by Richard W. Sievert
Owners and managers of plastics processing businesses under competitive pressures are searching aggressively for cost effective ways to increase profits and return on assets. The way these companies manage their property, plant, and equipment assets has a tremendous impact on their overall competitiveness and profitability. Since most processing companies have a major investment in their facilities, optimum utilization and performance of these assets is not just desirable, but absolutely essential. By optimally locating, sizing, engineering, delivering, and maintaining facilities, plastics processing businesses can achieve a competitive advantage and increase profits.
The way manufacturing businesses manage their facilities affects their ability to produce and compete in terms of quality, price, delivery, flexibility, and customer relationship management. Customers expect quality products to be delivered at competitive prices, with shorter lead times, and less waste than competitors. In an environment where competitors pay approximately the same price for resins, labor, and equipment — the difference is the cost, location, and performance of their buildings and real estate. The value of land and buildings generally represents from 25 percent to 50 percent of the fixed assets of small and mid-size U.S. manufacturers. Facility-related costs also consume about 10 percent of annual operating budgets. Therefore, high asset utilization and capability are critical.
As a result, U.S. manufacturers in all mature industries are constantly evaluating and improving the design, location, and performance of their facilities based on industry trends and metrics. They are becoming more efficient and cost effective by relocating, right-sizing, and consolidating operations; renovating and building new facilities; and improving space layout, workflow, and process controls to support new technologies, management strategies, and business plans. Unfortunately, many manufacturers throughout the U.S. are in a shrink to survive mode.
Following is an executive summary of six strategies for maximizing the return on property, plant, and equipment assets. These strategies are not in order of priority, and the sequence for carrying them out are arrived at through positioning relative to business and strategic planning.
Quality is a Given in Today’s Competitive Marketplace
In the past, U.S. manufacturers were able to sell products for premium prices because customers perceived that American-made products were of higher quality. From a facilities perspective, improving quality meant installing better room temperature, air filtration, and humidity control systems, process cooling water, heating and compressed air systems. Predictability and consistency of plastics molding operations is improved when a plant is maintained within specified control limits. Through investing in robotic technology and automated process monitoring systems, problems and defects due to human factors also can be reduced. Quality is a given from the perspectives of customers and prospects if a plastics supplier is on their purchasing department’s short list of qualified vendors.
Audit Facilities for Dollars
Industry profit leaders routinely audit their facility assets, resources, processes, and systems. Often these studies uncover areas where substantial funds are spent with little management control. Also, numerous manufacturing facilities have been acquired through acquisitions. It is not uncommon to find overstressed buildings and process support systems, under-utilized spaces, and infrastructure that is functionally obsolete or in various states of disrepair.
Most plastics processing companies lack the resources to conduct thorough, objective, and independent evaluations of the performance and physical condition of their buildings, site, and infrastructure assets. This applies to post-occupancy evaluations of buildings-in-use, as well as pre-acquisition surveys of potential sites. Instead, companies contract with outside professionals who augment and support in-house capabilities (e.g. manpower, technical expertise). The analyses and recommendations are used by executives to make better decisions about right-sizing, renovating, re-purposing, replacing, consolidating, and relocating facilities. Generally, studies have found that it is more difficult to generate profits when plant utilization is below 80 percent utilization.
A few practical benefits of facility audits include the following:
1. Determine the capacity and capability of existing infrastructure to meet current and projected requirements.
2. Determine the financial reserves necessary to maintain or rebuild capacity.
3. Prolong the useful life of building and process support systems.
4. Identify potential energy-savings measures.
5. Increase awareness of site, building, and infrastructure maintenance needs.
6. Assess workplace health, safety, and security issues.
7. Determine the need and amount of work required for retrofits and repairs.
8. Prepare the foundation for a master facilities development plan.
Invest in Technology
Facilities have changed because of the influence of technology and competitive forces. Technology enables businesses to change their work processes and workplaces to be more efficient and cost competitive. Plastics businesses are restructuring and modernizing their facilities to incorporate more computer support, more automation, higher capacity, and more versatile and energy efficient machines. Technology enables companies to reduce labor and inventory costs, and achieve just-in-time seamless manufacturing.
