One Swiss Franc is currently worth more than one Dollar. The Euro has also significantly weakened vs. the Franc. The Swiss economy is dependent on exports that must now be under threat due to the high price of Swiss goods. If Swiss industry does not find a good solution the strong economy there will suffer greatly. How quickly can Swiss industry react successfully?
1. STOP wasting Production Time!
In most industries, Swiss or otherwise, the actual ‘touch-time’ (the time required to produce a product less all the waiting time when product is sitting in a queue waiting to get on a machine) is less than 10% of production lead-time and often it is less than 1% (this despite all those efforts with 6-sigma and Lean).
If my statement is true (it often is) then there is a huge opportunity to increase the speed of production and reduce lead-times significantly. If we are able to increase touch time to 20% of lead-time, then speed will have doubled and the company has a significant advantage – it can offer shorter, and more reliable, lead-times.
Will this lower cost? On the face of it the answer is No. But to achieve such a speed increase means that the amount of Work in Process (WIP) must be reduced by a corresponding amount – cut in half. This will reduce that part of stock by 50% in quantity and financial value.
With much less WIP in production the visibility of orders becomes much clearer to those on the factory floor. Much less time is lost chasing after the right work-order that should be completed next. Capacity to produce more is found. The last 5% produced in any production environment is hugely valuable for profits and profitability. If materials are 40%, then 60% of the last sales go directly to the bottom line. In a 100m€business 5% more would deliver 3m€ to the bottom line.
If a company is able to increase speed, then there is less need for finished product inventory giving another boost to return on investment. Inventory declines for two reasons: 1. Since replenishment is made much sooner our inventory must cover less time – half the time until the next replenishment. 2. Since our forecast needs to look less far into the future, forecast accuracy will improve. We know more about the near term future than what might happen in the more distant future.
We get significant gains in inventory and speed, and some improvement of production capability.
How quickly can a company implement this tactic – cut WIP and lead-time in half? It cannot take vey long!
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