While the politicians and economists debate whether we are in, going in, or potentially avoid a recession many front-line companies are seeing a change in their order book and increased nervousness with their customers.
Hopefully you have been watching the visual indicators ... mostly gone are the supply-chain concerns about clogged ports now replaced with Christmas Decorations in full display and on sale even before Halloween has passed. All those delivery apps have increased their sales and marketing .. why? people don't want to give 30% of the invoice to the delivery service and now feel safer just going out or picking up dinner ... and the labor shortage, it is kind of self correcting as those e-commerce giants are now laying off thousands of order pickers that they kept "just in case" of a facility Covid out-break. but we still have to fight inflation ... which for many has become an excuse to raise prices and not value ...
First the economy will rebound. For some this economy is a disaster and to others a time of opportunity. Based on the consumer confidence index, sales will be lax until confidence returns, of course this will tip into the other business sectors to create a general slowing of the economy. Speaking with knowledge experts in various business sectors downturns of 60% are being witnessed now.
So what to do?
Credit is tightening and no business system can keep pace with the changes in the market. Cash has always been King … but now it is more important to focus on cash than ever before. Although you need to focus on now … reserve some thought on how you will manage coming out of this situation as the economy recovers.
Remember, in the early stages of the Toyota Production System design and development that Toyota was near bankruptcy. The idea and guiding principal behind their system was to procure goods and services, convert it into a saleable product, sell it, collect the cash all before the invoice was due from the original supplier. Can you make your system operate in a similar manner?
Get closer to your customers and suppliers. An excellent method is to convert everything possible to a pull system or Kanban. This will enable your organization to stay close and react to changes in customer demand. Remember, MRP systems react to past demand and then project this into future demand … this will overfill the pipeline and just make your management more difficult.
I suggest to our clients that when implementing Kanban you implement it in 4 phases;
Office Supplies … so folks can see how it can work without damaging your system.
Operating and Consumable Supplies (non-BOM) … you will be surprised how much cash is horded within your business in the form of inventory that is not currently required … for example look at your glove purchases vs how many employees you employ. During this phase introduce the use and concept of timed delivery routes.
Raw Materials … complemented with Vendor Managed Inventory and timed external routes … the purpose is to increase velocity of inventory through the supply chain which equates to cash.
Customer Requirements … allows you to control your asset utilization and level load your facility or Hjunkia. Here you can begin to complement your out-bound logistics with inbound goods and services to optimize your logistic’s costs.
The implementation of Kanban through-out your organization should reduce your cash commitment to inventory by at least 50%.
The market will define a change in your order pattern which means probably resulting in smaller orders and smaller lot sizes. Here you can entertain a multi-prong strategy.
If you are running a multi-shift operation do a Pareto chart of your customers by volume and profitability. Build your perfect schedule based on a one shift operation and fire your unprofitable or lower profit customers. In essence employ the techniques of TOC at a high level where we need to optimize the constraint … which in essence is the market.
In conjunction with analyzing your customer demand create a focus on set-up and change-over reduction. You need to get your employees to think and behave like members of a pit-crew competing in the race of their life. Using the techniques of SMED and cross training aim for 60-80% reduction. This is a good time to introduce OEE to the organization. When looking at set-up reduction make sure that you do not ignore your office operations … you will be surprised at how many set-ups occur within the office in any given day.
Look at your processes and look for opportunities for 1 piece flow and the use of Chaku-Chaku (load-load) where one operation’s out-put is automatically loading the next operation. Even in companies that have cellular manufacturing in place there are still opportunities for improvement.
Needless to say increase your focus on 5S+1 and workplace organization. Eliminate drawers and doors they hide the precious commodity of cash. Use shadow board wherever possible. Watch your people doing operations with a downturn in demand people will have a tendency to walk more to show you how important they are to your operation… you will get more questions and request for guidance … people are not stupid and know what is happening. Focus on keeping your people safe, clean comfortable and informed while at their work stations … eliminate wandering and excessive motion.
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