Shipulski On Design

Archive for the ‘Cost Savings’ Category

The DoD wants to save money, but they can’t do it alone. But can they possibly succeed? Do they have fighting a chance? Can they get it done? Wrong pronouns.

Can we possibly succeed?

Do we have a fighting chance?

Can we get it done?

In difficult times it’s easy to be critical of  others, to make excuses, to look outside. (They, they, they.) In difficult times it’s hard find the level 5 courage to be critical ourselves, to take responsibility, to look inside. (We, we, we.) But we must look inside because that’s where the answer is. We know our work best; we’re the only ones who can reinvent our work; we’re the ones who can save money; we’re responsible.

Changing our actions, our work, is scary, but that’s what the DoD is asking for; we must overcome our fear. But to overcome it we must acknowledge it, see it as it is, and work through it.

Here’s the DoD’s challenge: “Contractors – provide us more affordable systems.” There are two ways we can respond.

The fear-based response (the they response): The DoD won’t accept the changes. In fact, they’ve never liked change. They’ll say no to any changes. They always have.

The seeing things as they are response (the we response): We must try, since not trying is the only way to guarantee failure. Things are different now. Change is acceptable. However, the facts are we don’t know what changes to propose, we don’t know what creates cost, and we don’t know how to design low cost, low complexity systems. We were never taught. We need to develop our capability if we’re to be successful.

The they response: Their MIL specs dictate the design and they won’t budge on them. They’ll say no to any changes.  They always have.

The we response: We must try, since not trying is the only way to guarantee failure. Things are different now. Change is acceptable. However, the facts are we don’t know why we designed it that way, we don’t know all that much about the design, we don’t know what creates cost, and we don’t know how to design low cost, low complexity systems. We were never taught. We need to develop our capability if we’re to be successful.

The they response: All they care about is performance. They are driving the complexity. And when push comes to shove, they don’t care about cost. They’ll say no to any changes. They always have.

The we response: We must try, since not trying is the only way to guarantee failure. Things are different now. Change is acceptable. However, the facts are we don’t know what truly controls performance, we don’t know what we can change, we don’t know the sensitivities, we don’t know what creates cost, and we don’t know how to design low cost, low complexity systems. We were never taught. We need to develop our capability if we’re to be successful.

The DoD has courageously told us they want to overcome their fear. Let’s follow their lead and overcome ours.  It will be good for everyone.

The chase for low cost labor is still alive and well. And it’s still a mistake. Low cost labor is fleeting. Open a plant in a low cost country and capitalism takes immediate hold. Workers see others getting rich off their hard work and demand to be compensated. It’s an inevitable death spiral to a living wage. Time to find the next low cost country.

The truth is labor costs are an extremely small portion of product cost. (The major cost, by far, is the material and the associated costs of moving it around the planet and managing its movement.) And when design engineers actively design out labor costs (50% reductions are commonplace) it becomes so small it should be ignored altogether. That’s right – ignored. No labor costs. Free labor. What would you do if labor was free?

Eliminate labor costs from the equation and it’s clear what to do. Make it where you can achieve the highest product quality, make it where you can run the smallest batches, and make it where you sell it. Design out labor and you’re on your way.

Design engineers are the key. Only they can design out labor. Management can’t do it without engineers, but engineers can do it without management.

A call to arms for design engineers: organize yourselves, design out labor, and force your company to do the right thing. Your kids and your economy will thank you.

A recent article written by Leslie Gordon of Machine Design.

You have probably seen it yourself: images of Chinese workers toiling in mud-floored factories, each feeding a separate punch press, as if part and parcel of a living, progressive die. The lure of this cheap labor has sent many U.S. manufacturers scrambling overseas to cut production costs.

Although design-for-manufacturing tools that would have made this exodus unnecessary have been around for more than 20 years, companies continue to overlook them, says Mike Shipulski, chief engineer of plasma-cutter manufacturer Hypertherm, hypertherm.com, Hanover, N.H. “Companies are sticking their heads in the sand. Many U.S. firms have become too entrenched in doing things the same way. For example, a typical product-cost breakdown shows material to be the largest cost at about 72%. Overhead is around 24% and labor is only about 4%. The question becomes, why continue to move manufacturing to so-called ‘low-cost countries’ to chase 50% labor reductions for a whopping 2% cost reduction? And it’s sillier than that because companies don’t account for cost increases in shipping and quality control.”

The problem is that companies neglect to efficiently account for cost during the design side of product development….

