Capacity vs. Profitability

This week John visited us from a $100 million/yr manufacturer. We have a new scheduling system that we think will improve our on-time delivery AND better predict future capability.  John was impressed with our shop and what we are doing to improve velocity through our production cells.  We then spent quite a bit of time with him at our scheduling board.  He loved the visual aspect, but he didn’t like that we were scheduled solid for the next three weeks.  “We need quick turn capacity and it doesn’t look like you can help me right now.”  That is true and not true at the same time.  Here is what every OEM should know:

1. Sheet metal fabricators make money, just like equipment OEM do – by filling up capacity. Slightly more demand turns on overtime which eats at profit margins. Slightly less demand has folks stretching out the work, which eats at profit margins. We actually do better, just like equipment OEMs, when we get a lot more or a lot less work. With a lot more work, we add people to maintain our margins. Less work, less people, margins retained.
2. Work runs better with a fully loaded sheet metal shop. Even when we are scheduled lightly, we will still pull up jobs to schedule tightly. We do this to keep our employees productive (and avoid slow down), but we also do this to level our capacity at our suppliers. Ask the painters or plated for a 1 day turn around at the end of the month and you get no response, but they jump at the chance at the beginning of the month. By pulling in the schedule, our suppliers are more profitable than at the end of the month.
3. There is always capacity to service great customers. Just like we pull in jobs to keep the pace going, sheet metal fabricators can easily NOT pull them in to place a rush order instead. We get a happy rush customer and a happy production customer. Typically we get more rush orders at the end of the month, so we pull-in to open up end of month capacity.
4. Sheet metal fabricators close their books every month just like equipment OEMs. When a customer places an order to be delivered the first few days of next month, we are incurring all the costs of that sheet metal job in this month. We realize that OEMs want to receive the sheet metal components in the same month you ship your assembly. All we ask is to ship at the end of the month and deliver at the beginning of the month so we both win.

When you tour your next sheet metal shop, ask the standard questions about capacity and on-time delivery, but also ask about how they respond to quick turns. The difference in answers might help you find a diamond in the rough – particularly if you can assure them a steady amount of quick turn capacity.

If you have a prototype or quick turn job, call me. You might be very surprised.

from ETM Manufacturing http://etmmfg.com/3548
from American Quality Management http://aqmauditing2014.tumblr.com/post/131289987455