IMPROVING EFFICIENCY IN A JOB SHOP

www.jobboss.com The Benefits of Implementing Key Performance Indicators (KPI) and Improving Operational Efficiency in a Job Shop IMPROVING EFFICIENCY IN A JOB SHOP If you own a job shop, you know that you are primarily a service business. Your customers provide you part drawings and specifications then you produce the parts – with your customer’s satisfaction always your primary focus. Customer satisfaction drives your business and the work coming in, because of this you need to do everything in your power to maintain high customer satisfaction. Job shops may not be restaurants or retailers, but in the end they are similar in that in a global economy where differentiation is fast disappearing, exceptional customer service and maintaining high customer satisfaction needs to be top priority. Running a job shop is difficult for many reasons. You want to provide exceptional service to your customers, but you face so many challenges – many of which are out of your control. From obtaining your source materials to relying on shipping services to deliver the finished product, – the customer looks to you for satisfaction, and cares very little for the hurdles you must cross to deliver it. You also face the growing difficulties caused by globalization. Where previous generations of job shop owners only faced local or regional competition, your competition now is global in nature. Shops all over the world especially in developing economies like China, India, and Brazil offer customers quality manufacturing services at cut-rate prices, making it hard for you to stand out based on quality or price. There is one way to set your job shop apart from all the others out there. It can take time, and might require that you seek outside assistance, but it is doable. To enable your shop to function at peak performance, and thereby improve the satisfaction of your customers, you need to focus on improving your operational efficiency. Developing a strategic view of your shop, and establishing key performance indicators that you can consistently measure and improve upon, will give you the tools you need to take your shop to the next level. Once you discover what it is your shop does best, the things your customers recognize and seek you out for, and the way to improve upon those strengths, you become irreplaceable. You stand out to your customers in a way that your competition cannot match. Improving your operational efficiency and your service as a result is a guaranteed way to rise above the competition. It focuses on improving what is best about your company in a scientific and measurable way, one that can be consistently improved upon. This applies from the front office all the way back to the shipping dock. INTRODUCTION 2 IMPROVING EFFICIENCY IN A JOB SHOP IMPROVING EFFICIENCY IN A JOB SHOP 3 Efficiency experts define operational efficiency as the ratio of inputs to operate the business to outputs gained by the business. This is a useful way to organize what happens in all aspects of your business, every business action is either an input or an output. Again, the issue with most shops is that they only focus on improving the efficiency of the shop floor. They buy the latest equipment to make parts better and faster, or invest in automation to manufacture parts completely unattended. None of these choices are bad necessarily, but they don’t provide the solution of ultimate efficiency for your business. Indeed, buying machines and such to improve shop efficiency often masks other issues in the business. For instance, if you notice customers complaining of late orders, you may attempt to fix the problem through buying a new machine. The machine delivers on its promises of quickening production, and the problem appears to be solved. What if the actual problem was with the front office, though? Your order-taking software is outdated perhaps, or one office employee has been inputting orders incorrectly. The office manager hasn’t caught the problem, the software still appears to be functioning, and your new machine makes up for the lag for a short while. Without a comprehensive company-wide analysis you may never discover the root of your problem, and there could be multiple issues. Focusing only on the shop floor is a onedimensional view, one you must let go of if you want to achieve the ultimate goal of true operational efficiency. Many shop owners – most of which have an expert background in machining, fabrication, or tool and die building – understand how to keep the shop floor running smoothly. Understanding how to improve the overall operational efficiency of small or mid-sized business requires bigger thinking. If you are one of the many job shop owners out there that have become overly focused on creating the perfect shop floor operation, it is time to step back and take in the bigger picture. As a business owner, you cannot afford to ignore any area of your company. Your focus on operational efficiency, improving key performance indicators, and providing stellar service must include every aspect of the business. TRUE OPERATIONAL EFFICIENCY The idea of operational efficiency seems pretty straightforward. You look at your operation, and you work on making