—1—Improve Quality
Here, quality refers to the quality of work processes carried out by management and employees. Improving the quality of work processes leads to fewer errors, less non-conforming products, less rework, shorter lead times, and reduced resource consumption, ultimately lowering overall operational costs.
Many people often think that improving quality requires investment. So, is there a common ground between improving quality and reducing costs? Yes, there is. The more you improve quality, the lower the actual costs become. While improving quality may require some investment, the improved quality results in higher product compliance rates, which translates to increased profits.
Improving quality is essentially about making the horse run without letting it eat grass or making it eat less grass. It doesn’t mean that if the horse is running, it must eat grass. To improve quality, you don’t necessarily have to increase costs. It depends on how we approach it.
In conclusion, production management personnel must find a balance between improving quality and reducing costs.
—2—Improve Productivity
Productivity refers to the input-output ratio. When the same “output” (products) is produced with less “input” (resources), or when more “output” is produced with the same “input,” productivity improves. There are two ways to improve productivity: reducing input or increasing output.
1. Reduce Input
Many production companies are striving to improve productivity because of intense competition, which compels them to do so.
As we know, motorcycle competition is already fierce, and profits are very low. In such a situation, cost control becomes crucial. I once visited a motorcycle manufacturer to learn how they controlled costs. They virtualized each workshop involved in motorcycle assembly as a “factory,” with the workshop supervisors acting as “plant managers.”
For example, if it costs 20 yuan to assemble a motorcycle, this cost includes the wages of all the employees and other expenses. However, the workshop supervisor has the discretion to decide how to allocate the costs. Typically, they would try to minimize the number of employees and continuously improve methods to keep costs at a minimum.
Nowadays, many companies allocate a total salary amount to their subordinate departments and require them to accomplish certain tasks. The department heads then determine how many employees are needed. This way, the company avoids having excess staff. If a company fails to do this and continues hiring more people, the workforce and input will keep increasing while the output remains the same, leading to elimination from the competition.
In addition to proper work arrangement, incentive policies play a crucial role. At a previous company I worked for, the procurement department had six people: one procurement manager, two procurement supervisors, and three clerks. Later, the company provided the procurement department with a fixed salary amount. As a result, the department was reduced to three people: one procurement manager, one procurement supervisor, and one clerk.
The reduction in personnel led to increased wages and improved efficiency.
Therefore, companies must find ways to make one person do the work of two without necessarily doubling their salary. Offering a salary increase of 1.5 times instead of 2 times can still make employees happy. Unfortunately, most companies currently have two people doing the work of one person, but the employees receive a salary equivalent to 1 or 0.8 times, and they are still not satisfied.
Enterprise managers must constantly consider how to reduce personnel and input or increase workload without reducing input. Of course, reducing input doesn’t just mean reducing labor, but also reducing the input of other resources.
To achieve this, appropriate methods are required, as well as relevant policies such as the establishment of elimination mechanisms. Without policy support, companies can never achieve workforce simplification.
For example, if a workshop currently has ten people, but only nine people are needed to complete all the work, one employee should be eliminated, and the portion of their salary can be distributed among the other nine employees. By implementing such an elimination mechanism, companies can improve production efficiency, reduce production costs, and enhance employee salaries, thereby boosting their motivation. This approach leads to a win-win situation for both the company and its employees.
2. Increase Output
Increasing output means going from producing 100 units per hour to producing 120 units per hour. How can a company help its employees transition from producing 100 units per hour to 120 units per hour? And where does the key lie? There are three key points:
First, avoid overtime for employees. If employees are constantly required to work overtime, they will become exhausted and start to resent their work, leading to a loss of the purpose of overtime. Therefore, the question companies should consider is how to motivate employees to exert more effort and increase output within the same amount of time.
Second, share profits. If increased efficiency leads to higher profits, companies should allocate a portion of those profits to the employees; otherwise, employees lose the incentive to work harder.
When I worked as a deputy general manager of production at a company in the past, I suggested to the boss, “Boss, I have an idea to increase profits.” He asked, “What is it?” I replied, “Our factory has a lot of waste that we can identify and eliminate by mobilizing management and employees. But I have a condition: 50% of the profits generated from eliminating this waste should be distributed among the management and employees.”
