The Goal: A Process of Ongoing Improvement (28 page)

A full moon is shining through the bedroom window and into my eyes. The night is still. I look at the clock beside me, which says it’s 4:20
A
.
M
. Next to me in bed, Julie is sleeping.

Resting on my elbow, I look down at Julie. With her dark hair spilled out on the white pillow, she looks nice sleeping in the moonlight. I watch her for a while. I wonder what her dreams are like.

When I woke up, I was having a nightmare. It was about the plant. I was running up and down the aisles and Bill Peach was chasing me in his crimson Mercedes. Every time he was about to run me over, I’d duck between a couple of machines or hop on a passing forklift. He was yelling at me from the window about my bottom line not being good enough. Finally he trapped me in the shipping department. I had my back against stacks of cardboard cartons, and the Mercedes was racing toward me at a hundred miles an hour. I tried to shield my eyes from the blinding headlights. Just as Peach was about to get me, I woke up and discovered that the headlights were moonbeams on my face.

Now I’m too much awake, and too aware of the problem I was trying to forget this past evening with Julie for me to fall back to sleep. Not wanting to awaken Julie with my restlessness, I slip out of bed.

The house is all ours tonight. We started out this evening with nothing particular to do, when we remembered we had a whole house in Bearington with nobody in it to bother us. So we bought a bottle of wine, some cheese and a loaf of bread, came here and got comfortable.

From the living room window where I stand in the dark looking out, it seems as though the whole world is asleep except me. I’m angry with myself at not being able to sleep. But I can’t let go of what’s on my mind.

Yesterday we had a staff meeting. There was some good news —and some bad news. Actually, there was a lot of good news. High among the headlines were the new contracts marketing has been winning for us. We’ve picked up about half-a-dozen new orders since I talked to Johnny. More good news was the fact that efficiencies have gone up, not down, as a result of what we’ve been doing in the plant. After we began withholding the release of materials and timing the releases according to the completed processing of heat-treat and the NCX-10, efficiencies dipped somewhat. But that was because we were consuming excess inventories. When the excess inventories were exhausted—which happened quickly as a result of the increase in throughput—efficiencies came back up again.

Then, two weeks ago, we implemented the new smaller batch sizes. When we cut batch sizes in half for non-bottlenecks, efficiencies stayed solid, and now it seems as though we’re keeping the work force even more occupied than before.

That’s because a really terrific thing has happened. Before we reduced batch sizes, it wasn’t uncommon for a work center to be forced idle because it didn’t have anything to process—even though we were wading through excess inventory. It was usually because the idle work center had to wait for the one preceding it to finish a large batch of some item. Unless told otherwise by an expeditor, the materials handlers would wait until an entire batch was completed before moving it. In fact, that’s still the case. But now that the batches are smaller, the parts are ready to be moved to the next work station
sooner
than they were before.

What we had been doing many times was turning a nonbottleneck into a temporary bottleneck. This was forcing other work centers downstream from it to be idle, which reflected poorly on efficiencies. Now, even though we’ve recognized that non-bottlenecks have to be idle periodically, there is actually
less
idle time than before. Since we cut batch sizes, work is flowing through the plant more smoothly than ever. And it’s weird, but the idle time we do have is less noticeable. It’s spread out in shorter segments. Instead of people hanging around with nothing to do for a couple of hours, now they’ll have maybe a few tento twenty-minute waits through the day for the same volume of work. From everybody’s standpoint, that’s much better.

Still more good news is that inventories are at their lowest ever in the plant. It’s almost shocking to walk out into the plant now. Those stacks and piles of parts and sub-assemblies have shrunk to half their former size. It’s as if a fleet of trucks had come and hauled everything away. Which is, in fact, about what happened. We’ve shipped the excess inventory as finished product. Of course, the notable part of the story is that we haven’t filled the plant back up again by dumping new work-in-process on the floor. The only work-in-process out there now is for current demand.