it as efficient as possible. The problem comes in putting this concept into everyday practice. You may start off with a general goal of approaching one area of your business and improving efficiency. Once you get in there though, you can quickly become overwhelmed in the details, like trying to clean out your garage, you go from goal- oriented to drowning in minutia almost immediately. This is why it pays to look at operational efficiency from a more scientific framework. Creating categories for the things in your garage before you ever open a box – keep, donate, give away, store, etc. – you establish the framework beforehand so you have a reference to bring you out of the overwhelming amount of details. This is why operational efficiency experts focus on defining a set of measurable factors, such as key performance indicators. Define your goals and measurements first, and then get to work. 4 IMPROVING EFFICIENCY IN A JOB SHOP Understanding the framework of inputs and outputs enables you to begin to consider ways to improve the overall operational efficiency of your shop. This categorization will let you shift to a more strategic view of your job shop, a view you can use to determine your key performance indicators. With your key performance indicators established you can then begin accomplishing real and lasting change for the better. DEVELOPING A STRATEGIC VIEW OF YOUR SHOP You probably feel sometimes like you face crisis after crisis in your company. Rushing from problem to problem can leave any shop owner feeling frazzled, overworked, and place any business owner in firefighting mode. Small fires seem to constantly pop up, and you spend so much of your day rushing to put them out that you have no time for anything else. INPUTS AND OUTPUTS ACROSS THE BOARD To get where you want you must take a more holistic view of operational efficiency, in return allowing you to get the full picture of your company. As stated previously, everything that happens on company grounds can likely fit into the category of either an input or an output. Consider these different inputs and outputs: Inputs • Money (costs) • People (human capital) • Time and effort Outputs • Money (revenue, margin, cash) • Product • New customers • New markets • Quality • Speed and agility • Additional opportunities By developing a strategic view of your shop, you can get out of that firefighting mode and into a proactive business approach. Crisis management is certainly important, but a good strategy should help you minimize them, and open up energy to focus on goals both short and longterm. You may even have some short-term goals that you are working towards, but to really excel you need solid long-term goals as well. Short-term goals are certainly important, but you must balance those short-term goals with more significant long-term goals. Creating a strategy will allow you to create a roadmap to see where you are and where you plan to go. Once you adopt a strategic outlook, you will have a way to keep your head above water and to look further down the road. This improves your decision making process and makes you a more effective leader and owner. IMPROVING EFFICIENCY IN A JOB SHOP 5 Gathering inputs from multiple viewpoints is incredibly useful for discovering exactly where your company is right now. You may have fallen into the trap of assuming you are on the same page about these issues as your employees and your customers, but there is a very good chance you aren’t. You can learn an amazing amount of important information through a few simple surveys conducted with the right people, enough to help you build a strategic view of your business based on reality. Keep in mind that your SWOT surveys may bring some things to your attention that you would rather avoid. Everyone tries to avoid unpleasant or unwanted feedback at one time or another. Your company may be far off course from where you imagined it to be, or where you really want it to be. Even if it is relatively on-track, there is a good chance that your surveys will bring up at least one unpleasant fact about your company. Your job shop may be your life’s work, or the work of several generations of your family. It’s all right to feel frustrated when you find out facts you wish were otherwise. Just remember by being honest with yourself and by collecting accurate information now and working to improve it, you are doing the best possible thing for your company. Ask the tough questions, be open to the answers and move on from there. Your company will be stronger for it, and your vision will be clearer as a result. Once you have your completed your SWOT analysis, you can use it to develop a strategic view of your business. You can ask yourself the same questions you ask your stakeholders, and you can also decide what you would want the answers to be in the future. Determine your goals, what you need to adjust to accomplish them, and set your strategy. BEGIN WITH A SWOT ANALYSIS A SWOT analysis is an excellent way to begin to develop your strategic view – a perfect way to jump right in and start seeing your company exactly as it is. A SWOT analysis consists of a review of your shop’s: • Strengths (internal) • Weaknesses (internal) • Opportunities (external) • Threats (external) One of the best ways to gather the information you need for your SWOT analysis is through conducting surveys, both of your internal stakeholders (employees) and your external stakeholders (customers). Some questions you might ask on your surveys include: Internal stakeholder surveys • What markets do we serve? • What is the best lot size we produce? • What tolerances can we best keep? • Do you see us as a low cost or high- quality supplier? • What material can we work with effectively? • How would you assess the skills of your fellow employees? • Why do customers give us business over our competitors? External customer surveys • What type of supplier do you see us as? • Do you come to us primarily because of price or quality? • What is the most value-added process we supply your company? • What current or future products do you see us best suited to manufacture for your company? • What machine capabilities do you assume we have? Wish we had? Determine your goals, what you need to adjust to accomplish them, and set your strategy. 6 IMPROVING EFFICIENCY IN A JOB SHOP SOME KPIS YOU MIGHT CONSIDER FOR YOUR BUSINESS COULD INCLUDE: Customer-oriented KPIs • Quote backlog • Quote hit rate • # of weeks of order backlog • % of on-time delivery performance Production-oriented KPIs • Average # of days of real throughput (order date to first ship date) • Average # of days of production throughput (production start date to first ship date) • Ration of direct vs. indirect hours • % of machine uptime Vendor or Supplier-oriented KPIs • % of on-time delivery performance • Acceptance rate • # of inventory turns • Inventory cycle count accuracy Financial-oriented KPIs • Average days outstanding (customer invoices) • Average days outstanding (vendor invoices) • % improvement in gross profit-margin • % increase in working capital be difficult to get it right on the first try – which is ok. Use your strategic view as a reference for where you want your company to go, and then do your best to choose KPIs that will help you get there. If some fail to work for you, you can always choose others. Remember when choosing your KPIs that each KPI is best improved by the level of your organization that is most involved in its achievement. Be aware that each of your departments is already busy doing what it has always done, and the introduction of irrelevant KPIs will only cause problems. The right KPIs however, will keep departments focused on what they can most effectively change, avoiding distractions and frustration. A good targeted KPI can do wonders for a department. A bad one will be ignored or worse, resented. MEASURING AND REPORTING KPIS FOR THE BUSINESS Data acquisition for your KPIs should be easy and timely. The fact is, if the data cannot be acquired easily, the KPI won’t be measured. If the data is not timely, it may be impossible for you to improve based on the lag time between the measurement, and the corrective actions that need to be taken. Ideally, you should automate the process of data acquisition and reporting – something that a good ERP or shop floor management system will allow. Good job shop software can measure and track your performance against many of your KPIs automatically, and provide reporting to any relevant employees or management at the push of a button. This automation makes the entire process easier and more effective, and directly fits into your overall strategy of operational efficiency. You should be able to contact your ERP software vendor for help on how to incorporate company-specific KPIs into your system. With your new strategic view you can then determine the key performance indicators (KPIs) you will use to drive toward your goals - improved operational efficiency being one of them – and ultimately realize your strategic vision for your business. DEVELOPING KEY PERFORMANCE INDICATORS (KPIS) FOR A JOB SHOP Key performance indicators are ways for you to define and measure the progress your shop is making towards its strategic goals. Key performance indicators are a necessity to create real a lasting change, yet they are the road map that ensures everyone in the shop is on the same path to success. KPIs must be personal and relevant to the business, but they must also be standard enough that your company can benchmark with other top shops in your industry or market. Ideally, you should have fewer than 10-12 key performance indicators for your entire business. Depending on your viewpoint and the size of your shop this number may seem overwhelmingly large or unreachably small. Although, any operational efficiency consultant will tell you that ten or less is the ideal number for success. If you have too few indicators, you may fail to paint a complete picture of your business. However, if you have too many indicators, you risk creating distractions and a general loss of focus throughout the company. Defining and measuring KPIs is an art and it may take you some trial and error to determine the perfect number, and type that your job shop needs to accomplish its goals. The KPIs you choose to measure for your business will be unique to your company, although you should certainly take a cue from other businesses similar to yours. If