The boss agreed, and I proceeded with the activity.
The outcome was mutually beneficial: employees received benefits, and the company effectively eliminated waste, reducing production costs.
If a company takes away all the profits from improving productivity and reducing costs without sharing them with employees, the employees lose the motivation to continue improving. Therefore, companies must timely increase employee income to sustain continuous productivity improvements.
To encourage employees to increase production efficiency, they should first know what benefits they will receive. If the improvement in productivity does not bring any benefits to employees, they will simply procrastinate and work slowly.
Third, adopt a step-by-step quota system. For piecework jobs, setting the quota too low leads to significant time losses, while setting it too high demotivates employees. Another challenging aspect is that initially, employees tend to work slowly. If they can only produce 100 units per day, how many units should the company set as the daily quota?
For example, if the company sets the quota at 100 units, and later, when employees become more skilled, increases it to 110 units, will there be any objections? Definitely. Employees will feel that even though they have improved their speed, their wages remain the same, which diminishes their motivation to further increase their speed.
What is the best solution? For instance, using industrial engineering (IE), determine that the standard work time for producing a specific product should be 130 units per hour. However, since the employees are new, they cannot currently produce 130 units. In this case, the company should establish a step-by-step piecework quota and inform employees of the following: For the first two months, the quota is set at 100 units; for the third and fourth months, it increases to 110 units; for the fifth and sixth months, it rises to 120 units; and from the seventh month onwards, the standard of 130 units is applied.
When setting quotas for employees, it should be made clear that the current quota is 100 units per month because everyone is still inexperienced. However, within six months, they must reach 130 units per month, and if they can achieve 130 units from the beginning, they will receive a bonus.
This is the concept of a step-by-step quota system.
—3—Reduce Inventory
Inventory occupies space, extends production lead times, requires handling and storage, and consumes financial assets. Products and work-in-progress “sit” on the factory floor or in warehouses without generating any added value. Therefore, if companies want to reduce production costs, they must find ways to minimize inventory. “Zero inventory” is the ultimate goal for companies to strive for.
To reduce inventory, it’s important to understand where inventory comes from. Why do companies maintain inventory? It’s because production often experiences disruptions, and equipment frequently encounters problems. In such situations, if companies don’t keep some inventory, they may face stockouts.
For example, a company may require 3 million yuan worth of materials in some months, but due to issues, they can only consume 2 million yuan worth of materials in other months. What should they do? The company must maintain an inventory of 3 million yuan worth of materials every month to ensure a continuous supply, even though it may result in a squeeze of 1 million yuan worth of materials. Therefore, reducing inventory is not solely the responsibility of the warehouse but also the production department.
Therefore, the smoother the production management is, the fewer problems occur, and the less likely equipment failures and disruptions become, resulting in reduced inventory. Reducing inventory is highly dependent on the efficiency of the production department.
Hence, production managers need to continuously improve their work to ensure smooth production, which, in turn, reduces inventory. There are two main aspects to reducing inventory: planned sales and production stability.
To achieve the perfect integration of planning and production stability, companies need to implement just-in-time (JIT) production, where suppliers deliver raw materials at the exact time the company needs them.
The JIT production system was developed and applied in the automotive industry. As we all know, many automotive components, especially car bodies, are large. If they were stored in warehouses, immense storage space would be required!
I have a friend who manufactures car seat backs, and he once told me how they operate:
The car manufacturer notifies them to deliver a certain number of seats by 10:30 AM today, with subsequent deliveries at regular intervals until 5:30 PM. At 10:25 AM, their vehicle arrives at the car manufacturer’s gate, and once the gate opens, they enter and drive to the production line. They not only deliver the seats but also have their own personnel install them—they take care of the entire process.
Why do they bring their own installers? If the car manufacturer’s employees handle the installation, and any issues arise, whose fault would it be? It would lead to blame-shifting, which is not beneficial. By having the seat manufacturer’s own personnel perform the installation, any responsibility lies with them.
I asked him, “What happens if they can’t install the seats?” He told me that if the seats cannot be installed, the production line stops. Once the line stops, the car manufacturer will hold them accountable, calculating the loss per minute and deducting it from the payment.