But then there’s the bad news. Which is what I’m thinking about when I hear footsteps on the carpet behind me in the dark.
"Al?’’
"Yeah.’’
"How come you’re out here in the dark?’’
"Can’t sleep.’’
"What’s wrong?’’
"Nothing.’’
"Then why don’t you come back to bed?’’
"I’m just thinking about some things.’’
It’s quiet for a second. For a moment, I think she’s gone away. Then I feel her beside me.
"Is it the plant?’’ she asks.
"Yeah.’’
"But I thought everything was getting better,’’ she says. "What’s wrong?’’
"It has to do with our cost measurement,’’ I tell her.
She sits down beside me.
"Why don’t you tell me about it,’’ she says.
"Sure you want to hear about it?’’ I ask.
"Yes, I do.’’
So I tell her: the cost of parts looks as though it’s gone up because of the additional setups necessitated by the smaller batch sizes.
"Oh,’’ she says. "I guess that’s bad, right?’’
"Politically speaking, yes,’’ I tell her. "Financially speaking, it doesn’t make a damn bit of difference.’’
"How come?’’ she asks.
"Well...do you know why it looks like the cost has gone up?’’ I ask her.
"No, not at all,’’ she says.
I get up to switch on a lamp and find a piece of paper and pencil.
I tell her, "Okay, I’ll give you an example. Suppose we have a batch of l00 parts. The time to set up the machine is 2 hours, or 120 minutes. And the process time per part is 5 minutes. So we’ve invested per part 5 minutes
plus
2 hours of set-up divided by 100. It comes to 1.2 minutes of set-up per part. According to the accountants, the cost of the part is based upon direct labor of 6.2 minutes.
"Now if we cut the batch in half, we still have the same amount of set-up time. But it’s spread over 50 parts instead of 100. So now we’ve got 5 minutes of process time, plus 2.4 minutes of set-up for a grand total of 7.4 minutes of direct labor. And the calculations are all based on the cost of direct labor.’’ Then I explain the way costs are calculated. First, there is the raw material cost. Then there is the cost of direct labor. And finally there is "burden,’’ which essentially works out to be cost of the direct labor multiplied by a factor, in our case, of about three. So on paper, if the direct labor goes up, the burden also goes up. "So with more set-ups, the cost of making parts goes up,’’ says Julie.
"It
looks
that way,’’ I tell her, "but in fact it hasn’t really done anything to our actual expenses. We haven’t added more people to the payroll. We haven’t added any additional cost by doing more set-ups. In fact, the cost of parts has gone down since we began the smaller batch sizes.’’
"Down? How come?’’
"Because we’ve reduced inventory and increased the amount of money we’re bringing in through sales,’’ I explain. "So the same burden, the same direct labor cost is now spread over more
product.
By making and selling more product for the same cost, our operating expense has gone down, not up.’’
"How could the measurement be wrong?’’ she asks. I say, "The measurement assumes that all of the workers in the plant are always going to be fully occupied, and therefore, in order to do more set-ups, you have to hire more people. That isn’t true.’’
"What are you going to do?’’ she asks me.
I look up at the window. The sun is now over the roof of my neighbor’s house. I reach over for her hand.
"What am I going to do? I’m going to take you out to breakfast.’’

When I get to the office, Lou walks in.
"More bad news for me?’’ I joke.
He says, "Look...I think I can help you out on this cost of products thing.’’
"Yeah? Like how?’’

"I can change the base we’re using for determining the cost of parts. Instead of using the cost factor of the past twelve months, which is what I’m supposed to be doing, we can use the past two months. That will help us, because for the past two months, we’ve had big increases in throughput.’’

"Yeah,’’ I say, sensing the possibilities. "Yeah, that might work. And actually the past two months are a lot more representative of what’s really going on here than what happened last year.’’