Click for the rest of the article

In sourcing, out sourcing, off shoring, on shoring – the manufacturing debate rages. So what’s the big deal? Jobs – the foundation of an economy. Jobs pay for things, important things like food, schools, and healthcare. No jobs, no economy. The end.

What does lean, the most successful manufacturing business methodology, have to say about all this? Lean’s fundamental:

a

Make it where you sell it

a

because the shortest supply chains are least wasteful. Dig the ore in-country, make the steel in-country, forge it, machine it, and sell it in-country. With, of course, some qualifiers, some important ifs:

• If in-country demand is high enough to warrant the investment
• If your company is big enough to pull it off
• If quality can be assured.

All good, but I’m discouraged by what lean does not say:

• Regardless of the country, engage the design community to reduce material cost and waste
• Regardless of the factory, engage design community to make your factory output like two
• Regardless of the industry, engage design community to reduce part count.

We all agree the design community has the biggest influence on cost and waste, yet they’re not part of the lean equation. That’s wasteful. That violates a fundamental. That makes me sad.

Let’s put aside our where-to-make-it arguments for a bit, and, wherever you make product,

a

Engage the design community in lean.

Your purchasing manager was just fired due to skyrocketing shipping costs now that you build product in a country with low cost labor.

You must hold a national press conference to explain how lead paint was put on your product by your supplier in a country with low cost labor.

You get up at 3:00 a.m. (for the fourth night in a row) to talk about a quality problem with a factory in a country with low cost labor.

You must cancel your lean projects because all your black belts are still solving quality problems in a country with low cost labor.

Though you have many half empty factories in your home country, you have a plan to build a new one in country with low cost labor.

Your best manufacturing leader just quit (via text message) because she wants to live with her family and not in a country with low cost labor.

Your purchasing manager’s brand new replacement was just fired because inventory carrying costs are through the roof now that you build product in a country with low cost labor.

You must find a landfill to bury three months of bad product now on a slow boat from a country with low cost labor.

Your new product launch is delayed because you have to tear down the machines and move them to a country with low cost labor.

The financial types that run your company are too far removed from the work so their only trick is to move it to a country with low cost labor.

Cost Out, Cost Down, Cost Reduction, Should Costing – you’ve heard about these programs. But they’re not what they seem. Under the guise of reducing product costs they steal profit margin from suppliers. The customer company increases quarterly profits while the supplier company loses profits and goes bankrupt. I don’t like this. Not only is this irresponsible behavior, it’s bad business. The savings are less than the cost of qualifying a new supplier. Shortsighted. Stupid.

The real way to do it is to design out product cost, to reduce the cost signature. Margin is created and shared with suppliers. Suppliers make more money when it’s done right. That’s right, I said more money. More dollars per part, and not more from the promise of increased sales. (Suppliers know that’s bullshit just as well as you, and you lose credibility when you use that line.) The Design Engineering community are the only folks that can pull this off.

Only the Design Engineers can eliminate features that create cost while retaining features that control function. More function, less cost. More margin for all. The trick: how to get Design Engineers involved.

There is a belief that Design Engineers want nothing to do with cost. Not true. Design Engineers would love to design out cost, but our organization doesn’t let us, nor do they expect us to. Too busy; too many products to launch; designing out cost takes too long. Too busy to save 25% of your material cost? Really? Run the numbers – material cost times volume times 25%. Takes too long? No, it’s actually faster. Manufacturing issues are designed out so the product hits the floor in full stride so Design Engineers can actually move onto designing the next product. (No one believes this.)

Truth is Design Engineers would love to design products with low cost signatures, but we don’t know how. It’s not that it’s difficult, it’s that no one ever taught us. What the Design Engineers need is an investment in the four Ts – tools, training, time,  and a teacher.

Run the numbers.  It’s worth the investment.

Material cost x Volume x 25%

I read a refreshing article in the Washington Post. Defense Secretary Robert M. Gates wants to save $20B per year on the Pentagon’s spend. I could kiss this guy!

Gates wants contracts scrutinized more closely for inefficiencies and unneeded overhead. He said the savings could be shifted to support U.S. troops around the globe. Pentagon officials said they’re looking for annual savings in the $400 billion spent on goods and services. They’re looking to save $20B, or 5%.

Gates has it right. The government must stop overpaying. But how? Gates suggests improved contract scrutiny to eliminate inefficiencies and unneeded overhead. He’s on the right track, but that’s not where the money is. Gates’ real target should be material cost – that’s where the money is. But, can material cost bring $20B savings? Yes.

Assume the Pentagon spends $100B on services and $300B on goods. The cost of those of goods falls into three buckets: labor, material, and overhead, where material cost makes up the lion’s share at 70%, or $210B. A 10% reduction in material cost brings $21B in savings, and gets Gates to his target. But how?