Nowadays, almost all car manufacturers use JIT production, where the production line flows, and the corresponding components are delivered and directly installed. If your company adopts JIT production like car manufacturers, will suppliers dare to deliver non-compliant products that could cause the production line to stop? Certainly not.
JIT production is suitable for businesses with multiple varieties, short lead times, and frequent changes. As market demand continues to evolve, such businesses will become more common. In the past, companies could produce a large quantity of identical products. Now, with product diversification and urgent orders that frequently change, JIT production is necessary.
So, how can companies implement JIT production? To successfully implement JIT production, the following six key points should be considered:
First, maintain the right balance in production. This means not pursuing excessive product quantities but rather striving for the appropriate output that meets market demand. Overproduction leads to unsold inventory, while underproduction fails to satisfy demand. Therefore, ensuring production stability is essential for JIT production.
Second, strive for minimal inventory. Why strive for minimal inventory? Because inventory often masks many problems. For example, if errors occur in production, they can be resolved using inventory. Similarly, if there are delivery issues, inventory can be used as a temporary solution. In such cases, companies tend to overlook the root causes of problems and create hidden risks. Zero inventory doesn’t mean complete elimination of inventory; it means maintaining as little inventory as possible.
Third, establish a single flow. This means minimizing intermediate products. Of course, it doesn’t imply having only one intermediate product but rather reducing intermediate stages as much as possible.
Fourth, implement a pull-based production system. Determine the actual production volume based on customer demand. If the customer needs more, produce more; if they need less, produce less.
Fifth, embrace flexible production. This means implementing an elastic production system that allows for variations in production volume. For example, producing 100 units generates profits, but even producing 80 units is still profitable. Flexibility in production offers advantages.
Sixth, reduce setup/changeover time. Are rush orders becoming increasingly common? It becomes troublesome when orders change frequently, and changing products takes a long time—ranging from a day to a few hours. For companies operating under tight production schedules, every minute counts. Thus, reducing the time required for product changeovers becomes crucial.
By adhering to these principles, companies can achieve effective inventory management and successfully implement JIT production, leading to reduced costs and improved efficiency.
In conclusion, by focusing on improving quality, enhancing productivity, and reducing inventory, companies in the aluminum manufacturing industry can effectively lower their production costs and achieve sustainable success.
—4—Shorten the Production Line
During production, longer production lines require more operators, more work-in-progress inventory, and longer production lead times. The more people and processes involved in a production line, the higher the chances of errors and serious quality issues.
Is it possible to shorten the original 50-meter process to 30 meters or even 20 meters? By shortening the production line, the number of personnel and work-in-progress inventory decreases, and the production cycle also shortens. As a production management executive, you must brainstorm and consider how to shorten and merge production lines to make them progressively shorter.
—5—
Strengthen Equipment Maintenance
1. Aim for Zero Faults
Let me ask you a question, is it normal for humans to fall ill or equipment to malfunction frequently? If you think it’s normal, then you will frequently get sick, and your equipment will frequently malfunction. In reality, it is not normal for humans to fall ill or equipment to malfunction. Through prevention and maintenance, we can prevent or minimize illness in humans and achieve zero faults in our equipment.
What does zero faults mean? Zero faults mean that all machines operate as required at all times. Zero faults do not imply that equipment never encounters problems or requires maintenance. Instead, it means that during equipment management, we can determine when to perform maintenance to ensure that the equipment operates smoothly throughout the production process without any issues that would disrupt production due to equipment maintenance.
So, how can we achieve zero faults?
First, the mindset is crucial. If you believe that achieving zero faults in equipment is impossible, you won’t make efforts to maintain the equipment. Only when you believe that zero faults are achievable will you find ways to maintain the equipment. It’s similar to the concept of considering illness as abnormal, which motivates you to explore various methods to maintain good health. This is what we call “health quotient,” or “health IQ,” which refers to your perspective on health.
Maintaining equipment is similar to maintaining our bodies. Just as our bodies require regular check-ups, equipment needs regular inspections and maintenance. We need to take care of our bodies, knowing what we can do and what we should avoid. The same applies to equipment maintenance.