this is your first time doing this, it may IMPROVING EFFICIENCY IN A JOB SHOP 7 to your job shop, but the realm of KPIs and operational efficiency is complex and sometimes difficult to navigate. Good consultants and ERP vendors make a career out of studying, exploring, and applying concepts like operational efficiency business strategy, and KPIs to environments just like yours. These experts make a living helping businesses like yours to develop powerful and effective strategies for taking their companies to the next level. If you want to accelerate your business growth, it may be worthwhile to seek the help of these operational efficiency experts. Operational efficiency is a field that continues to grow, and experts continue to discover and develop better methods for helping businesses achieve their desired results. It is faster and often times more efficient to seek out the help of those with the knowledge than to learn it all by yourself. Don’t be afraid to invest in an outside consultant who is well versed in helping shops achieve and overachieve against their specific KPIs. Doing so is an investment that can pay huge dividends. Often, the best place to find such help is your ERP vendor. EXPERT HELP Your ERP vendor likely has consultants specifically trained to help you take your shop to the next level. The development, installation, and maintenance of ERP software requires an in-depth understanding of your business, and an understanding of all of these concepts, from operational efficiency to KPIs. While you may be new to the idea of complete operational efficiency and KPIs, your consultant has spent years studying these concepts and applying them to all types of job shops. A consultant can likely accomplish in days what would take you months on your own. You should also make your KPI data visible to all employees, preferably in a central area within each department or a primary area within the shop. Depending on your software, the KPIs should be able to be viewable on displays located in strategic locations on the shop floor. Employees should always be aware of how they are doing and how they can get better, something visual KPIs can help with. When departments overachieve on their specific KPIs, they should be rewarded for their efforts. You want the entire team invested in the measurement and achievement of KPI goals. Your employees are the ultimate achievers and overachievers of KPIs, and need to understand how important they are to the success of your strategic goals. HELP MAY BE NECESSARY Sometimes it is impossible to achieve or overachieve against your KPIs when you are lacking the necessary knowledge to do so. This is nothing to be ashamed of. You may be skilled in a variety of areas related Per at reque laboramus repudiandae, nihil delenit persequeris per ne, suas possit per no. Id possit apeirian sed. Ibusdaestias quo et fugit labo. Optatur. 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Cetero prompta persequeris ut usu. Sit ei sententiae efficiendi, ea est assum noster, mei quando soluta nostro cu. Sit ei sententiae efficiendi, ea est assum noster, mei quando soluta nostro cu! Nulla consequat massa quis enim Donec pede justo, fringilla vel, aliquet nec, vulputate eget, arcu. In enim justo, rhoncus ut, imperdiet a, venenatis vitae, justo. Nullam dictum felis eu pede mollis pretium. Integer tincidunt. Cras dapibus. Vivamus elementum semper nisi. Aenean vulputate eleifend tellus. Aenean leo ligula, porttitor eu, consequat vitae, eleifend ac, enim. Aliquam lorem ante, dapibus in, viverra quis, feugiat a, tellus. Phasellus viverra nulla ut metus varius laoreet. Quisque rutrum. Aenean imperdiet. Etiam ultricies nisi vel augue. Curabitur ullamcorper ultricies nisi. Nam eget dui. Etiam rhoncus. Maecenas tempus, tellus eget condimentum rhoncus, sem quam semper libero, sit amet adipiscing sem neque sed ipsum. Nam quam nunc, blandit vel, luctus pulvinar, hendrerit id, lorem. Maecenas nec odio et ante tincidunt tempus. Donec vitae sapien ut libero venenatis faucibus. Nullam quis ante. Etiam sit amet orci eget eros faucibus tincidunt. Duis leo. Sed fringilla mauris sit amet nibh. Donec sodales sagittis magna. Sed consequat, leo eget bibendum sodales, augue velit cursus nunc, quis gravida magna mi a libero. Fusce vulputate eleifend sapien Vestibulum purus quam, scelerisque ut, mollis sed, nonummy id, metus. Nullam accumsan lorem in dui. Cras ultricies mi eu turpis hendrerit fringilla. Vestibulum ante ipsum primis in faucibus orci luctus et ultrices posuere cubilia Curae; In ac dui quis mi consectetuer lacinia. Nam pretium turpis et arcu. Duis arcu tortor, suscipit eget, imperdiet nec, imperdiet iaculis, ipsum. Sed aliquam ultrices mauris. Integer ante arcu, accumsan a, consectetuer eget, posuere ut, mauris. Nullam nulla eros, ultricies sit amet, nonummy id, imperdiet feugiat, pede. Sed lectus. Donec mollis hendrerit risus. Phasellus nec sem in justo pellentesque facilisis. Etiam imperdiet imperdiet orci. Nunc nec neque. Phasellus leo dolor, tempus non, auctor et, hendrerit quis, nisi. Curabitur ligula sapien, tincidunt non, euismod vitae, posuere imperdiet, leo. Maecenas malesuada. Praesent congue erat at massa. Sed cursus turpis vitae tortor. Donec posuere vulputate arcu. Phasellus accumsan cursus velit. 