Shipulski On Design

Archive for the ‘Top Line Growth’ Category

Five percent here, three percent there. I’m tired as hell of continuous improvement. Sure there’s a place for it, but it shouldn’t be the only type of work we do. But, unfortunately, that’s just what’s happened in manufacturing. To secure the balance sheet, the pendulum swung too far toward continuous improvement. Just look at what we’re writing about – the next low cost country, shorter lead times, how to be profitable where there’s no profit to be had. Those topics scream continuous improvement – take nickels and dimes out of processes to increase profits. But there’s a dark side to all this focus on continuous improvement.  It has created a big problem: it has come at the expense of discontinuous improvement.

Continuous improvement is a philosophy of minimization with a focus on cost and waste reduction, while discontinuous improvement is a philosophy of maximization with a focus on creation of new markets through product innovation. As of late, we’ve minimized waste at the expense of invention and innovation. I propose we flip this on its head and maximize through discontinuous improvement at the expense of continuous improvement. That’s right; I said do less lean and Six Sigma.

But we must ask ourselves if we’re capable of doing discontinuous improvement. Remember, we ignored or dismantled our innovation engines over the last years. And what about our big thinkers, our creative thinkers, our innovators? Do they still work for us, or have they just stopped talking about big ideas? I urge you to answer that question because your next actions depend on it.

If your innovative thinkers are gone, go out and hire the best you can find ASAP. If you were fortunate enough to retain your big thinkers, congratulations. Now it’s time to get the band back together, but first you’ve got to do some reconnaissance to ferret them out of their hiding places. Once you find them, invite them to a nice lunch – the nicer the better. Don’t push too hard at lunch, just start to  get reacquainted. In time you’ll get to talk about their ideas on new technologies and how to create new markets.

It will be difficult to get your company swing the pendulum away from continuous improvement, but you must try. Without discontinuous improvement your company will be destined to wrestle for nickels using lean and Six Sigma.

Congratulations. You’ve managed to keep your product development engine running. Good work.  But now the hard part. Marketing and sales know new products are a key to profitability, and so does the CEO. So they’ve all asked for more new products, and now you have more active product development projects in the pipeline. The product development folks will do whatever they can to crank out the products. But can they get it done?

When does the product pipeline become too much for your product development engine to handle? We all know you can’t keep adding more new product development projects without adding capacity or improving productivity. Sure you can ask your product development engine to do more (and more), and it will try; but at some point it will run out of gas. So, ask yourself: Has your product development engine run out of gas? How can you tell? If it hasn’t, do you know how many miles are left in the tank?

If you don’t measure it you can’t improve it, that’s what the black belts say. But what to measure? What are the right metrics to tell you if your product development engine is out of gas? One of the best books on the subject is Managing the Design Factory, by Don Reinertsen. The rest of the post is strongly shaped by Don’s book, if not taken directly from it. Remember, genius steals.

The best metrics are simple, relevant to the objective, and are leading indicators. Simple so they’re easy to interpret; relevant so they move you toward the objective, in this case launching more new products; and are leading indicators, in that they are predictors of outcomes, so you can take action before catastrophic outcomes occur.  Here are three good ones. Read the rest of this entry »

2009 is a tough year, especially for CEOs.

CEOs have a strong desire to do what it takes to deliver shareholder value, but that’s coupled with a deep concern that tough decisions may dismantle the company in the process.

Here is the state-of-affairs:

Sales are down and money is tight.  There is severe pressure to cut costs including those that are linked to sales – marketing budgets, sales budgets, travel – and things that directly impact customers – technical service, product manuals, translations, and warranty.

Pricing pressure is staggering.  Customers are exerting their buying power – since so few are buying they want to name their price (and can).  Suppliers, especially the big ones, are using their muscle to raise prices.

Capacity utilization is ultra-low, so the bounce-back of new equipment sales is a long way off.

Everyone wants to expand into new markets to increase sales, but this is a particularly daunting task with competitors hunkering down to retain market share, cuts in sales and marketing budgets, and hobbled product development engines.

There is a desire to improve factory efficiency to cut costs (rather than to increase throughput like in 2008), but no one wants to spend money to make money – payback must be measured in milliseconds.

So what’s a CEO to do?  Read the rest of this entry »

Like you, I have been thinking a lot about the recession.  We all want to know how to move ourselves to the other side, where things are somewhat normal (the old normal, not the new one).  Like usual, my mind immediately goes to products.  To me, having the right products is vital to pulling ourselves out of this thing.  There is nothing novel in this thinking;  I think we all agree that products are important.  But, there are two follow-on questions that are important.  First, what makes products “right” to move you quickly to the other side?  Second, do you have the capability to engineer the “right” products?

The first question – what makes products “right” for these times?  Capacity is important to understanding what makes products right.  Capacity utilization is at record lows with most industries suffering from a significant capacity glut.  With decreased sales and idle machines, customers are no longer interested in products that improve productivity of their existing product lines because they can simply run their idle machines more.  And, they are not interested in buying more capacity (your products) at a reduced price.  They will simply run their idle machines more.  You can’t offer an improvement of your same old product that enables customers to make their same old products a bit faster and you can’t offer them your same old products at a lower price.  However, you can sell them products that enable them to capture business they currently do not have.  For example, enable them to manufacture products that their idle machines CANNOT make at all.  To do that means your new products must do something radically different than before; they must have radically improved functionality or radically new features.  This is what makes products right for these times.

On to the second question – do you have the capability to engineer the right products?  Read the rest of this entry »

I have been watching the news and listening to the pundits, and, apparently, we are steaming out of the great recession and the manufacturing flywheel is nearing full speed. 

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.