For example, if you buy a new car and you are someone who knows how to take care of it, it may not break down even after 15 years of use. If the car cost 150,000 yuan and depreciates to 100,000 yuan over time, you only spend 10,000 yuan per year. However, someone who doesn’t know how to drive or maintain a car will have it ruined within five years, which means spending 30,000 yuan per year. That’s the cost difference.
Second, production personnel should cooperate with maintenance personnel. The principles of maintaining equipment and maintaining our bodies are the same because the human body can be seen as a complex piece of equipment. Human health is closely related to two factors: oneself and the doctor.
For equipment, the personnel operating the equipment are equivalent to oneself, while the maintenance personnel are equivalent to doctors. If the personnel operating the equipment use it excessively or improperly, equipment failures are bound to occur.
Of course, equipment failures can sometimes be attributed to maintenance personnel not promptly detecting problems. Therefore, personnel operating the equipment should also have some knowledge of maintenance and work in collaboration with maintenance personnel to achieve zero faults in the equipment.
Proper equipment maintenance not only ensures zero faults but also extends the equipment’s lifespan, especially for expensive equipment. The cost savings can be significant. Additionally, when equipment is well-maintained, managing related spare parts becomes much easier, resulting in improved equipment utilization.
2. Minimize Downtime
Many problems that occur in production are due to equipment downtime. Equipment downtime interrupts production activities, leads to excessive work-in-progress inventory and inventory, and compromises product quality. All of these elements increase operating costs. Therefore, it is crucial to minimize downtime, which requires proper equipment maintenance.
To maintain equipment, companies inevitably face the question: Should the equipment be stopped for maintenance? The answer is yes.
When we talk about zero faults, it doesn’t mean that the equipment should run continuously without stopping. It means that the equipment should run when we need it to, but we should schedule periodic maintenance stops to ensure that it operates smoothly.
For example, if we plan to perform maintenance once a year, and we conducted maintenance on October 10th this year, should we do it on October 10th next year as well? Not necessarily. Around October 10th, we can choose a day when the workload is lighter, or it’s a day off, or there is a power outage, to perform the maintenance. This way, we can reduce the equipment’s downtime.
We should try to schedule maintenance during non-production time. In other words, if we can achieve this, the machine is as good as not being stopped because it keeps running when we need it for production.
To minimize equipment downtime, it’s also important to pay attention to the preparation of consumable parts because equipment wear and tear mostly affect these parts. How many consumable parts should we stock? This is an important consideration. Some consumable parts are expensive, especially for large and high-quality machines, which can cost tens or even hundreds of thousands of yuan. Having excessive stock can lead to a buildup of capital, while having insufficient stock and needing to purchase after the machine stops can result in prolonged equipment downtime.
How can we solve this problem? First, we need to maintain the equipment properly and ensure its normal operation without any special circumstances. Based on this, we can estimate the lifespan of components.
For example, if the lifespan of a component is two years, we can purchase it when the component has been in use for one year and ten months, and then replace it within two months during a period of downtime. For example, if there is a power outage, we can take that opportunity to replace the component. Once replaced, we can ensure that the machine keeps running.
However, in Chinese companies, it’s rare to follow such rules. Typically, companies keep the equipment running until it breaks down. This leads to longer downtime, and sometimes, when one component fails, it can damage other components as well.
Of course, accurate estimation of equipment lifespan can only be achieved through regular maintenance. Without maintenance, it’s impossible to accurately estimate equipment lifespan. Equipment that was supposed to last two years may break down after one year or even half a year if not properly maintained.
3. Implement TPM Activities
TPM stands for “Total Productive Maintenance.”
TPM was introduced by the Japanese in the 1970s as an approach that involves the participation of all employees in maintenance activities to achieve optimal equipment performance. The focus is on “productive maintenance” and “total employee involvement.”
Is a person’s health more related to themselves or to a doctor? It is more related to themselves.
Likewise, the condition of equipment is more related to the people who use it rather than the people who repair it. That’s the essence of TPM. Only by involving production employees in equipment maintenance can we ensure the smooth operation of the equipment.
Of course, all of this is premised on practicing 5S, with the three fundamental aspects of TPM being cleaning, lubrication, and tightening screws. Of course, with increasingly complex equipment, there are more aspects to consider, but these three basic aspects should never be overlooked.
