echecs16.info Theory THE GOLD MINE BOOK

THE GOLD MINE BOOK

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Freddy and Michael Balls book, The Gold Mine, serves to remove these doubts. Readers of this story will find in the alltoo-human details of one lean turnaround. The Gold Mine: 1 1 by Michael Balle, , available at Book Depository with free delivery worldwide. At this point, I also want to acknowledge you, dear reader, and those of you who wrote noting that reviewing a book did not equate to writing.


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"The Gold Mine is the first book to comprehensively introduce all the lean tools by means of a vivid personal story showing how hearts and minds are won over. “The Gold Mine is the first book to comprehensively introduce all the lean tools by means of a vivid personal story showing how hearts and. The Gold Mine: a Novel of Lean Turnaround deftly weaves together the technical and human pieces of implementing lean manufacturing in an engaging story that readers will find both compelling and instructive. Really an excellent read in terms of the experience of Lean.

Companies from myriad industries in every corner of the world have proved that the principles are well founded. By posting record profits, while laying the basis for further growth, these companies, led by Toyota, reveal the promise of lean. Yet while these leaders appear enthusiastic and confident, for many others the reality of practicing lean management is a daunting challenge. Much of the technical basis for a lean transformation has been codified in an accessible manner, yet beyond the mechanics, managers often find the basic reasoning of the approach counter-intuitive. The necessary behavioral changes are stubbornly challenging, and often lead to doubts that undermine the prospective leader and team.

It turns out that although the new cores are clearly an improvement, we couldnt sell as many as wed expected. Because they have different parameters than the old vacuum cores, theyre complicated to design into mechanisms.

And so our customers or their vendors tend to have trouble building mechanisms for my new cores. In the end we were even contemplating building a manufacturing capability from scratch, but then this opportunity came up. What we finally did is modify their existing mechanism design to work better with our new core, and we made additional savings on the way.

So were now building the entire breaker box, which our customers can integrate with their other electrical equipment. Indeed, thats where the real markup is. Thats why we bought this plant. We wanted to be on the higher-value part of the food chain.

Hmm, other than the cores, the parts dont cost that much, but are more labor-intensive to manufacture and assemble. Dad asked. This is what we found out, Phil agreed ruefully. We were not prepared to run a factory of this size. We did not realize all that it entails. Making the vacuum cores is a highly technical process, but can be done with just a few expert operators.

There are very few steps involved and very few parts to download from outside vendors. Making the complete product is another matter.

Anyway, we sell four types of completed breaker boxes in the market. Our highest runner is the STR model. It uses our new core, which is very compact, meaning we can fit four mechanisms, to protect four circuits, in a slim cabinet. Its by far the best performing device on the market, and Matt says we can sell as many of these as we can produce.

But Im not so sure. STRs dont adapt well to old plants and are meant for high-power applications, so the market is mostly limited to new power plants. Then we have two additional products using our new technology. Finally, we still manufacture the DG product using the old D core and a single mechanism, he added, pointing to a large metal cabinet. These are mostly replacement items for existing power plants, and managing the high-power requirement with the old technology requires a much larger cabinet.

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I dont know much about equipment, mumbled Dad. Are any of these industry-standard items? Not quite, Phil answered with a shrug. The cores and mechanisms are standard in terms of the job they perform, but each customer order requires some customization, mostly in the interfaces with the circuit board and the instrument panel on the front of the cabinet.

Plus the cabinets themselves. Customers all seem to want to specify cabinets that will fit neatly in the intended installation. We dont manufacture circuit boards or panels, and often the customer specifies the design and even the vendor. So we have to integrate the mechanisms, the circuit board, and the instrument panel within a confined space in the cabinet.

Thats what all the designers you saw in the office are working on: Right, Dad muttered, looking doubtful. The complete device is assembled in four steps, after we make the core, Phil continued, pointing to a diagram of the assembly process. First, we assemble the mechanism, which is mostly mechanical parts including a small motor to move the core back in position if the circuit is broken.

Its like a hand-held drill motor we actually use the same vendor. Then we fit the core into the mechanism, which is a pretty delicate operation with a lot of adjustment. Next we wire up the completed mechanism at the end of the assembly line and send it to electrical testing.

Once the mechanisms pass the test and we often have to change out parts they are fitted into the cabinet and wired to the circuit board and instrument panel, again with a good bit of adjustment. At this stage Never mind the rest, son. Just show me the plant, said Dad. Phil stood for a second in mid-explanation, closed his mouth, and muttered, This way, please.

