Rath & Strong Management Consultants

In today's business climate, the old adage "time is money" has been expanded to mean that time is a competitive weapon.

By reducing the cycle time in manufacturing and administrative processes, companies are finding that they can respond faster to customers and become more flexible in dealing with marketplace changes.

Manufacturing Cycle Times

Empirical evidence gathered from companies in the U.S. and Canada shows that companies that reduce total manufacturing cycle time by 75% will double productivity, reduce the break-even point of a facility by 20%, grow at three times the industry average, and have two times the industry average margin.

Our work has proven that it is physically possible to reduce cycle time by 75% in a manufacturing area or product line in as little as three months, and that it can routinely be done in six months.

One major reason to reduce cycle time is to get more of the manufacturing process out of the make-to-forecast mode and into the make-to-order mode, without demanding that customers wait longer between their order and their receipt of product.

All issues that must be dealt with in reducing cycle time in manufacturing can be boiled down into three major categories:

• Impact of Predictability
• Impact of Flow
• Impact of Partnerships

Predictability

There are three areas of predictability with which to be concerned. Two are internal to operations-the predictability of the process, and the predictability of time or drumbeat. The third is the predictability of the supply of material and components needed by the process.

The predictability of the process has to do with product yield and equipment uptime. If product yield varies widely from part to part, shift to shift, or even day to day, we will not be able to take the hard actions necessary to reduce cycle times without having an adverse effect on customers. In the same way, equipment must be predictable and dependable in order to reduce cycle times.

The second area of predictability to work on is the predictability of the company's internal drumbeat. How quickly and frequently are goods produced, and material and components from suppliers used?

Only when there is predictability in the internal process-in the quality and the drumbeat-can we create a stable, predictable relationship with suppliers.

Predictability gives us the flexibility to work on smoothing out the flow, which has the greatest impact on successfully reducing cycle times.

Flow

The definition of flow is really the definition of Just-In-Time, also know as the "Toyota Production System": producing only the minimum necessary units in the smallest possible quantities at the latest possible time, and eliminating waste-including eliminating inventories.

Whereas once we spoke regularly about the virtue of Just-In-Time (JIT) manufacturing as being "the right way to do things," it has become increasingly clear in recent years that, when done properly, JIT's chief benefit is the reduction of cycle time. And the prime way of reducing cycle time is to eliminate waste, as defined by the JIT philosophy: eliminate anything other than the absolute minimum resources of material, machines, and manpower required to add value to the product.

Partnerships

Finally, it is imperative when reducing cycle times to create partnerships between manufacturing, and suppliers of raw materials and components; between manufacturing and customers; and between manufacturing and administrative functions within the company such as marketing, accounting, and finance. The basic purpose of each of these partnerships is to reduce cycle times by establishing predictability and flow.

The Value of Concentrating on Flow

Let's go back for a moment to the definition of Just-In-Time Production: production of only the minimum units in the smallest possible quantities at the latest possible time.

In some ways, this definition flies in the face of much of the way we have been trained to make product:

• producing the maximum number of units, in order to keep machines working, even if it means putting a lot into inventory;
• producing in the largest possible quantities, in order to minimize setups, even if it means having large work-in-process inventories waiting for slower processes, or for the next time a finished good will be manufactured;
• producing at the earliest possible time, so they can move onto the next item.

The techniques of flow and the philosophy behind Just-In-Time show that reducing quantities will, in fact, balance the flow, reduce or eliminate wasted activity and inventories, and dramatically reduce cycle time. It is important to note, however, that there are two different quantities at play here. The first is the manufacturing quantity or lot size. It has become common knowledge that reducing lot sizes cuts certain wait times proportionally. The second quantity, the movement quantity, is much less known and much more powerful. Reducing the movement quantity is usually easier to do and has a much greater impact on cycle times.

Where to Begin - Value-Added Flow Analysis

The first step in taking time out of a process is to map the current process using a unique method called a Value-Added Flow Analysis (VAFA): a careful step-by-step analysis of what is currently done; which of it actually adds value to the product; how much time the entire process takes; how much time is actually spent adding value; and finally, where the biggest chunks of nonvalue-adding time are that can be taken out of the process.

Figure 1 shows the number of steps, number of value-added steps, and percentage of steps that add value for a variety of products. The right-hand column is typical: In our work we consistently find that between only 5% and 15% of all steps in a process actually add value.

When we look at the time involved in those value-added steps, the percentage looks even worse. Because of the significant time material sits and waits at certain phases of a process, the time in value-added steps is usually on the order of less than 1%. Typically, most of the other 99% consists of various forms of waiting.

When doing a Value-Added Flow Analysis, it is imperative that an individual or team actually go to the point where a particular piece of material or component enters the plant, and literally walk through the entire process, focusing on one piece and writing down every activity that happens to it. Where does it move? Where does it wait? How long? What for? What happens to it next? These questions should be asked of those who actually perform the process, not the supervisors who may only know the route the piece is supposed to follow according to standard documentation.