Lou leans from side to side. He says, "We-l-l-l, yes, that’s true. But according to accounting policy, it’s not valid.’’
"Okay, but we have a good excuse,’’ I say. "The plant
is
different now. We’re really a hell of a lot better than we were.’’
"Al, the problem is Ethan Frost will never buy it,’’ says Lou.
"Then why did you suggest it?’’
"Frost won’t buy it
if
he knows about it,’’ says Lou.
I nod slowly. "I see.’’
"I can give you something that will slide through on the first glance,’’ says Lou. "But if Frost and his assistants at division do any checking, they’ll see through it in no time.’’
"You’re saying we could end up in very hot water,’’ I say.
"Yeah, but if you want to take a chance....’’ says Lou.
"It could give us a couple more months to really show what we can do,’’ I say, finishing the thought for him.
I get up and walk around for a minute turning this over in my mind.
Finally I look at Lou and say, "There is no way I can show Peach an increase in the cost of parts and convince him the plant is better off this month than last. If he sees these numbers and gets the idea our costs are going up, we’ll be in hot water anyway.’’
"So you want to try it?’’ Lou asks.
"Sure.’’
"All right,’’ he says. "Remember, if we get caught—’’
"Don’t worry. I’ll practice my tap dancing.’’
As Lou is on his way out, Fran buzzes me to say Johnny Jons is on my line. I pick up the phone.
"Hello there,’’ I tell him, We’re practically old pals by now; I’ve been on the phone with him just about every day—and sometimes three or four times a day—for the past few weeks. "What can I do for you today?’’
"Remember our dear friend Bucky Burnside?’’ says Jons. "How could I forget good ole Bucky,’’ I say. "Is he still complaining about us?’’
"No, not anymore,’’ says Jons. "At the moment, in fact, we don’t even have a single active contract with Burnside’s people. That’s the reason I’m calling. For the first time in months, they’ve expressed interest in buying something from us again.’’
"What are they interested in?’’
"Model 12’s,’’ he says. "They need a thousand units.’’
"Terrific!’’
"Maybe not,’’ says Jons. "They need the whole order by the end of the month.’’
"That’s only about two weeks away,’’ I say.
"I know,’’ says Jons. "The sales rep on this already checked with the warehouse. Turns out we’ve only got about fifty of the Model 12’s in stock.’’
He’s telling me, of course, we’ll have to manufacture the other 950 by the end of the month if we want the business.
"Well... Johnny, look, I know I told you I wanted business, and you’ve pulled in some nice contracts since I talked to you,’’ I say. "But a thousand Model 12’s in two weeks is asking a lot.’’
He says, "Al, to tell you the truth, I didn’t really think we could do anything with this one when I called. But I thought I’d let you know about it, just in case you knew something I didn’t. After all, a thousand units means a little over a million dollars in sales to us.’’
"Yes, I realize that,’’ I say. "Look, what’s going on that they need these things so fast?’’
He tells me he did some digging and found out that the order had originally gone to our number-one competitor, who makes a product similar to the Model 12. The competitor had had the order on its books for about five months. But they hadn’t filled it yet, and this week it became clear they would not be able to meet the due date.
"My guess is that Burnside turned to us, because they’ve heard about us offering such fast turn-around to everyone else,’’ he says. "Frankly, I think they’re desperate. And, hell, if there is any way we can pull this off, it’d sure be a good way for us to save face with them.’’
"Well, I don’t know. I’d like that business back again, too, but....’’
"The real kick in the head is if we had only had the foresight to build a finished goods inventory of Model 12’s while we had those slow sales months, we could have made this sale,’’ he says.
I have to smile to myself, because at the beginning of the year I might have agreed with that.
"It’s too bad,’’ Johnny is saying. "Aside from the initial business, it could have been a big opportunity for us.’’
"How big?’’
"Strong hints have been dropped that if we can come through on this one, we could become their preferred supplier,’’ says Jons.
I’m quiet for a moment.
"All right. You really want this, don’t you?’’ I ask him.
"So bad I can taste it,’’ he says. "But if it’s impossible. . . .’’
"When do you have to let them know?’’ I ask.
"Probably sometime today, or tomorrow at the latest,’’ he says. "Why? Do you think we can really do it?’’
"Maybe there’s a way. Let me see how we stand and I’ll give you a call back,’’ I tell him.