To get the savings, the Pentagon must drive the right behavior.  They must must make suppliers submit a “should cost” with all proposals. The should cost is an estimated cost based on part geometries, materials, manufacturing processes used to create the parts, prevailing wage rates and machine rates, and profit. From these parameters, a should cost can be created in the design phase, without actually making the parts. So, the Pentagon will know what they should pay before the product is made. This cost analysis is based on real data, real machines, and real material costs.  There is no escape for defense contractors.  The cash cow is no longer.

Should costing will drive the design engineers to create designs that work better and cost less, something the defense industry thinks is impossible. They’re wrong. Given the tools, time, and training, the defense industry’s design engineering community can design out at least 25% of material cost, resulting in $50B+ in savings, more than twice Gates’ goal. Someone just has to teach them how.

Mr. Secretary, the non-defense world is ready to help.  Just ask us. (But we’ll go after a 50% cost reduction.)

Design for Manufacture and Assembly is reported to improve CNC performance, modularity, durability, and serviceability

When Hypertherm (www.hypertherm.com) was getting ready to design its next generation of metal cutting CNCs, the engineering team’s goal was to make improvements. But the controllers, which automate the Hanover, New Hampshire-based company’s advanced cutting tools and systems, were already well-accepted in the marketplace and highly regarded in the industry. So why redesign? And how would they go about it?

See this link for the full article - Using DFMA to Control Controller Design

Axiom 1 – Time is short, so make sure you’re working on the most important stuff.

Axiom 2 – You can’t design out what you can’t see.

In product development, these two axioms can keep you out of trouble. They’re two sides of the same coin, but I’ll describe them one at a time and hope it comes together in the end.

With Axiom 1, how do you make sure you’re working on the most important stuff? We all know it’s function first – no learning there. But, sorry design engineers, it doesn’t end with function. You must also design for lean, for cost, and factory floor space. Great. More things to design for. Didn’t you say time was short? How the hell am I going to design for all that?

Now onto the seeing business of Axiom 2. If we agree that lean, cost, and factory floor space are the right stuff, we must “see it” if we are to design it out. See lean? See cost? See factory floor space? You’re nuts.  How do you expect us to do that?

Pareto to the rescue – use Pareto charts to identify the most important stuff, to prioritize the work. With Pareto, it’s simple: work on the biggest bars at the expense of the smaller ones. But, Paretos of what?

There is no such thing as a clean sheet design – all new product designs have a lineage. A new design is based on an existing design, a baseline design, with improvements made in several areas to realize more features or better function defined by the product specification. The Pareto charts are created from the baseline design to allow you to see the things  to design out (Axiom 2). But what lenses to use to see lean, cost, and factory floor space?

Here are Pareto’s three lenses so see what must be seen:

To lean out lean out your factory, design out the parts. Parts create waste and part count is the surrogate for lean.

To design out cost, measure cost. Cost is the surrogate for cost.

To design out factory floor space, measure assembly time. Since factory floor space scales with assembly time, assembly time is the surrogate for factory floor space.

Now that your design engineers have created the right Pareto charts and can see with the right glasses, they’re ready to focus their efforts on the most important stuff. No boiling the ocean here. For lean, focus on part count of subassembly 1; for cost, focus on the cost of subassemblies 2 and 4; for floor space, focus on assembly time of subassembly 5. Leave the others alone.

Focus is important and difficult, but Pareto can help you see the light.

Lean is all about parts. Don’t think so? What do your manufacturing processes make? Parts. What do your suppliers ship you? Parts. What do you put into inventory? Parts. What do your shelves hold? Parts. What is your supply chain all about? Parts.

Still not convinced parts are the key? Take a look at the seven wastes and add “of parts” to the end of each one. Here is what it looks like: 

1. Waste of overproduction (of parts)
2. Waste of time on hand – waiting (for parts)
3. Waste in transportation (of parts)
4. Waste of processing itself (of parts)
5. Waste of stock on hand – inventory (of parts)
6. Waste of movement (from parts)
7. Waste of making defective products (made of parts)

And look at Suzaki’s cartoons. (Click them to enlarge.) What do you see? Parts.

