs are produced every month in a multi production shift pattern that requires detailed scheduling. Folding cartons have high specifications for their visual appearance but also their functionality as many are machine filled by the customer. Customers are generally very demanding about price, lead times, service and quality.
The weekly averages of these 6 KPIs were used.
- Set-up time
- Run speed
- Average batch size
- Production waste
- Quality defects
Why did I choose these KPIs for manufacturing productivity?
We were continually striving to reduce set-up times, increase machine speeds and have less downtime to create higher productivity. The KPIs also showed whether we were ahead of our budget against each target. The average batch size indicated possible changes in the customer order patterns, which has an impact on set-up times, waste and job profitability. Paperboard was the most costly part of our product cost so, it was used to indicate our production waste.
Finally, a highlight of any quality defects, internally detected or from customers, as quality problems cost money and lose customers.
There is no point in increasing the output of quality defects!
Why is output per shift hour so good?
Output per shift hour is one number to rule them all!
This metric is simply the total number of products produced divided by the labour hours assigned to the machine or process.
Output per shift hour ignores fluctuations in set-up time, run speed or downtime and tells you how much you produced for the available shift time.
It takes away operators excuses and is a” level playing field” to compare progress over a period.
You will see whether a machine or process trend is improving or not without getting bogged in detail.
Any combination of improvements that reduce set-up time and downtime or increase run speed increase the output per shift hour.
A production waste % figure is an ideal manufacturing efficiency KPI.
Material waste is often a significant proportion of the final product cost, and it can creep up through poor practices. Track the most expensive material as a KPI.
Calculate your % Gross Potential Yield as how many products produced, divided by how many could have been theoretically produced, assuming zero wastage x 100.
Production waste is calculated as 100-gross yield %.
How do you use your top-level dashboard for productivity management?
The benefit of a dashboard is to avoid you becoming swamped in detail.
It is a better use of your time to focus on the few things that matter rather than trivia that consumes your time for little return.
The 6 KPIs are an excellent example of focusing on a few items that will give a real benefit.
Just like a car’s dashboard, a top-level business dashboard does not give you any details of what is wrong, but it will highlight warnings that merit investigation.
If you have employees, a dashboard can be a great way to get them engaged in performance improvement as these KPIs are non-financial measures.
Daily huddles or toolbox talks are best to engage production operators.
If you have a team, then communication is vital to encourage the right business culture. A huddle or toolbox talk can:
- address any health or safety concerns
- get them engaged with continuously improving what they do
- sharing the manufacturing performance for each KPI
- highlighting internal (before they reach a customer) defects and finding corrective actions
- discuss any customer complaints or comments
- deal with anticipated operational issues before they happen
- plan preventative maintenance
- hear creative ideas from your staff
Using a short stand up meeting, called a “huddle” in the production area is best.
Use a wall chart or whiteboard to display your actual manufacturing productivity result of each KPI every day.
TIP: Physically plotting points on a chart is more engaging than people looking at a computer screen.
Deal with issues straightway.
Why is visual management brilliant for operations management?
Visual management is simple, practical and cheap. By physically organizing your manufacturing area around some principles, you avoid the need to look at computer systems to know what is happening.
This stops wasting time on a non-added value supervising task, which is an example of reducing “Lean waste”.
Other examples of visual management are arranging storage racks so stock levels are seen without checking the inventory on a computer. Visible storage means simple Kanban systems are easily implemented, reducing the risk of running out of stock.
Arranging tools or change parts on a shadow board, so they are easily accessed and every operator or engineer knows where they are.
Visible management is great in engineering or fabrication workshops too.
You organize production areas in logical ways so that everything is visible and flows toward the next process. When you walk through a production area, for example, you can see what people are doing, and how the production process is working.
Using simple wall charts or placing screens where work is being done and not in an office.
Are Enterprise Resources Planning (ERP) systems necessary for manufacturing productivity?
Owning a manufacturing business inevitably means that you will need systems and processes. The more your business grows, the more sophisticated your systems and processes are likely to be including how to manage your business operations.
Often computerized systems in manufacturing companies are called Enterprise Resources Planning (ERP) as they integrate all the information and resources needed to manage business operations.
Some ERP systems are becoming much lower cost and available through monthly subscriptions.
When you start a manufacturing or fabrication business, you may not have ERP, but you will need systems to keep track of everything. As the business grows, it will become more complex, and investing in an ERP may improve your business efficiency and profit.
Producing a dashboard from your management information or ERP system should be simple.
Do not become a slave to one continuous improvement ideology.
Increase your knowledge by learning about different continuous process improvement methodologies but do not become a slave to one ideology.
For example learn about:
- PDCA (Plan, Do, Check, Act)
- Theory of Constraints
- Lean Manufacturing
- Six Sigma
- Total Quality Management
- W Edwards Deming
Equally learn about techniques such as:
- Statistical Process Control (SPC)
My real-world experience in several different companies is that a continual process improvement system must fit within the culture of your business.
Don’t try to implement a complete ideology, if it is laden with jargon or its own hierarchy of gurus. These approaches may work in big business, but several companies have tried this over years, and many initiatives failed. These approaches can turn people off and stifle creativity by making them follow one system.
The key is to find a practical manufacturing management approach and educate your operators about how they can continuously improve their process.
What is a quality management system?
Various quality management systems are used around the world as a framework for any business to follow. A quality management system addresses the common aspects that need managing in any business.
Using an accredited system such as ISO9001 can be too costly for small businesses.
I have gained ISO9001 accreditation and used it in several manufacturing businesses. A new company can be smart by using some of the key principles of a quality management system without getting accredited. For example here are 5 common mistakes that a quality management system addresses.
Avoid 5 basic costly mistakes in manufacturing productivity
1 Document control
Right now, someone is making the wrong product because they are not working to the most recent drawing or document.
2 Equipment calibration
Test equipment can mislead you if not properly calibrated and maintained.
3 Process capability
Manufacturers who agree to meet customer specifications without calculating their process capability may produce out of specification product. They can incur rejections and claims.
4 Purchase orders
Purchase orders with little or no information about the materials or services you buy leave little or no recourse if there is a quality problem.
5 Corrective action
Most people cure the symptoms and not the cause of quality or performance issues because of laziness.
Understanding The Reality of Business Ownership
The Should I Own A Business Podcast explores the reality of being a business owner.
Local manufacturing presents a huge opportunity for new business owners. Managing a business for maximum manufacturing productivity must be an owner-managers core focus in order to thrive.
Here are some other resources you might find helpful:
You might like episode 14 called How to Evaluate a Business Idea which helps you decide if a business idea is suitable or viable.
Article on why most great business ideas fail.
We also have a free test to see which areas you might need to consider before starting a business.
About the author: Brendan Barrow has extensive experience in leading and managing manufacturing businesses on 3 continents.
Brendan Barrow Co-Host
The Should I Own A Business Podcast-Listen Before You Leap.
Avoiding new business failures, one owner at a time.