How to Create Flexible Capacity
“Our biggest problem is that our customers don’t read our forecasts!” said the VP of Operations.
“We plan on them ordering 100 units, and they order 300. The next month, we plan on 200 and they order 100. We compensate by carrying lots of inventory and we still miss a lot of deliveries” he said.
The “Rubber factory” is a term, coined by Brian Clements of Steelcase, many years ago.
It refers to the concept of making your manufacturing plant “capacity flexible.” By that, we mean building in the flexibility to expand and contract plant output, as required, to compensate for varying demand.
It also means providing flexibility to adjust the output of your various internal production lines by moving resources within the plant.
In addition to the Rubber factory, you will need to take measures to smooth external customer demand. These “demand leveling” techniques are explained in more detail in our post “Smoothing Customer Demand.”
The methods for internal flexibility, i.e. the ability to increase the output on one product line, while decreasing another, include: Extensive employee cross training and regular job rotation, additional available equipment and tooling, and extra raw material (and/or extremely responsive suppliers).
If you are currently running one shift, or a five day week, additional flexibility, as well as additional capacity, can be attained by moving some of your workforce to the second shift, or by extending the work week by going to a staggered crewing schedule.
Also, many of the lean tools compliment this needed flexibility: Cross Training, Job rotation, Standardization, 5S, Good Documentation, Training Aids, etc.
The carrying of additional raw material, if required, can be viewed as trading high-dollar inflexible finished goods inventory for lower dollar, much more flexible raw material. Total cash tied up in inventory should go down, while the risk of obsolescence also drops significantly.
With a cross trained workforce, flexible raw material, and available equipment, we can flex the output of our various internal product lines by moving people. Note that while these methods allow us to alter the mix of products produced, it does not substantially change the total plant output.
Flexing the total output of the plant requires the ability to increase or decrease the total equivalent manpower.
Increasing the plant output also requires that your equipment and tooling are not already 100% utilized (i.e. the equipment / tooling is not in use or being maintained 24 x 7). If, indeed, you ARE running low on capacity, take a look at your investment in inventory. We have had multiple clients use the cash freed up by permanent inventory reduction to acquire substantial amounts of additional equipment and tooling.
The most common ways to flex total labor capacity is through the use of overtime, the use of part-time / temporary employees, and by subcontracting out a portion of the work.
Overtime is generally the quickest, simplest solution for a short-term spike in demand, … unless, of course, you already work a lot of overtime as part of your standard workweek.
We spoke with a plant manager that had a policy of working a standard 50 – 60 hour work week. He obviously had very little upside capacity to meet any spikes in demand, without “killing” his people.
Excessive continuous overtime will also cause productivity to fall off and absenteeism to rise.
Therefore, if you are currently utilizing more than a couple hours a week of overtime to meet your typical demand, step 1 is to adjust your fixed staffing levels, through the use of either temporary or permanent employees, as required, to reduce overtime. Your objective should be to average at or near a standard 40 hour workweek.
It is also important to explain this policy to your people and to “phase it in” if such a policy will substantially reduce the current level of overtime. In spite of what you may have recommended, most of your people will have indeed adjusted their spending levels, and will need time to re-adjust!
Once your average workweek is near 40 hours/week, spikes in demand of up to 50% (e.g. working a 60 hour week) can typically be accommodated for short periods of time.
While we don’t advocate “mandatory” overtime, we do suggest that your reasons for the surges in overtime be clearly explained, and your expectations made public at hiring and reiterated regularly at all-employee meetings.
We try to explain all such expectations in terms of serving our customer: “The customer is the guy that pays the bills. If we don’t serve our customers better than our completion, the problem WILL go away!”
While running my own factory, I was approached with a huge potential order with a tight delivery window.
I called all my people together, explained the opportunity and the amount of overtime I expected it would demand. I didn’t accept the order until they had all bought in. A couple of my employees also knew some good people that we could bring on board as temps during this period.
We took the order, made the delivery, and we all prospered from it.
Another caveat is that “staffing to average demand” will generate periods where you have more capacity than is required to meet demand.
This reminds me of a common complaint: “We haven’t got time to train / cross-train our people.”
This statement is rapidly followed by: “We can’t do that (e.g. staff at average demand). We’d have people sitting around idle!”
Task your supervisors, and/or natural work teams, to prepare lists of training, cross training, and improvement project ideas to be implemented when demand is low.
Some of our clients have had great success utilizing temporary / part-time help to overcome spikes in demand.
One client of ours utilized a “four-hour crew” of part-timers that could be called upon with short notice. The crew consisted of high school and college students, housewives, retired people, etc. A similar approach has been utilized by using part-timers to staff a weekend shift.
Another of our clients had severe seasonality of demand. They would consistently double or even triple their workforce during the peak season. The extra staff was composed almost entirely of part-time temporary employees. Most of these people were “regulars” that worked year after year, but only during peak season.
And, there are always the temporary labor agencies. You’ll pay a premium, but you can be fairly certain that you will find capable help. This avenue is particularly applicable when needing more specialized help: buyers, systems design, web site structuring, CAD experts, mechanics, maintenance / facilities pro’s, even product designers.
One advantage of using agency “temps” is that you can, and should, send for a replacement immediately if the current “temp” does not meet all of your requirements. You’ll be paying a premium. Expect “premium help.”
Subcontracting is a more difficult option, but it can be done.
Job shops such as machine shops and sheet metal shops regularly “sub-out” excess work.
The risks, however, of using a subcontractor are not trivial. Your company is still responsible for quality and delivery, and it is your reputation (and liability) that is at risk if the sub screws up.
There is also the risk of introducing a potential competitor to your customer, and exposing your proprietary processes, tooling and/or designs.
Suppliers and customers can occasionally be used to handle a spike in demand. A sheet metal fabrication client of ours would occasionally do some assembly work for their customer when requested.
The customer was local and provided them with the internal “guts” for our clients’ sheet metal parts.
Some of this work was eventually transferred to our client permanently. By helping out their customer, they had expanded their “value add” contribution, as well as their profitability.
Bottom line? As the expression goes “Speed Kills.”
Make speed and flexibility your strategic advantage.
The Rubber Factory is a key ingredient essential for providing the flexibility to implement this powerful competitive strategy.
While your competition is still pondering how and when they will be able to take the order, you will have produced it, shipped it, and deposited the check!
Note: You may also find some of our other articles and posts of interest: “How to Attain Near-Perfect On-Time Delivery Performance?” and “How to Optimize Your Entire Plant”. Both are essential concepts for a successful lean strategy of fast, reliable, delivery.
If you would like to discuss how the “Rubber Factory” might apply in your specific situation, drop us an e-mail or give us a call. There’s no charge, and we’ll do our best to be helpful.
All the best on your lean journey toward World Class operating performance.