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.

What if we took as much pride in university manufacturing programs as with their football programs? What if great manufacturing programs were as profitable as great football programs? What if fans jammed college stadiums every Saturday to cheer manufacturing competitions? What if they were televised like football games? Who would host the pre-game show?

What if manufacturing was valued like professional sports? The World Series of Manufacturing, The Super Bowl of Manufacturing, The World Cup of Manufacturing? Who would do color commentary?

What if manufacturing thought leaders were celebrated like sports legends? What would kids want to be when they grew up? Whose face would be on the cereal boxes?

What if government understood the importance of manufacturing? Who would lead the charge?

This one’s worth the read.

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Please pass this one around.

The first step in the redesign program was determining what needed to change. A steering committee with representation from engineering, manufacturing, marketing, and business leadership spent weeks trying to determine what was required from a product standpoint to deliver radical improvements in both product performance and product economics. As a result of that collaboration, the team established aggressive new targets around robustness and reliability in addition to the goal of cutting the parts count and labor costs nearly in half.

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Continuing with the back-to-basics theme, manufacturing creates value when it combines raw materials and labor with thinking, which we call design, to create a product that sells for more than the cost to make it. The difference between cost (raw materials, labor) and price is profit. The market sets price and volume so manufacturing is left only with materials and labor to influence profit. At the most basic level, manufacturing must reduce materials and labor to increase profit. We can get no more basic than that. How do we use the simple fundamentals of reducing labor and material costs to resurrect U.S. manufacturing? We must change our designs to reduce costs using Design for Manufacturing and Assembly (DFMA).

The program is typically thought of as a well-defined toolbox used to design out product cost. However, this definition is too narrow. More broadly, DFMA is a methodology to change a design to reduce the cost of making parts while retaining product function. Systematic DFMA deployment is even broader; it is a business method that puts the business systems and infrastructures to deploy DFMA methods in place systematically across a company. In that way, it is similar to the better known business methodologies lean, Six Sigma and design for Six Sigma.

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Click this link for information on Mike’s upcoming workshop on Systematic DFMA Deployment

The single most important equation for me as a country is

Price – Cost = Profit.

While companies care most about profit, as a country I care most about cost – manufacturing cost. I want to incur the cost of manufacturing within my borders, and for good reason – that’s where jobs and money are.  For a product that sells for $100 with a 20% profit margin, costs ($80) are four times larger than profits ($20).  No big deal you say?  Pretend you are a country and look at the three components of cost from my perspective – labor, materials, and overhead, and then ask yourself if it’s a big deal.

Labor
My people get paid for their time. (For me, as a country, that’s magic.)  They buy food, clothing, and shelter and have a little fun.  In turn, they pay me income tax, which I use to educate my children.

Material
My dirt, rocks, and sticks are used in products and my people get paid to dig, move, mix, and cut. (More magic.)  And the machines to do it all are made by my people. We then make the same trade as above – they buy food, clothes, shelter, they pay me income taxes, and I use the money to pay for healthcare.

Overhead
My dirt, rocks, and sticks are dug and moved to make electricity.  My people get paid, they spend, and I provide services. A good trade for all.

I’m not an economist, and I’m oversimplifying things.  And I know there’s more than a hint of nationalism here.  But, even still, when I pretend to be a country, all this makes sense to me.

If you were a country, what would you do?

Click this link for information on Mike’s upcoming workshop on Systematic DFMA Deployment

The power of product design is even more evident when considering the breakdown of product cost. Here is some data from Nick Dewhurst taken from multiple-hundred DFMA analyses showing the typical cost breakdown of products.

Of the three buckets of cost, material cost is by far the largest 74%, and this is where product development shines. Product design can eliminate 40 to 50% of material cost resulting in radical cost savings. Lean cannot. I will go a bit further and say that material cost reductions are largely off limits to the lean folks since it requires fundamental product changes.

Side note – Probably most surprising about cost breakdown data is labor cost is only 4%. Why we move our manufacturing to “low cost countires” to chase 50% labor reductions to net a whopping 2% cost reduction is beyond me, but that’s for a different post.