Take out the parts and the waste is not reduced, it’s eliminated. Let’s do a thought experiment, and pretend your product had 50% fewer parts. (I know it’s a stretch.) What would your factory look like? How about your supply chain? There would be: fewer parts to ship, fewer to receive, fewer to move, fewer to store, fewer to handle, fewer opportunities to wait for late parts, and fewer opportunities for incorrect assembly. Loosen your thinking a bit more, and the benefits broaden: fewer suppliers, fewer supplier qualifications, fewer late payments; fewer supplier quality issues, and fewer expensive black belt projects. Most importantly, however, may be the reduction in the transactions, e.g., work in process tracking, labor reporting, material cost tracking, inventory control and valuation, BOMs, routings, backflushing, work orders, and engineering changes.

However, there is a big problem with the thought experiment — there is no one to design out the parts. Since company leadership does not thrust greatness on the design community, design engineers do not have to participate in lean. No one makes them do DFA-driven part count reduction to compliment lean. Don’t think you need the design community? Ask your best manufacturing engineer to write an engineering change to eliminates parts, and see where it goes — nowhere. No design engineer, no design change. No design change, no part elimination.

It’s staggering to think of the savings that would be achieved with the powerful pairing of DFA and lean. It would go like this: The design community would create a low waste design on which the lean community would squeeze out the remaining waste. It’s like the thought experiment; a new product with 50% fewer parts is given to the lean folks, and they lean out the low waste value stream from there. DFA and lean make such a powerful one-two punch because they hit both sides of the waste equation.

DFA eliminates parts, and lean reduces waste from the ones that remain.

There are no technical reasons that prevent DFA and lean from being done together, but there are real failure modes that get in the way. The failure modes are emotional, organizational, and cultural in nature, and are all about people. For example, shared responsibility for design and manufacturing typically resides in the organizational stratosphere – above the VP or Senior VP levels. And because of the failure modes’ nature (organizational, cultural), the countermeasures are largely company-specific.

What’s in the way of your company making the DFA/lean thought experiment a reality?

I can’t believe everyone isn’t doing Design for Assembly (DFA), especially in these tough economic times. It’s almost like CEOs really don’t want to grow stock price. DFA, where the product design is changed to reduce the cost of putting things together, routinely achieves savings of 20-50% in material cost, and the same for labor cost. And the beauty of the material savings is that it falls right to the bottom line. For a product that costs $1000 with 60% material cost ($600) and 10% profit margin ($100), a 10% reduction in material cost increases bottom line contribution by 60% (from $100 to $160). That sounds pretty good to me. But, remember, DFA can reduce material cost by 50%. Do that math and, when you get up off the floor, read on.

Unfortunately for DFA, the savings are a problem – they’re too big to be believed. That’s right, I said too big. Here’s how it goes. An engineer (usually an older one who doesn’t mind getting fired, or a young one who doesn’t know any better) brings up DFA in a meeting and says something like, “There’s this crazy guy on the web writing about DFA who says we can design out 20-50% of our material cost. That’s just what we need.” A pained silence floods the room. One of the leaders says something like, “Listen, kid, the only part you got right is calling that guy crazy. We’re the world leaders in our field. Don’t you think we would have done that already if it was possible? We struggle to take out 2-3% material cost per year. Don’t talk about 20-50% because is not possible.” DFA is down for the count.

Also unfortunate is the name – DFA. You’ve got to admit DFA doesn’t roll off the tongue like six sigma which also happens to sound like sex sigma, where DFA does not. I think we should follow the lean sigma trend and glom some letters onto DFA so it can ride the coat tails of the better known methodologies. Here are some letters that could help:

Lean DFA; DFA Lean; Six Sigma DFA; Six DFA Sigma (this one doesn’t work for me); Lean DFA Sigma

Its pedigree is also a problem – it’s not from Toyota, so it can’t be worth a damn. Maybe we should make up a story that Deming brought it to Japan because no one in the west would listen to him, and it’s the real secret behind Toyota’s success. Or, we can call it Toyota DFA. That may work.

Though there is some truth to the previous paragraphs, the main reason no one is doing DFA is simple:

No one is asking the design community to do DFA.

Here is the rationalization: The design community is busy and behind schedule (late product launches). If we bother them with DFA, they may rebel and the product will never launch. If we leave them alone and cross our fingers, maybe things will be all right. That is a decision made in fear, which, by definition, is a mistake.

The design community needs greatness thrust upon them. It’s the only way.

Just as the manufacturing community was given no choice about doing six sigma and lean, so should the design community be given no choice about doing DFA.

No way around it, the first DFA effort is a leap of faith. The only way to get it off the ground is for a leader in the organization to stand up and say “I want to do DFA.” and then rally the troops to make it happen.

I urge you to think about DFA in the same light as six sigma or lean: If your company had a lean or six sigma project that would save you 20-50% on your product cost, would you do it? I think so.

Who in your organization is going to stand up and make it happen?