I followed them both, trying to keep my usual irritation with Dads appalling manners under control. The plant was a large, bustling place, with tubes and wires running along the ceiling and down columns, and people milling about among racks of odd-looking parts and machinery. It smelled of large empty places, oil, and metal dust. A loud banging could be heard rhythmically.

It felt like walking through a gigantic garage not the type of place in which to spend the best part of your daylight hours! To Phils credit, the place seemed rather clean, albeit painted in a grubby, off-white greenish color. Alleys were clearly marked on the floor, and I managed to more or less stay out of the way of the speeding forklifts, honking away as they rounded corners. Phil took us around to a huge glass-walled side of the building. Through the tinted glass wall, we could see a clinically white environment, which looked more like a lab than a production facility.

This is where the old cores are manufactured. We need to dress up in protective clothing to go in there. The cores are very vulnerable to dust contamination. Dont bother, Dad cut in. I see you hold entire racks of these capsules. Technological time, Phil answered with the hint of a smile. Not all of it is inventory. The cores need to cool down for at least 24 hours before being safe to use.

Well, thats still 24 hours of cash sitting there, replied Dad dryly. You mean, you have to incur the cash outlay to download the material, but you can only use it after a certain time? I asked, feeling like an idiot. Thats right, Mickey, said Dad, using my childhood nickname. And thats the whole trouble. Youve got to download materials upfront, and then youve got to pay for labor, and finally you get a check back from a customer after a sale.

All this while youve been financing your own production so the longer it takes to get the cash back from the customer, the costlier it is for you. And in their case, the materials themselves are expensive. Which compounds the problem, correct. But doesnt every business face the same problem? Phil asked. Of course, but not necessarily in the same way. A supermarket, for instance, gets the cash out of the shoppers pocket way before it pays its suppliers.

In essence, the company gets cash from goods it hasnt paid for yet not a bad way to run a business, he added with a grin. Yes, everyone deals with the same type of issues. The trick is resolving them, and there is no one set of answers. It all depends on your customers and your markets. In that area over there, we have all the cabinet-making equipment sheet-metal cutting, punching, bending, and assembly, Phil continued, pointing at a confusing area of machines, boxes, and people.

This is where we make the metal parts for the cabinets. And, yeah, he added, giving Dad a sidewise glance, this is the inventory. We walked by a large room lined with racks of wire-mesh crates filled with all sorts of metal plates. We know about this, he went on. We call it the wall, but we havent found a way to reduce it without penalizing production. Dad said nothing, just shook his head. Now, over there, Phil continued, is our big innovation.

We have three parallel lines specialized by products. The first line assembles the STR mechanism, incorporating the capsule. The second, deals with both variants of QST, and the third is a DG line, but it doesnt run full time. Two shifts or one? We work from 8 a. And, of course, a short midmorning and midday break. Were looking into moving to two shifts, but we dont have enough people as it is, and it would be a serious investment to hire some more qualified operators. But would you have the business to sustain two shifts?

Matt claims so, Phil answered dubiously. We currently have quite a backlog, so I guess we could. On STR I think we could. But given our current cash situation, its not even in the cards.

We just couldnt pay a second working shift. On each production line, operators were working bent over their tables, assembling a variety of rigs, which, I guessed, somehow would transform themselves into completed products in the end. At the end of the lines, we send the assembled mechanism and capsule over to that electrical testing area over there, showed Phil, pointing toward a partitioned cubicle with a number of racks filled with mechanisms waiting in front of it.

Testing is actually quite sophisticated, and we use high voltages in there, so it has to be kept clear of the rest for security purposes. It needs special equipment that we couldnt include in the lines. Dad turned away and exclaimed, What the heck is this monster? Im sorry? This conveyor. Just look at that! A row of cabinets was hanging by hooks from a massive superstructure, fixed to the ceiling, like carcasses in a butcher shop.

Operators worked at different assembly stations, fitting mechanisms into the cabinets, and then pushing the cabinets to the next station to add cabling or the circuit board or the instrument panel, while a number of cabinets waited patiently between the stations. Ah, thats where the major components are assembled into the cabinet to make the finished circuit breaker, as you can see.

The cabinets are supported from the ceiling by the conveyor to allow the operators to walk all the way around the cabinet as they work. The wiring in particular is a bit of a pain and requires assembler access from many points, including the bottom. At the end, they fit the control panel, wire it up, and lock the breaker. Doesnt it move? Well, not automatically, Phil continued. Its not a conveyer in the usual sense, just a way to keep the cabinets at working height and to allow access.