8 LOREM IPSUM DOLOR SIT AMER ONSITE ANALYSIS Stakeholder Interviews – This includes a variety of people in yo r company. You, your management, and your employees likely all have valuable input that the consultant can use to get the big picture of your comp ny. Current process review – Any are of the c mpany you want to improve will requir a thorough examination, including observation of how things are done day-to-day. MANAGEMENT TEAM PRESENTATION OF FINDINGS AND RECOMMENDATIONS Short-term recommendations – These are tasks that you can take on immediately for q ick results. Impl menting these short-term recommendations are often enough to give you the ROI you need to justify seeking an external consultant. Mid-term recommendations – Your mid-term recommendations will help you make the transition from your short-term goals into th longer-range vision you have for your job shop. Long-term g als – Your long-term goals are the ultimate destination for your business. These are the ideas that get you truly motivated, and are often achievable if you incorporate the short and mid-term recom endations given by your consultant. FOLLOW-UP REVIEW (WHERE WARRANTED) TO EVALUATE PROGRESS OR DEPLOY CONTINGENCY PLANS Change can take time. While in many instances it will be possible to integrate the consultant’s recommendations quickly and easily into your business, there may be situations when things don’t go according to plan. In these instances, a follow-up visit can help iron out any additional kinks. This is another situation where a consultant can prove invaluable. They can use their extensive experience to quickly troubleshoot problems that may seem insurmountable from your perspective. A TYPICAL CONSULTING ENGAGEMENT WILL OFTEN FOLLOW A STANDARD FORMAT You know you need a strategic view. You know you need to be more operationally efficient, and you need a solid set of KPIs to get you there. Consider how well you think you can accomplish these things on your own, and whether you think there is benefit to seeking outside help. External assistance from a skilled consultant can help you in deploying best practices for improving processes and procedures in your shop, taking your entire business to the next level. Given time, you can probably learn your way around the process on your own, and may see some success with it. The benefit of an expert helping to guide the way however, can make the process easier and much more effective—allowing you to achieve the shop that which you’ve always dreamed. If you would like to evaluate your job shop’s KPIs, please contact JobBOSS Professional Services for KPI and operational efficiency expert assistance. JobBOSS is a leader in on-site KPI consulting for all job shops. YOUR ROI The concepts of operational efficiency and KPIs are proven across a variety of manufacturing disciplines, from the giants like Toyota to the smallest manufacturing companies. There is no doubt that their application will yield results. The acceleration and targeted application of these ideas that happens when you hire a consultant increases your ROI. You start getting results faster, and in most cases will see bigger and better results than you would on your own. It is not uncommon for companies to improve performance and efficiency 10-fold. CONCLUSION Smart business people – job shop owners included – should have a strategic view of their business, and use a consistent set of measures KPIs to evaluate the performance of their business. If you are like most job shop owners, your shop is probably one of the most important parts of your life – providing income for your family today, employment for your staff, and a lasting legacy for generations to come. You can’t afford to be anything but smart when it comes to developing your company. “The definition of insanity is doing the same thing over and over again, yet expecting different results.” IMPROVING EFFICIENCY IN A JOB SHOP 9 JobBOSS Shop Management Solutions serve over 7,000 shops with software and business support. Since over 30 years we provide the technology and knowledge that fuels their productivity and profits, innovation and growth. JobBOSS is a job-based system designed specifically for custom and mixed-mode manufacturers–an integrated, “quote-to-cash” solution that offers complete visibility and control of a manufacturing business. JobBOSS is an Exact product. Exact builds business software for SMEs and their accountants. Our innovative technology is aimed at specific business needs, providing an overview of today and insights into the opportunities of tomorrow. Exact inspires businesses to grow. Our 1,600 employees love, share and support our customers’ ambition. Like them, we aim high. Like them, we aspire to lead the way. That’s how we know it’s a bumpy road to success. And that’s why we build software to help smooth it out, enabling our customers from all over the world to grow. JobBOSS. Shop management solutions. www.jobboss.com JobBOSS 3600 American Blvd W Bloomington, MN 55431 United States Tel: 1-800-777-4334 Website: www.jobboss.com © Exact Group B.V., 2016. All rights reserved. All trademarks mentioned herein belong to their respective owners. MCL500101US152