As soon as I get off the phone with Jons, I round up Bob, Stacey, and Ralph for a meeting in my office, and when we’re all together I tell him what Jons told me.

"Ordinarily, I would think this is out of the question,’’ I say. "But before we say no, let’s think about it.’’
Everybody looks at me with the certain knowledge this is going to be a waste of time.
I say, "Let’s just see what we can do, okay?’’
For the rest of the morning, we’re busy with this. We go over the bill of material. Stacey checks on raw materials inventories. Ralph does a quick estimate of how long it will take to produce a thousand units after the materials are on hand. By eleven o’clock, he has calculated that the bottlenecks can turn out parts for the Model 12 at the rate of about one-hundred per day.
"So, yes, it would be technically feasible for us to take the order,’’ says Ralph. "But that’s only if we work on nothing else for two weeks except the thousand units for Burnside.’’
"No, I don’t want to do that,’’ I tell him, thinking about us screwing up relations with a dozen customers just to please one. "Let’s try something else.’’
"Like what?’’ asks Bob, who is sitting there with us, looking about as enthusiastic as a bump on a log.
I say, "A few weeks ago, we cut our batch sizes by half, and the result was we could condense the time inventory spends in the plant, which also gave us an increase in throughput. What if we cut the batch sizes by half
again?’’
Ralph says, "Gee, I hadn’t thought of that.’’
Bob leans forward. "Cut them again? Sorry, Al, but I don’t see how the heck that can help us, not with the volume we’re already committed to.’’
"You know,’’ says Ralph, "we have quite a few orders we’d planned to ship ahead of their due dates. We could re-schedule some of those in the priority system so they’d ship when promised instead of early. That could give us more time available on the bottlenecks, and it wouldn’t hurt anybody.’’
"Good point, Ralph,’’ I tell him.
"But, hell, we still can’t get a thousand units done no-how,’’ drawls Bob. "Not in two weeks.’’
I say, "Well, then, if we cut the batch sizes, how many units
can
we do in two weeks and still ship our current orders on time.’’
Bob pulls on his chin and says, "I guess we could look into it.’’
"I’ll see what I can find out,’’ says Ralph, standing so he can leave and go back to his computer.
His interest finally piqued, Bob says, "Maybe I’d better go with you so we can noodle this thing out together.’’
While Ralph and Bob are wrestling with this new possibility, Stacey enters with news about inventories. She’s ascertained we can obtain all the materials we need either from our own stocks or from vendors within a few days, with one exception.
"The electronic control modules for the Model 12 are a problem,’’ says Stacey. "We don’t have enough of this type in stock. And we don’t have the technology to build them in-house.
But
we’ve located a vendor in California who has them. Unfortunately, the vendor can’t promise a shipment of that quantity in less than four to six weeks, including shipping. I’d say we might as well forget it.’’
"Wait a minute, Stacey; we’re thinking about a little change in strategy. How many modules could they give us per week?’’ I ask her. "And how soon could they ship the first week’s quantity to us?’’
"I don’t know, but doing it that way, we might not be able to get a volume discount,’’ says Stacey.
"Why not?’’ I ask. "We’d be committing to the same thousand units—it’s just that we’d be staggering the shipments.’’
"Well, then there’s the added shipping cost,’’ she says.
"Stacey, we’re talking a million dollars in business here,’’ I tell her.
"Okay, but they’ll take at least three days to a week to get here by truck,’’ she says.
"So why can’t we have them shipped air freight?’’ I ask. "They’re not very big parts.’’
"Well....’’ says Stacey.
"Look into it, but I doubt if the air freight bill is going to eat up the profit on a million-dollar sale,’’ I tell her. "And if we can’t get these parts, we can’t get the sale.’’
"All right. I’ll see what they can do,’’ she says.