It has no built-in pace. When the operator is finished, he pushes the cabinet ahead to the queue before the next station.

And all of your products end up going down this same line? Yes, Phil acknowledged, which is why we often get pile-ups upstream as the different fabrication operations feed the one line. But in any case, we are now finished with assembly. You can see where the fully stuffed cabinets are lowered to the ground and onto pallets, then picked up by forklifts and taken to the final testing area.

When they pass the test, which may require more changing of parts, they are taken by forklift to the packing area for crating and then to shipping.

He guided us around the packing area and up a long aisle running the length of the plant, past endless floor-to-ceiling racks of boxes with components, until we finally reached the shipping dock. A few men were stretch-wrapping the finished circuit breakers in their crates while, further off, other employees were unloading a truck on the dock, moving piles of cardboard boxes through what looked like an airplane crash site.

Yeah, I know, said Phil, rubbing a hand on his face. It still looks a mess, but it used to be much worse. Anyhow, thats about it. If you come back over here, he said, walking us back toward the door to the offices, we have an actual map of the plants layout. Okay, Mr. Woods, what do you think of it? Well, son, said my father looking at the plants hustle and bustle, I can see your inventory. But where is your factory?

Ouch, said Philip, downcast. Look at it like this, Dad pressed. Youve got three big piles of inventory with a little manufacturing in between. Youve got a heap of vacuum cores over there by your glass box, mountains of metal parts across the aisle, racks of assembled mechanisms right after testing, and I dont know how many of your cabinets queuing on the conveyor. What do you expect?

This place is storing and moving around a lot of stuff, with very little useful action. What makes you say that? I asked Dad. All I could see was a beehive of activity. It was just what I expected of a plant and, even though I had never set foot in a factory before, there didnt seemed to be much wrong with it. After I got used to the din, it was a far cry from the dark satanic mill Phil and my father had led me to expect. Well, let me put it this way, started Dad, which was a sure sign Phil was in for a serious put down.

I dont know much about your industry, so I try to look at your operations as if I was a potential customer. Eye of the customer, yeah, weve done that with the consultants, interrupted Phil, attracting the glint of Dads stare. Consultants, hah. Well, here it is. Lets assume I dont understand anything about your process itself. Ill worry about two things: Our qualitys not too bad, Phil ventured. Weve had only five customer complaints over the past month from about 1, units sold: Thats outrageously high!

Never mind now, thats not what Im looking for at this stage. I want to see how quality is built into your product. Phil looked at him, puzzled, reaching instinctively for his notebook. Well, look at your process. Im sure that mistakes and defects must happen here and there. But I havent seen any. Which means that there is no system to identify nonconforming parts.

In other words, whenever a defective part appears, I have no guarantee that it will not find its way back into the product somehow. But our people are trained to spot and isolate defects! Hey, you asked me, son. And if I were a potential customer, Id be worried. You guys can tell me whatever you want, but I dont see any system in place making sure that defects are systematically identified at each step of the process, and separated from good parts.

Nor am I sure that anyone is asking why these defects show up when they do. That tells me you dont control your quality. But what about our testing? Youve seen our testing procedures, and theyre very rigorous!

Dad seemed to weigh Phil for a moment and replied, All well and good, but testing doesnt tell me how quality is built into the product, or, more to the point, how nonquality is built into the product. See, any defect that turns up on one of your products has in fact been put there. It is the result of work, albeit bad work.

You need to understand this. Do you track how many defective parts are found at each testing phase? I dont know, Phil mumbled, but Im sure that Dave would. Let me go and find out. Forget it. I told you I dont want to talk to anybody, Dad said crossly.

Anyhow, thats not the point. The point is that I am troubled about quality in your production process. Five defects per 1, in the customers products are terribly high in my book. Thats about how often airlines lose your luggage. You happy with that? What about inefficiency? I asked, to get Phil off the hook. Well, look at it this way. Anything that does not directly add value to the product is inefficient, correct?

So when I walk through operations I always look at people first and foremost. I count: The ratio of operators who are actually adding value to the product to total operators gives me a good feel for how efficient the process is. Phil just stared at Dad and then started looking around, counting silently. Im not good at numbers, but I could see that for every operator we saw actually doing some work, there were two or three people just doing something else.

Thats not entirely fair, Dad, I ventured. Its not because they arent working on the product that theyre not working! I never said that, Dad replied flatly. Im sure all these folks are doing their job. Thats precisely my point. Look at this lady over there searching through a pile of parts for the one item that she needs next. Clearly shes working but her efforts arent adding any value to the product.