Do not look for best case, or worst case, but rather look for the "normal and typical" time each activity takes. Also, look for the time a single part is in a particular activity; for example, if parts move in quantities of 100 and then undergo a one-minute machining process one at a time before moving again as a lot of 100 to the next activity, the one piece you are focusing on will go through a value-added flow activity for one minute and then wait for 99 minutes for the rest of the lot. Follow the item through the process until it is in the form of finished goods being shipped out the door.

Once the Value-Added Flow Analysis has been completed, it will become obvious that reducing cycle times is a process of eliminating or reducing many different forms of waits. This, in turn, tends to boil down to solving problems and reducing quantities. The larger waits tend to require solving problems of imbalances, bottlenecks, quality, scheduling, and decision making. The smaller, more frequent waits require reducing quantities (both lot sizes and movement quantities) and increasing the frequencies of activities.

Four Key Tools

The four key Just-In-Time tools that are used to reduce manufacturing cycle times are:

• Drumbeat
• Reducing setup times
• Overlapping operations
• Linking operations

Drumbeat

One key to flow is creating a consistent drumbeat, a balance and synchronization of production. The drumbeat is really a combination of the rate of production-how fast equipment is producing-and the frequency of production-how often a particular product is being made.

In a perfect drumbeat each operation, each piece of equipment, and each line will produce at exactly the rate required by the customer-whether that is the next operation or the ultimate paying customer. This, of course, is contrary to the traditional approach of insisting that every operation run as fast as possible without regard to how fast the product is needed. Also in a perfect drumbeat, each product will be produced as frequently (and in as small quantities) as required by the customer, whether that is the next operation or the ultimate paying customer. This almost always means producing products more frequently than we are producing them now. This, in turn, means many more setups, requiring that we learn to reduce our current setup times significantly.

Reducing Setup Times

Setup reduction is a process all its own and is detailed elsewhere. Suffice it to say that a tried and true process exists which, if followed diligently, is guaranteed to reduce the setup time of any piece of equipment by at least 75% and do it at low cost. Reinvesting that time into four times more setups allows us to reduce lot sizes by 75%, thereby reducing lot-based wait times by 75%.

Overlapping Operations

There is an ideal way to perform a series of operations in the shortest possible cycle time. It is called Overlapping Operations and involves rearranging equipment. Instead of the traditional functional layout-all the screw machines in one area, all the grinders in another-we need to organize our equipment by product families.

When equipment is dedicated (or semi-dedicated) to one product, or family of products, and arranged in the order in which operations are performed, it is possible to reach the ultimate in flow, moving one piece at a time from operation to operation. Nearly all nonvalue-added activities disappear. Nearly all wait times disappear, and the product is finished in seconds or minutes rather than weeks.

Linking Operations

While the ultimate goal of creating overlapping operations is perfect one-at-a-time production, this will not always be possible. In such instances, batches will still be required and we must settle for the next best thing, linking operations in a pull system.

In a pull system each operation, starting at the shipping dock and working back through the process, pulls the necessary product from the previous operation only as it is needed. This is in contrast to the traditional manufacturing mode, where product is made according to a forecast or schedule and pushed forward to the next operation, whether that operation is ready for it or not.

Thus, when the ideal of one-at-a-time flow is not possible, we can create a flow of small batches instead, by linking operations. Linked operations schedule and control each other, greatly reducing waits due to problems of imbalances, bottlenecks, scheduling, and decision making.

Creating Partnerships

The final piece of the manufacturing cycle time reduction puzzle is creating partnerships: partnerships with suppliers, partnerships with key customers, and partnerships in administrative support areas.

Supplier cycle times are often longer than our own internal cycle times. Fortunately, they can be reduced using the same tools and techniques of predictability and flow. In a partnership with suppliers, one of the most important objectives is to develop a complex relationship of problem solving and continuous improvement in order to establish the simplest possible flow of information directly from product users to suppliers. The goal is also to establish the simplest possible physical flow of material directly from the product manufacturers to product users. When successful, such partnerships reduce cycle times by 80% to 90%. To be successful, however, the partnership must solve problems of quality and drumbeat, and the supplier, with our help, must learn the techniques of manufacturing flow.

For those majority of companies that have key customers, the same kind of partnership is appropriate, but with the roles reversed. Although we now take on the role of the supplier, the problems to be solved, objectives, and the opportunity to reduce cycle times remain the same.

Administrative Cycle Times

The first attempts to use Just-In-Time Manufacturing tools and techniques to reduce the cycle times of administrative processes were aimed at those activities that directly affected customer response time such as customer order processing and invoice preparation. The results exceeded nearly everyone's expectations, and administrative cycle times were reduced between 80% and 86%.

In the process, we learned that practically any administrative process can be reduced by 75% using the tools and techniques of Just-In-Time and Total Quality. The main reason for this is a striking degree of similarity between manufacturing processes and administrative processes. It does not matter whether we look at a relatively simple administrative process such as creating invoices or a very complex process such as introducing new products. We will find just about all of the same elements we find in manufacturing processes. In fact, our rallying cry has become, "A process is a process is a process!"