4. Implement Comprehensive Equipment Management
TPM also requires consideration of two different manufacturers’ equipment, A and B, which have the same functionality, production capacity, and similar quality. Equipment A costs 350,000 yuan, while equipment B costs 300,000 yuan. Which one should we buy? Some might say we should choose B. However, it’s not that simple. If buying equipment B for 300,000 yuan requires an additional 100,000 yuan for spare parts, consumables, and maintenance, while buying equipment A for 350,000 yuan only requires an additional 20,000 yuan, the total price for equipment A would be 370,000 yuan, while equipment B would cost 400,000 yuan. In this case, which one should we choose? Clearly, equipment A would be the better choice.
A typical example is inkjet printers versus laser printers. Although laser printers are more expensive, they have lower costs in the long run, whereas inkjet printers have expensive ink cartridges. So which one should we buy? It depends on the printing volume. If the printing volume is low, inkjet printers are suitable. For high printing volumes, laser printers are more appropriate.
Therefore, comprehensive equipment management entails considering the total cost incurred throughout the equipment’s lifecycle, rather than just the purchase price.
In the dairy industry in China, which company is the most profitable? Some may say Mengniu or Yili, but the reality is that it is Tetra Pak, which provides packaging for these dairy companies. This may seem surprising, but it’s true. Tetra Pak invented the Tetra Pak packaging system and initially provided the machines to dairy companies for free. However, once the companies became dependent on Tetra Pak, it started making profits because it had monopolized the industry.
Hence, it is important to consider the total cost consumed throughout the equipment’s lifecycle, rather than focusing solely on the procurement price.
—6—Reduce Space
Many Chinese companies tend to construct large factory buildings and lay out equipment in a straight line, but this is not necessarily a good practice. Some foreign companies, including private enterprises in Guangdong, have high space utilization rates and compact equipment. What are the benefits of this?
Firstly, compact equipment reduces the distance for transportation.
Secondly, space costs are also a factor. For example, if your factory is 200,000 square meters, but you only need 100,000 square meters to accommodate your existing equipment, you will end up paying double the rent and depreciation costs for the remaining 100,000 square meters.
I visited a Japanese-owned company in Beijing where all the management personnel were Chinese. They told me that the salaries assigned to them by the Japanese were relatively low. We then discussed why this was the case.
I explained to them that the Japanese determine our salaries based on factors such as factory and equipment consumption, as well as employee wages. For example, if a Japanese factory only needs 100,000 square meters, but we use 200,000 square meters, the additional 100,000 square meters costs us a significant amount of money. These expenses accumulate, resulting in lower salaries for employees.
Having a larger workspace is not necessarily better; in fact, it’s the opposite. When it comes to providing a slightly higher salary to workers, the management feels hesitant. But wasting so much space and occupying such a large area doesn’t bother them? In reality, the employees’ wages represent a minor waste, while the factory space represents a significant waste. Therefore, it’s crucial to consider that smaller space is better. However, there should be a limit because going below that limit is not desirable either. If a company is concerned about giving a little extra salary to workers, then they should also be concerned about wasting so much space. The workspace is indeed a cost, especially when the rent is high.
Even if you have your own space, implementing a U-shaped production line can reduce space requirements. Usually, equipment is arranged in a straight line, which is visually impressive. However, a straight line takes up a lot of workspace, so the current trend is to adopt a U-shaped production line, which can reduce the required space by half. Workspace is a significant cost, especially when the rent is high.
By implementing a U-shaped production line, you can install more production lines within the same space. So, instead of immediately thinking about building new production facilities when you want to increase capacity, consider rearranging the existing space wisely to accommodate more production lines.
—7—Shorten Production Lead Times
What is a lead time? Lead time refers to the entire process from when a company pays for materials and consumables to when it receives payment for the sold goods. Therefore, lead time represents the speed of capital turnover. The responsibility of production management is to minimize the production process, as shorter lead times lead to lower costs.
Lead time can be influenced by product or service quality. In other words, if we take each task seriously and ensure that each product handed over to the next process is of acceptable quality, the lead time will be shortened.
In the future, shorter lead times for orders will become a trend. One effective method to address short lead times is by implementing Just-In-Time (JIT) production.
