How to Dramatically Improve IT Road Map Outcomes
By Ethan Dunham, CEO of the Dunham Group
Executive Summary
This case study highlights how an effective IT road map helped a manufacturer reduce their production inventory from 29 to 3 days and dramatically improved their cash position. It is a lesson demonstrating how CFOs can partner with operations to improve their working capital position by accelerating their cash conversion cycle.
The discovery and consideration of human factors correlated to technology, such as communication and trust, significantly improved planning outcomes.
Project 1 - Conventional Method Road Map Project
A successful manufacturing company experienced increased sales. Production struggled to meet demand. Customers pushed to improve on time deliveries. The CFO was struggling to fund the sales growth because of the decrease in the Acid Ratio caused by three factors. First, increasing production lead times increased cash needs. Second, resistance of their bank and raw material suppliers to extend more credit as the sales to cash cycle grew. Finally, the production team was frustrated with poor production drawings and work instructions from the engineering team. The engineers were frustrated with the drawings and instructions received from customers. Purchasing was caught in the middle.
The CEO was tasked with developing a road map to fix the technology. The CEO hired an IT consulting company. They were told to only meet with senior managers and the head of engineering. The production staff was ‘too busy’ to get involved. The CFO was left to struggle on his own!
The Findings:
- The customers’ drawings and instruction files often were incomplete and required engineers to rework them before creating production drawings, Computer Aided Manufacturing code, and work instructions. Engineers were overworked and stated they were pressured to ‘stay on time.’ which resulted in low quality work.
- The technology infrastructure had been built for a smaller company was often failing to work.
- Most devices would only operate when an IT ‘handyman’ showed up each morning to start them up.
- Engineers chose their own software systems for CAD, CAM, and work instructions, resulting in confusion in production.
- The ERP software was unsupported and running on unsupported hardware.
During the discovery process several process and communication gaps were uncovered, but the CEO was not convinced technology could fill them. The CFO continued to struggle and kept pushing for change or the company would be forced to pay higher rates to meet larger operating capital due to new inefficiencies.
Result – The First Road Map Project Failed to Move the Production Needle.
Resources were only authorized to upgrade existing software tools, computers, and network. The ERP system was excluded. The result was mixed. The computers, network and new software worked much faster and reliably, but production times did not improve.
The capital requirements for the IT equipment and software ended up making the CFO’s job even harder as the debt to equity ratio deteriorated from these investments.
The Second Road Map Project
The IT consulting firm prevailed on management to invest in a more comprehensive road map plan.
- The company hired an expert in theory of constraints to evaluate production processes and methods.
- The road map relied on this work to prioritize where technology or process changes would reduce constraints.
- Front line shop supervisors and personnel were interviewed and engaged to determine what their issues were.
- To build trust in changes, it was made clear that technology was not going to reduce head count.
- Engineers and production were pulled together and agreed on what and how processes needed to change.
The major findings:
-
More than three quarters (75%) of all engineering production drawings and work instructions had errors. The result was a mountain of delays and reworks.·
Expediting was being done to appease some customer project managers who hounded internal staff to push their products through ahead of others. Parts were pulled from one product to another with no change order process. Resulting in a breakdown of scheduling and trust in the systems. The extra costs were putting more burden on the CFO to finance the business. Use the Cash Velocity Calculator to benchmark and improve your cash conversion cycle.
- Scheduling was done assuming 100% capacity and could not calculate set up times. No time was allocated for maintenance, work force variability, etc. The production department was labeled as always late and resulted in cynical morale and a loss of trust among the scheduling and management staff. The FP&A process was impacted as forecasts were continually being adjusted in the wrong direction.
The new IT Roadmap
- Hold the engineers to a higher (90%) metric of quality of production drawing and instructions. Technology (better hardware, software, automated work order and work instructions document management systems) was a key enabler of this requirement. While deciding on a single common platform a key success factor.
- Improve communication to build trust between engineering and production. Implement a ‘red card’ issue reporting system for production to communicate engineering issues in real time. The engineers designed a response system with deadlines to respond and mitigate issues. This fix also included providing all production staff an email address and building a company intranet for the production staff.
- Eliminate expediting as a Band-Aid masking the other issues noted above. Once production started changes were to be rare and tightly managed.
- Replace legacy ERP system, a major constraint to production purchasing, scheduling, and shipping. This also was a significant benefit to the CFO and their team. To help make your ERP system implementation a success watch this CFO Ed Talk from Andrew Lee, System Implementations can be Successful
- Quality metrics and processes moved into production to catch mistakes as early as possible to avoid reworks.
- Eliminate scheduling complexity by automating and tracking only three major milestones. Allow production to visually move items as they see fit.
- Eliminate hand changes in work orders and instructions travelers. Replaced with engineering implementing a simple change order process, reprinting.
The Second Road Map Outcome
In the end, after new processes were designed, implemented, and solidified into the culture, a new ERP with custom scheduling and shipping systems was built and implemented, production times dropped dramatically. WIP values dropped from 29 days to 3. Cash positions improved and the bank and vendors increased credit lines, making more capital available to fund the growth.
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