Management matters in an efficient business
By Art Raymond, [email protected]

In most value-added wood product sectors, anyone with sufficient capital can assemble the physical pieces of a successful business. The raw materials are commodities, and the necessary equipment is readily available from numerous machinery dealers. All you need add for a world-class physical plant is a suitable building.

But plant and equipment alone are not enough to ensure success. The real difference between winning and losing in our industry is between your ears. It’s how you operate the physical assets that counts. A well-run, older plant will outperform a poorly managed, state-of-the-industry facility every time. Management matters, and the best managers will ultimately win.

Put simply, a successful manufacturing business delivers satisfaction to its customers while providing its owners above average profit and its employees a great place to work. In the quest for this success, you must answer one key question: What must my factory do well?

The answers come from your customers. As business thought leader Peter Drucker said, “The purpose of business is to create and keep a customer.” You must excel at providing your customers what they want. A business depends on continually satisfying its customers for its existence. Don’t ever forget that nothing happens in your company’s value chain until a consumer takes money out of his/her wallet.

Every company needs to know:

  • Who are its customers?
  • What is its offering?
  • What is its value proposition?

Value proposition is the list of purchase attributes that cause a customer to buy from you rather than your competitors. Is it price, quality, delivery time, product options, after-sales service, or something else? Someone in your company must get down in the trenches with your customers to determine what they value in your offering.

With these answers in hand, then and only then can you define what your factory must do well. Without that information, you risk becoming efficient at things you don’t get paid for. As Drucker also said, “There is nothing quite so useless as doing efficiently that which should not be done at all.”

In my experience, the best managers apply ten basic rules to create and sustain a winning manufacturing operation:

1. Concentrate on the vital few. Put simply, the vital few are the activities in which excellence produces the biggest impact on your business results. Concentrating on these activities means abandoning everything that does not optimally use your capital, continuously improve your critical processes, or exploit your successes.

This intense focus goes beyond your production process to include your products and customers. It’s important to differentiate the very important from the less important. In a healthy business 20 percent of the customers and products create 80 percent of the revenues. Chasing the remainder is wasteful.

2. Manage and engineer your products carefully. Creating a winning factory requires constantly critiquing its product line. First you must eliminate slow selling, low volume items. Remember from rule one, 80 percent of sales in healthy plants come from 20 percent of the products. You must have rules that purge poor-selling items and focus your efforts on the best sellers.

Next you must carefully research new products before introduction. Recognize that new products require your time and money. Will your target customers buy the proposed new items?

Once a new product is approved, you must invest in sound product engineering. This effort should continue through a product’s life to ensure lowest cost and manufacturability.

If you do not manage your product line, you will gain little from the pursuit of the next eight rules.

3. Know your costs and performance. To make a profit you must know your costs to make intelligent pricing and product decisions. A real time system that provides accurate costs and performance measurements is a key prerequisite to success. The best such systems enable determination of costs and profitability by customer, product, and job.

4. Capitalize on your strengths. – Know what you do well and leave all else to others. Vertical integration takes a lot of capital and smart people. Specialist suppliers can often provide components, products, and services cheaper, faster, and of higher quality than you can. A formal make vs. buy policy goes a long way toward keeping your people on task.

5. Lean out your processes - Competing in today’s hypercompetitive marketplace allows little, if any, waste. Through the application of lean principals, you must create the most value with the least material, labor, overhead, and importantly – time.

6. Know your capacity – Scheduling your operation and satisfying your customers depend heavily on your bottleneck operation’s run rate and set-up economics. You can’t sell more than your bottleneck can produce. The selection of other equipment depends on that knowledge too.

7. Engineer your factory floor carefully. After rationalizing your product line, determining your costs, and selecting your equipment, you can concentrate on organizing your plant floor. To optimize production efficiency, a layout must minimize intra-plant transport cost and use of floor space plus maximize coordination between activities.

8. Automate operations management tools – Information is the glue that binds the various parts of an operation together. To manage materials, physical plant, and people, you need four effective software tools:

A purchasing system that ensures the right amount of materials are available when needed,

An execution system that schedules operations in the correct sequence and timing for on-time completion,

A product system that enables effective product engineering plus provides critical specifications to front line workers and suppliers.

A measurement system that provides managers and front line workers with critical metrics showing actual vs. target performance.

9. Educate, inform, and motivate your workers - Winning ultimately depends on people who care if you succeed, know how to help you succeed, and have reasons to learn new skills.

10. Repeat rules 1 through 9 - No advantage you create in your business will last forever. Companies most adept at changing to fit the present and prepare for the future will survive. A culture of change and improvement is the most critical prerequisite for lasting success.

Bottom Line: Implementing these ten rules is no easy job, but ignoring their implementation is the road to mediocrity. Stay tuned in future editions for more details…

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