Let’s face it – material cost reduction is where it’s at, and lean does not have the toolbox to reduce material cost. There’s no mystery here. What is mysterious, however, is that companies looking to survive at all costs are not pulling the biggest lever at their disposal – product design. Here is a bit of old data from Ford showing that Product Design has the biggest lever on cost. We’ve know this for a long time, but we still don’t do it.

Clearly, the best approach of is to combine the power of product design with lean. It goes like this: the engineers design a low cost, low waste product that is introduced to the production line, and the lean folks improve efficiency and reduce cost from there. We’ve got the lean part down, but not the product design part.

There are two things in the way of designing low cost, low waste products in a way that helps take lean to the next level. First, product development teams don’t know how to do the work. To overcome this, train them in DFMA. Second, and most important, company leaders don’t give the product development teams the tools, time, and training to do the work. Company leaders won’t take the time to do the work because they think it will delay product launches. Also, they don’t want to invest in the tools and training because the cost is too high, even though a little math shows the investment is more than paid back with the first product launch. To fix that, educate them on the methods, the resource needs, and the savings.

Good luck.

As we all know, that’s a bunch of crap.  Many manufactures are still in survival mode where cost cutting has crossed into the ridiculous; where the best talent has been cut; and where the product development flywheel is motionless.  We are far from coming out of this thing, and the bad stuff we had to do to survive will take time to undo.

However, some companies are considering options to accelerate themselves out of the soup.  They are asking the big question - what is the fastest way out? 

To me, the fastest way out is all about three things: product, product, product – do you have the right products coming to market?  Or, if not, how can you get your product development flywheel moving so the right products hit the market as quickly as possible?  But, what are the attributes of the “right product”?

I think there are two components of the right product: the top line component and the bottom line component.  The top line component (which drives top line growth) is all about function and features.  More function equals increased sales through market share and price.  The bottom line component (bottom line growth) is all about cost.  Pretty basic.  But, if your resources are limited (like most of us) and can improve only one, which should you improve?

Bottom line cost reduction is not glamorous, but the balance sheet improvment is surprisingly good.  Let me give an example.  Product A is an existing product that sells for $1000 and it costs you $800 to produce, providing $200 profit per unit.  You spend your product development resources on a bottom line effort and reduce product cost by 20%.  Still selling for $1000 but with a cost of $640 (0.8 * $800), profit dollars increase by 80% ($360 vs. $200).  Not bad especially since sales have not increased.

Top line growth has a strong emotional component which energizes people, and the upside potential is huge.  Here is an example using the same product as above.  Product A still sells for $1000, costs you $800, and you make $200 per unit.  You spend your product development resources on a top line project to add better functionality and more features.  Because you don’t have time to address the bottom line component, your costs go up 10% (to $880).  But, you do get the function and features you wanted, and the market can support a 10% price increase to $1100.  Profit per unit is up 10% t0 $220 ($1100 – $880).  Your engineering really came through and the market likes your new product and sales increase by 20%.  With all that, profit dollars increase by 32% ($220*1.2 = $264 vs. $200).

Clearly the examples are contrived to illustrate a point: bottom line cost reduction is powerful and so are top line sales growth and price increase.  And the best answer is not to choose between top line and bottom line components.  It makes a lot of sense to do a little of both, because it’s the fastest way out of the soup.

More than 75 engineers and analysts charged with cost reduction and manufacturing attended the International Forum on Design for Manufacture and Assembly (DFMA) in Providence, RI, last month hosted by Boothroyd dewhurst.   Attendees spent two days learning about the value of cost modeling and how DFMA software has benefited users.  

To begin the proceedings, Richard McCormack of Manufacturing & Technology News painted a bleak picture of the decline of U.S. manufacturing and pointed at both the Bush and Obama administrations as sharing a good portion of blame.   McCormack’s session was drawn largely from testimony he gave before the U.S.-China Economic Security Review commission in march. 

