Leveraging TPM to the corporate bottom line
This is Part 2 of a two-part series. TPM practitioners can impact the bottom line — they have the necessary insights into the inner workings/flow on the shop floor, and they are key to keeping production flowing. In order to directly link the improvement activities to increased profits, the TPM practitioner must understand the nine key principles and translate them into guidelines for act...
This is Part 2 of a two-part series.
TPM practitioners can impact the bottom line — they have the necessary insights into the inner workings/flow on the shop floor, and they are key to keeping production flowing. In order to directly link the improvement activities to increased profits, the TPM practitioner must understand the nine key principles and translate them into guidelines for action. We discussed the first five principles in the first installment. We'll now explore the last four.
Constraint processing time affects profits.
Understanding the direct link between processing time on the weak link resource and profit can unlock several ways to generate more profit. Typically, component processing is assigned to machines where it is the most "efficient" — without regard to the fact that unnecessary work is being assigned to the constrained resource. If work can be assigned to another machine to free up the constrained resource for critical tasks, then the constrained resource will produce more units, and more profit (if the goods are sold).
Another approach to generating more profit is to consider the time various products take to be processed on the constraint when deciding product mix. When there is demand for several products, sometimes a lower profit item can produce more profit because it takes less constraint time. However, use caution here. Beware of unwanted side effects ( Goldratt: The Haystack Syndrome ).
Simplify corporate measures.
Avoid allocation of partially variable expenses.
The corporate master measures most often used reflect the information required to be compliant with GAAP requirements. Typically, labor expenses are estimated and allocated to unit costs and compared to a standard through a process of variance analysis. Unfortunately, this practice muffles the opportunity to make better decisions. Example: If nonconstraint resources have enough capacity to perform additional work and also keep the constraint supplied, then that capacity can be sold. If you are already paying the people, and for the equipment and other overhead costs (which are allocated to the primary product), then all money received over raw material cost is additional profit.
Unfortunately, when CFOs use common costing (variance analysis) practices to make decisions, the use of these "unit-cost numbers" reinforce patterns which in turn convince the decision makers that the production of the additional products will not result in additional profit. Even worse, they use this limited view to convince themselves to move profits to overseas competitors. A different set of measures is required to make decisions about what products should be produced by a given system.
A simplified approach to the master measurement system can be accomplished with just three measures. The first is throughput, which is defined as the rate which the system generates money through sales. Second is investment, which is all the money the system invests in purchasing materials the system intends to sell. Third is operating expense, which is defined as all the money the system spends on turning investment into throughput.
These three measures provide the proper measures for understanding how local decisions will impact the overall system. These measures are used to align the sometimes supportive/sometimes seemingly competing goals within the system. All local decisions must support the overall aim of any company. The aim or purpose of a TPM system — to maximize equipment effectiveness — must be directly aligned with the aim of the company. The aim of any (for profit) company is to make money now and in the future.
Plan for the unwanted results of changes as well as the desired benefits.
Obviously, the intent of changes in a business system is for beneficial purposes. However, the beneficial changes usually have a way of also producing unwanted effects. Often these effects can catch one by surprise, and if not planned for, can create seriously negative impacts. For example, when operational effectiveness is increased, there is less need for WIP inventory and distribution reserves. Because inventory is considered an asset on the balance sheet, and that asset is reduced, it looks like diminished value of the company. Executive management must be prepared, and prepare the company owners on how the increased operational effectiveness will decrease the company's reported value. Managers have been replaced over this issue.
As changes are planned, predict the unwanted effects and plan for their mitigation.
Do not penalize people.
Much has been written on leadership and management. Most of which, in this authors opinion, can be simplified to two concepts.
First, the system determines behavior. Dr. W. Edwards Deming demonstrated this through the Red Beads, ( The New Economics , Second Edition, Chapter 7) where the operators in the system were held accountable for issues outside their control. To ensure the success of any system, we must ensure measures are focused on optimizing the system's performance and on the overall system reaching its goal, not some form of local department optimization.
The second concept is trust. Are all parties in the system trustworthy to one another? Do decisions and actions build or destroy trust? More often than not, the local measures and policies that are in place result in a breakdown in trust.
Remember, the purpose of the system is to move to the goal. When management uses the excuse of "competing with very low-cost, off-shore labor" to harvest the gains of operational effectiveness by eliminating people, the trust factor declines, and people will be cautious about revealing further capacity. In fact, in this environment, previous gains are not likely to be sustained.
The primary method to achieve profitability is through the process of revealing and selling previously unknown and unused capacity. This process will build trust and forge the necessary culture required to maintain long-term competitiveness.