What Im saying is that you need to figure out a better system. In particular, you need to distinguish motion from work. Work is adding value to the product, and motion is everything else, is that right? At the end of the day, improving operations means transforming motion into work. Phil opened his mouth, but then said nothing again. He stood there, taking in the shop floor, pushed his glasses back on his nose, and looked distraught. Now, the second thing to look at is inventory, continued Dad, relentless.

Same principle applies. Every part out there that is not being worked on is a sign of inefficiency. Weve paid for that stuff, and its not being transformed into value. Its just sitting around gathering dust.

Thats inefficiency. Okay, okay, Mr. Woods, Phil conceded, I get your point, but you dont understand. What you see is I dont have to understand, son. All I know is that all these inefficiencies somehow translate into cost. And if Im a customer, I know that if you plan to stay in business all these inefficiencies will eventually be reflected in your price and mine.

But weve come so far. Dad just shrugged and started walking away. Come on, Dad, dont be like that. I, for one, would at least like to know what Phils been doing with this plant. My father gave me his irritated stare, but relented with a sigh. All right, lets hear it.

It might not look like much to you, started Phil, but you should have seen it when we took over. There were piles of inventory surrounding every workstation.

I mean heaps! I can imagine, mumbled Dad, nodding wearily. When we took over the plant, it was organized in five shops: Each shop dealt with all the products. The first shop would do mechanical assembly for all mechanisms.

Then they would move to the mechanical fitting shop to get the motor fitted, then to electrical wiring, then back to fitting for the capsule, then to wiring again, then to testing, and finally to the final assembly line. Inventories were sky high in each shop! We had some consultants come in, and they got us to separate our products into families, which came down to the four Ive mentioned. Because of all the customization we do, it wasnt clear to us that product lines existed at all!

Then they broke the shops and created the lines we saw. It was a revolution, let me tell you! We initially halved the inventory! Halved it, I tell you, Phil repeated excitedly. And the same for lead time. It was amazing, you should have seen the stuff lying around before. Not that were particularly good now, but back then, it was just horrendous. What I dont understand, I asked, is why final assembly was not split into lines as well? We had endless arguments about that.

The end of the matter is that we cant afford another two lines. I can see, I continued, that with the old layout you would have had parts being moved around a lot. Yeah, talk about motion! So, if youve already solved the problem, whats the panic? Phils face fell as if hed doused with cold water. Its not enough! Thats the problem! You said it yourself, theres still too much inventory around this place.

Too much inefficiency, and we dont know where to go from here. Well, answered my father after an awkward silence, the usual: I asked. To be efficient, the trick is to maximize value the work that the customer really thinks is worth paying for. In any operation, youve got a value-creating element, like tightening a bolt, a necessary element, like getting the bolt to the operator, and then a whole load of waste.

Most people dont even see it. You can basically split waste into seven types, as Toyota does: So get your consultants to work and systematically reduce the waste!

No offense, sir, but we know all that, Phil said carefully. The trouble is that weve reached the limits of our consultants. They dont seem to get any more results than what youve seen, and they tell us that its because of too much resistance to change, and anyhow thats no longer the issue.

How do you mean, not the issue? Were running out of time, Phil answered with a hint of desperation in his voice. Whatever we do in continuous improvement is going to take ages and it wont solve the business problem were against the wall! My father sighed and shook his head in this exasperating, seen-it-all-before manner he has, and said in a quieter tone, Come on, nothings ever that desperate.

But maybe we should continue this discussion out of earshot rather than right in the middle of the shop floor. Lets get a cup of coffee. I looked around and, indeed, many people were looking at us with a mixture of curiosity and defiance. The company had already changed hands and been reorganized, so God knows what they were thinking of their strange visitors.

Another sale perhaps? With Dad dressed like a house painter, stains and all, not likely, I thought with a chuckle. Phil took us back to the engineering area, past an acre of cubicles and ushered us into a large pleasant office with bay windows overlooking the parking lot. He sat us at a round conference table, and went back out to ask someone for coffee.

Can you help? I asked Dad, but he just shrugged, mulling over his thoughts and looking grim. Okay, Philip. Whats the problem then? As Ive told you earlier, were out of cash! I understand that, Dad said with exaggerated patience. But whats the business problem? Why are you out of cash when your products seem to be selling? Well, we have two issues, Phil said.