Mike Shipulski of Hypertherm followed up with a markedly more optimistic look at manufacturing and made the case that a Systematic DFMA Deployment will reduce parts in assemblies, cut production costs, and improve product quality.  His own use of the software, he says, leads him to believe a similar rigorous process can guide companies toward increased profitablility. “Why aren’t you guys doing this?” he asked, pointing to a host of metrics that supported his presentation. 

A day-two panel with McCormack, Shipulski, Ned O’Donovan of Rensselaer Polytechnic, and Chris Tsai of Global Productivity, Inc. turned into an animated discussion of insourcing, and offshoring.  While the offshoring trend still continues, the panel seemed to agree that U.S. based design might help stem the flow of job losses before bringing manufacturing back via targeted cost reductions. Intellectual property issues and the chinese culture of engineering were also discussed.

“We have to reassign the product costs mistakenly
placed on manufacturing departments.”

How? First we have to reassign the product costs traditionally and mistakenly placed on manufacturing departments, and put them where they really belong: with the designers. Let’s face the facts: Total costs are designed into products at the very start and stay there, give or take the 10–15% reductions that manufacturing engineers generate with lean programs or newer workcells. It’s time to help designers understand service and warranty, production throughput, labor, material, rework, and general overhead costs—and to structure that understanding into their work.

This nation has already beaten up its “valued” supply chain.  There are no more easy costs to take out in that effort. Other popular ideas provide mainly incremental advantages isolated to silos.  The truth is that the big, magical dollars are “upfront.”  Let’s move past the 25-year-old campaign aimed at fixing the over-the-wall syndrome, and set a contemporary strategy.   It’s a business strategy of truly integrated design and manufacturing, with upper management providing goals and useful, tactical accounting.   This next step is everyone’s responsibility, even if it manifests largely in design departments guided by management.

Here’s the core problem: most manufacturers have a VP of product development and a VP of manufacturing. Organizations have drawn these lines and, with them, the lines of cost accountability. The design community is responsible for product function; the manufacturing community is responsible for how a function translates into product cost.  But the costs are already baked-in for the manufacturing folks with this organizational model.

The design community has the power and responsibility to include end-cost as an element of functionality in the same way that they control part geometry, or which gear meshes with another when a lever clicks them into place.  Cost is determined in design and cascades throughout the organization. It’s almost a mechanical, causal science, really, so let’s pull the lever and change the direction we are headed as a manufacturing nation.

I suspect that the managers who send their teams out to flog domestic suppliers are the same ones who eventually go overseas looking to cut costs that are already locked into the design. As cost managers, they don’t understand the added shipping and logistics, lost quality, and risk-management expenses that offset cheap labor. But they have no other strategy for survival. The designer, in turn, didn’t understand the financial impact for manufacturing of a tight radius or fillet, or that warranty cost is design robustness, expressed as successful product function measured over time. And manufacturing, correspondingly, couldn’t influence designers before the next design cycle or quantify for them how features influence throughput and cost.

We committed to a program five years ago that has lean manufacturing and DFMA at its core. It’s a solution that is universal across all mechanical products and at any volume. At the highest level, we picked profit per square foot of factory floor space as the most absolute metric for both engineering and management to follow. Next were part count and labor time.  Then we went to work simplifying and measuring, and we watched the correlations build. 

Redesigning just half our product line, we have seen a 600% increase in profit per square foot.  Our entire product line is made in New Hampshire, and about 60% of our output is shipped to other countries.  Now, after five years, we have most of the world market and costs to our customers are essentially flat, making entry into the market difficult for competitors.  We have win-win supplier relationships, and all our associates have profit sharing and stock ownership.   Are we an exception to some law of nature that says the US can’t make innovative, efficient products?  I don’t think so.  You shouldn’t either. 

In a nutshell: Design out the parts and labor, as this has an effect on everything worth caring about; get manufacturing and management to track critical downstream costs for designers; and work with your best suppliers to identify features that create cost. We have to reassign the product costs mistakenly placed on manufacturing departments.