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Lean Manufacturing Articles



In the days before factory automation, direct labor to convert raw material to finished goods represented the largest single expense. Years of focus on improving pro­ductivity and investment in automation have stream­lined, simplified, and eliminated many of these costs. Materials costs rose in importance as an opportunity, often representing 70 percent or more of cost of goods while direct labor has declined. Modern planning sys­tems and material control techniques are wringing costs out of the supply chain and improving the responsive­ness to customer demands. Meanwhile, information flow processes have become increasingly complex, costly, and strategically important.

Consider the total effort that occurs to manage all the information required to operate a single medium-size enterprise. Information must be sourced, received, processed, and delivered to internal and external cus­tomers. These costs are literally incorporated into every category of business expense. Spending on information technology and personnel is just the beginning. What is our accounting and finance function except a resource to gather, process, and disseminate information? Infor­mation about customer needs is managed by Sales from the customer to the enterprise. Marketing manages in­formation flow about a company's products or services to customers. Less obvious information management functions are Human Resources and ALL management, from senior executives to frontline supervisors. How do we hire, train and manage our workforces? These activi­ties are achieved through communication, which is an information flow process.

If your company is a manufacturer, then the entire materials control organization from purchasing to dis­tribution is dedicated to managing information flow. Master scheduling, production planning and control, and purchasing all represent costs associated with man­aging the flow of information. When planners plan or buyers buy, they are performing operations in the in­formation flow. Nearly all costs in a service company are for management of information flow. Consulting companies, insurance companies, investment firms, real estate brokers, banks, educational institutions, and many, many other businesses provide no tangible prod­uct and their information management costs are very high relative to revenue.

It may be easiest if you attempt to estimate the cost for your company, to sort out what is NOT informa­tion management cost. Certainly the physical materials you buy are not information flow, except the reams of paper on your desks. Direct labor to convert materials to finished product is not information flow, but em­ployees cannot function effectively without training, specifications, and direction. More and more we WANT our employees to participate in improving the business, and that requires their participation in the information flow of the business. Transportation costs are not in­formation flow, but low-cost delivery cannot be achieved without considerable information from many sources. Depreciation is not an information cost except on in­formation technology investments.

The effort required to manage this complex flow is adding significant cost to the business. Ask yourself, is it always adding value? The competitive battle is being won or lost today based upon speed and information. It is within the information factory where key competi­tive advantage may be achieved. Factory floor improve­ments may have decreased delivery lead times by 50 percent or more. The process for taking the order and communicating it to the factory is an opportunity for further improvement. If this process is prone to error, such that the wrong product or option is shipped, the advantage gained by lead time reduction is wasted. Lead time can be shortened by some additional amount by reducing the cycle time of the information process.

The opportunity to streamline and automate infor­mation processes with technology already exists. Com­puter technology and telecommunications are rapidly automating many parts of this process flow. Unfortu­nately, the cost of implementing information technol­ogy has been enormous for many companies. Research by the Standish Group2, a company that researches projects and project outcomes, indicates that over 30 per­cent of information technology projects are canceled be­fore they are completed. Of those projects that are completed, over 75 percent are late, over budget, and/or with reduced functionality. Average cost overruns are 189 percent; average time overruns are 222 percent. The same lean thinking applied to managing and improving mate­rial flow on the factory floor can be applied to informa­tion processes to avoid "paving cow paths" with expensive technology. As with automation on the factory floor, the "information factory" requires simplification and stream­lining before automating technology is applied.

To Be Continued

For balance of this article, click on the below link:

Lean Manufacturing Articles and click on Series 14


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