Let's peel the onion and take a closer look at the characteristics of typical manufacturing and administrative processes. In manufacturing, we look at a process as a series of operations that produce a product. It might be a conversion process, where raw materials are converted into something else, or an assembly process, where component elements are put together into a single, larger item.

Are there counterpart administrative processes? Certainly. How about processing a customer order, or creating an invoice, or generating a variance report, or refinancing a mortgage, or closing the books at the end of the month? We might call these types of processes "series of steps" or "activities" rather than operations, and with them we might talk about converting paperwork rather than products. But aren't they the same thing? Isn't an invoice, or a variance report, or a refinanced mortgage a product?

In manufacturing, we have external customers for whom the product is made. In administration we also find customers, either the same external customer (for such "products" as invoices or mortgage approvals) or internal clients (for such "internal products" as variance reports, forecasts, or capital appropriation approvals). In both types of processes we have suppliers (of information, paperwork, specifications, etc.)

What about the quality arena? In manufacturing there is inspection, rework, and scrap. There have always been corresponding activities in administration. What is proofing, or checking, or management approval if not inspection? When we find that over 50% of customer orders, or purchase requisitions, or mortgage applications have missing or incorrect information, what is the result if not rework? Finally, is it not scrap when a capital appropriation request is denied, or when we reject a mortgage applicant after weeks of work, or when a job candidate turns down our offer?

Both manufacturing and administrative processes share inventory in the form of work-in-process-namely, everything that isn't finished yet. In manufacturing, inventory is manifested by queues, staging areas, and warehouses. In the office, the equivalent of a queue is the "In-Box," work that is waiting for attention. Representative of staging areas and warehouses are files which include data that is waiting to be processed, or is waiting for other data before it can be used.

As mentioned earlier, the first step in any process improvement effort is to map the current process using a Value-Added Flow Analysis. This analysis highlights some other vital similarities. Both processes are dominated by "moves" and "waits," activities that do not add value.

In fact, we typically find that no more than 15% of the activities of any process add value, and that all the value-added activities put together take up less than 1% of the total cycle time. Both processes reflect what I call the 99% rule: Typically, people are 99% busy in any process, but material-whether it's sheet metal or a piece of paper-is 99% idle.

Let's look at a capital appropriation approval process. One could argue that nothing about it adds value since it is simply one big inspection. If we ignore that, however, and look at actual hands-on time (value-added or not), what do we see? Creating the request, one to two hours. Six approving signatures, ten minutes of "touch" time each. That's two to three hours in a process which usually takes months to complete.

Another excellent administrative example is a bank's processing of a customer statement, which in most banks takes on the order of four to six days-the time from when the statement is printed until it gets to the post office. How much of that time is taken up with value-added activity? Printing, ten seconds. Folding, one second. Matching the statement to pre-sorted checks and stuffing the envelope, 30 seconds. Running it through the postage meter, one second.

That's a total of less that a minute of value-added activity in a six-day process. This is exactly what we find in manufacturing processes.

In a nutshell, this is why manufacturing and administrative processes can both be significantly improved by applying similar tools-tools that eliminate waits, moves, and rework, make inspections unnecessary, and eliminate other nonvalue-added activities.

All of this is not to say there are no relevant differences between manufacturing and non-manufacturing processes. The differences appear primarily when deciding which tools are most appropriate to apply: Value-Added Flow Analysis (mapping), common sense problem solving, or sophisticated quality tools and flow tools.

The average manufacturing process has received a good deal of "improvement attention" from engineers and other specialists. Therefore, the full array of tools are needed to "dig deeper" and get breakthrough results. In terms of relative importance, I would weight the Value-Added Flow Analysis and common sense problem solving at 30% and sophisticated tools at 70%.

Administrative processes, on the other hand, have received far less attention and are therefore usually simpler to improve. Here, the Value-Added Flow Analysis and common sense problem solving are 90% of what is needed for breakthrough results.

With the tools and techniques at our disposal, we have always held that the cycle time of any manufacturing process can be reduced by 75% or more without adding people or equipment. It should be no surprise that service and financial organizations can realize the same results as their manufacturing counterparts.

And, for manufacturers, it is becoming clear that administrative process improvement is an integral piece of the cycle-time reduction process, and that it must be combined with efforts in manufacturing processes in order for an organization to become a truly world-class competitor. It is not good enough to focus merely on restructuring the manufacturing flow and shortening the manufacturing cycle. An effort to streamline the communication of information-from customers to suppliers and from suppliers to customers, both within the organization and from outside-must be undertaken in order to get the full impact of a cycle-time reduction effort.

For a more detailed discussion about the tools and techniques of Just-In-Time and their impact on cycle time, see The Just-In-Time Breakthrough: Implementing the New Manufacturing Basics, by Edward J. Hay, 1988, John Wiley & Sons, Inc.

About Rath & Strong

Rath & Strong is a management consulting firm headquartered in Lexington, Massachusetts. Founded in 1935, Rath & Strong helps clients achieve desired change by providing consulting services in four main areas: process and operations management, organization development, counsel to leaders, and customer connection. The firm specializes in helping clients address issues relating to these four areas simultaneously from a systems perspective.