Today, manufacturers can schedule production based on actual customer demand rather than a market forecast – a demand or pull-thru process flow system versus a traditional push-thru system. It is not uncommon to see a large, high volume automated plastics processing plant operated by just a handful of people. There is a trend toward “lights out manufacturing.” Factory lighting is not necessary because people are not needed on-site to man operations. Today, machines can alert off-site maintenance personnel if something is going wrong via a phone, pager, status light, alarm panel, or centrally located building automation and control system. A service technician can be dispatched immediately to the unmanned site to check out the situation or correct a problem before it becomes more serious. Technology enables businesses to scale back their cost structures and lower the breakeven points so they can compete globally.
Collaborate with Customers and Suppliers
Suppliers often think of themselves as a seamless extension of their customers manufacturing processes. It is common for plastics molders to set aside a portion of their facilities to serve as a focus factory or work cell, dedicated to producing components or assemblies especially for an important client.
Plastics businesses are positioning themselves for new business opportunities by locating their facilities close to their customers. They locate as close to the customer as possible to share resources, reduce transportation costs, eliminate unnecessary space, and reduce inventory costs. Some plastics processing companies are forming strategic partnerships with customers and suppliers and co-locating operations right on their premises. Shared offices, subletting excess space, and selling unused land are also commonly employed strategies to optimize assets and reduce costs. As an example, it is customary for manufacturers of plastic containers for the dairy, water, or juice industry to blow mold plastic bottles inside their customers building. The bottles are then continuously conveyed to the customers fill lines when needed. This concept is known as through-the-wall manufacturing.
Design Flexible Facilities to Accommodate Change
Plastics businesses are adapting their facilities to meet changing customer demands and emerging technologies. They are installing flexible manufacturing systems that enable them to process many different items efficiently through the use of programmable automation with a minimum amount of personnel. Flexibility is more critical as U.S. producers attempt to compete with a low-volume and high product mix strategy. There also is a need to provide space for more sophisticated value-added products and services beyond traditional shoot and ship plastics molding.
In a complex and unstable business environment, making the most out of existing assets and flexibility becomes more important. Facilities must be designed to accommodate periods of business expansion, as well as downsizing. Many manufacturers sell or lease excess space and facilities to generate revenue.
The facility design strategy also should include provisions for changing water temperature and flow rates, as well as power and compressed air requirements. For example, as the demand for water flow at the point of use in a process cooling system increases or decreases, energy costs might be reduced through the application of variable speed pumping systems. The plant also should be laid out to facilitate equipment changes and improved processes.
Reduce Cycle Times Because Speed Means Business
Manufacturers are mapping processes to figure out where the processes break down, to identify and eliminate wasted time and bottlenecks, and to determine the shortest possible time to produce and deliver products using tools such as the Critical Path Method. Manufacturers also are identifying and eliminating non-value-added activities that add to the cost, time, and space consumed to produce a product, but not its value. They set up work cells to reduce time and production costs where feasible. Many U.S. manufacturers are using speed to gain and sustain a competitive advantage over manufacturers who make products in countries where costs are lower.
Hire, Retain, or Engage the Services of a Strong Project Manager
The success of any facilities development and improvement program depends on the ability to efficiently plan and control projects. The business must select the right projects at the right time and execute them properly. Project managers with specialized skills are assigned to projects from inception to completion to assure attainment of project goals and protection of owner interests.
Today, facilities are viewed as profit centers –assets that support the organization’s overall business goals. These goals are attainable and require a strategic assessment of the facility. A walk through your plant can pay off with some insight into whether your facility management strategies and practices really make sense, and whether you are maximizing the return on your investment.
Rick Sievert is president of The Sievert Group, Inc. in Schaumburg, Illinois, a firm that provides facilities planning and design, operations analysis, and project management services to help plastics processing businesses improve corporate competitiveness and increase profitability. For more than 20 years, Rick has evaluated plant floor and administrative operations, devised better work methods, and managed facilities design and construction projects for well-known industry leaders. He holds a doctorate in engineering from Northwestern University and is the author of Total Productive Facilities Management. He can be reached at (847) 397-2700 (ext. 108) or through email at [email protected]