Transforming the principles into strategies and tactics
Similar to the way values form a basis for people worthy of respect, these principles lay the proper foundation for long-term competitiveness. As the operations or TPM manager, you are now armed with profound knowledge about your role in the overall system and the factors limiting the bottom-line results of your TPM program, but you are faced with the fact that much of what has been discussed here is not under your direct control or authority. At this stage, you should remember the lessons of using guided discovery in teaching TPM and Autonomous Maintenance to the team members. Continue to help both the executives and the team members understand the "whys" behind your requests.
Use the guided discovery approach to level set your peers, employees, and management on the principles behind the following tactics. When this approach is combined with some successes, you will be building the necessary trust and knowledge to move your company forward. The following tactics will help transform the principles into aligned goal seeking action.
1. Find the constraining process. Look for inventory accumulating in front of a process or identify the machine that everyone is complaining about. If you guess wrong, the constraint will likely reveal itself shortly. In other words, don't spend too much time looking for the perfect candidate, just pick one.
2. Determine how to get the most out of the constraining process. Make it the TPM priority. In operations, installing quick-change set-up fixtures can reduce process time. Encourage maintenance to respond to a constraining equipment problem like a 911 call. It might even be a good idea to have maintenance parts kits and tools stationed at the machine.
3. Buffer the constraining process so it will not starve because of upstream variation. The size of the buffer is a function of the variation and reliability of the upstream machines.
4. Train all involved to know their impact on the constraining resource and when decisions must be made for the benefit of the constraint over other needs.
5. Be mindful of nonconstraint resources. Ensure these resources have enough sprint capacity where they can make up for lost production. Add TPM selectively at first. Prevent accelerated machine deterioration. Remember, a perfect machine will not gain any more production at the constraint. Maintenance priority for trouble calls should be judged by the current constraint buffer size. When prioritizing a trouble call for a machine in front of the constraint, answer the following question: "How long before the constraint is starved?"
6. Work with marketing and sales so they are prepared to sell the new capacity. Of course, they may not believe you at first, but your increase in ontime delivery rates will give you credibility.
7. Begin working with the CFO. Explore whether you can get the CFO to become your mentor. If you can inquire into the reasons why something is done the way it is, you may be able to dissolve the conflict. Gaining the confidence and trust of the CEO and CFO can be a daunting challenge.
8. Be vigilant. If the constraint capacity is dramatically improved, it may no longer be the constraint. When that happens, start again with tactic 1.
TPM is certainly a necessary part of operating a healthy company. A production system without a healthy skeletal backbone will always be fighting ailments. However, increasing machine efficiencies will NOT improve profits, unless improvements occur at the constraint or weakest link and the increase in production results in increased sales.
Armed with this insight, you as the TPM manager are in a good position for helping the company take its next steps to reach its aim. Gaining the cooperation of other managers will be difficult (tactic 7). At first you will likely be seen as meddling in some one else's responsibility. Learning to view through the eyes of another is a valuable skill — genuine inquiry, friendly persuasion and persistence will carry the day. Remember, you now have insights to help the CEO, CFO, operation manager, and sales manager solve their problems. By helping them solve their problems you will gain credibility and further your ability to solve your problems.
Steve Dightman recently retired from a Fortune 15 company where his focus was building knowledge and skills in others. Today, Mr. Dightman is a Principal with RegularGuys Consulting where his focus is helping business leaders achieve their business goals by leveraging their unknown capacity and hidden opportunities in their organizations. He can be contacted by email at email@example.com , or by telephone at 253-988-0878.
The Nine Principles:
Principle 1 : Hold a systems view.
Principle 2 : The production system can be viewed as a chain with a weakest link. The weakest link limits the output of the entire system.
Principle 3 : Any waste or loss at the weakest link is a loss to the entire production system.
Principle 4 : Resources before and after the weakest link, by definition, have capacity to catch up with the weak link, subject to variation.
Principle 5 : Increased production capacity of the weakest link must be sold, otherwise there is no gain for the system.
Principle 6 : Constraint processing time affects profits.
Principle 7 : Simplify corporate measures. Avoid allocation of partially variable expenses.
Principle 8 : Plan for the unwanted results of changes as well as the desired benefits.
Principle 9 : Do not penalize people.
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There were the big events for the year, including the United States as Partner Country at Hannover Messe in April and the 2016 International Manufacturing Technology Show in Chicago in September. There's also the matter of the U.S. presidential elections in November, which promise to shape policy in manufacturing for years to come.
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