Contrary to Otis’ reasoning that “…it was trying to do too
much”. The principal
cause was most likely that the “manufacturing
fundamentals” were not accurate.
This
would include inaccurate bills of material and routings in its cost system:
Bills
of Material not accurate:
When
the daily production plan is published and individual product (SKU) orders are
released to the plant floor component parts are taken from inventory and sent
to the production floor. If the bills of material for the SKUs are not accurate,
some of the parts necessary to produce the product will be missing resulting in
production delays. As a result, hourly production employees are idled incurring
costly labor variances.
Inaccurate
bills of material complicate an operation further because supply chain does not
know what component parts to purchase to support sales and production. Supply
chain uses the bills of material and sales forecast to decide what raw
materials to purchase.
When
moving production to a different plant, if the bills of material are not
accurate, the necessary component parts to produce a product will not be
transferred or on-hand at the new plant.
Not
everything may have been captured in the older, long-used manufacturing plant’s
bills of material. There may be an informal system in-place which long-term
employees know from experience what parts are needed to produce a product –
although these parts are not included in a cost system’s bill of material.
Routings
incomplete:
Routings are simply the timed steps a product (SKU) takes
from start to finish in the production cycle. It is possible that the older
plant’s routings were not accurate. But experienced employees may know how to
successfully route product through production.
However, if routings are not completely accurate when a
plant is moved, it will be virtually impossible for the new plant’s management
and engineers to establish the correct order of steps and tasks to produce
product.
It would be the same as when we assemble a new bicycle for
one of our children. We open the box and find only a completely disassembled
bicycle – only parts. But there are no instructions included on how to assemble
the bicycle. We may eventually figure out how to put the bike together, but it
will take a longer time with hits and misses.
It is not much different asking production managers and
engineers to produce product with inaccurate routings.
Once a cost system is in-place it is fairly easy to maintain
it daily by manufacturing and industrial engineering and cost accounting
allowing supply chain to maintain the requisite inventory supported by a bar
coding system.