First, we still carry far too much inventory, which eats at our cash flow. Second, were not covering our fixed costs, no matter how much weve already cut overhead. We just cant find a way to get more output from the money weve invested in this factory, given the capabilities and customers that we have. So you have a market for this? Yeah, plenty, especially the new stuff. Matt thinks that if we get the price down just a bit, we could easily double our sales volume. But at this stage, we would never find financing for additional capacity.

It would require more factory space, more people, and more equipment. We just dont have the cash. Suppose you could magically produce your backlog overnight, would that help? Well, sure. These customers pay promptly, so if we could catch up on late deliveries without increasing our parts inventories, wed be improving our cash position. Well, theres your solution, son. Reduce the waste to produce more with the same facilities, since the market demand is there.

Phil looked back, mystified. Oh, heck, it isnt that hard to make money in industry, said Dad animatedly. Your company thinks in terms of fixed costs and variable costs, right? Variable costs are the costs which can be attributed directly to the product, like materials and direct labor, arent they? I asked, vaguely remembering a business course back in college. And fixed costs are all the other costs related to running the plant itself. Correct, Philip is a fixed cost, Dad answered with a wink.

The trick to running a profitable operation is to find ways of increasing production without increasing fixed costs if the demand is there; and reducing fixed costs if you have to reduce production because demand falls. But wouldnt that be treating fixed costs as variable? Not quite. It just means that you have to be ready to close down entire parts of the plant, or product lines, if theyre not profitable. Like Harry told you this morning. Fixed costs are not fixed by an act of the Almighty.

Theyre called fixed costs because they cant be related to each single product. It doesnt mean they cant be reduced. You could still close down half your shop and relocate to a cheaper building or something like that. But thats not the issue anyhow since the demand is there. Your problem is to find a way to increase production without increasing your fixed costs, right? Yes, absolutely. But how can that be done? By reducing waste in the product flow, of course!

Im sorry Im being so slow, sir, but I dont get it, complained Phil as Dad made a show of looking at his watch. He would be missing lunch with his cronies soon, I figured. Let me put it another way. Suppose that you could move from one shift to two shifts. You follow? Youd be doubling your output without increasing any of your fixed costs, right?

Assuming people would agree to it, wed need more people to staff the second shift, Phil reasoned. Direct labor is a variable cost. Well, not quite in this process. Each of these operators is both trained and skilled. We couldnt find people on the street just like that. And anyhow, we can barely pay those we have on the payroll now, theres no way we could hire any more, said Phil.

Well, youve figured it out yourself. Your challenge, said Dad, is to staff a second shift without hiring any more people. The book also reveals Lean as a system—using a realistic story to show how the principles are interrelated and how they lead to useful tools such as kanban or 5S. A transformation will fail without the most important element: It will spark ah-ha's from everyone who has been there and provide profound insight for those who are just getting started. I can't recommend it highly enough as a way to teach your people the key Lean tools that always lead to success while also teaching, in the words of Bob Woods, that 'it's all about people.

Readers, especially those individuals working on the shop floor, will gain revelation and inspiration by living through the experiences of the hero. This is an experiential novel that will resonate deeply with people who relate it to their own lives. Managers and executives just beginning a Lean transformation will learn valuable insights about how to sidestep the technical and people problems that lay ahead.

And experienced Lean thinkers will discover fresh insights about overcoming resistance to change. With his father, Freddy, he coaches CEOs and senior executives in using Lean to radically improve their businesses' performances and establish Lean cultures. Since you seem to know all about it, I asked Harry hopefully, isnt there anything Phil can do to get out of this mess?

He looked at me doubtfully. Hard to say, he answered with a frown. Generally speaking, there are three ways to turn around an industrial firm quickly when youre facing a cash crunch.

First, you have to drop any nonprofitable activity and stop throwing good money after bad. You need to invest all the cash you can muster up in the profitable stuff, or that with the greatest potential in the market.

Second, squeeze suppliers. Used to be my job; and, Third, improve shop-floor operations. Now, I dont know much about that your Dads the expert in that regard. He shook his head. Unfortunately, I dont see what they can do. Not on the financial front anyhow.

Why do you think so many new businesses fail each year? They go through this cycle and collapse, said Harry, fiddling with his flask.

Ive seen enough of it to know why it happens, and how, but it doesnt mean I know how to fix it. Your problem is on the operations side. Bob might have some ideas about that, he added thoughtfully, tossing the ball my fathers way. Not likely! Why not? Dad fixed his steely-eyed eagle stare on me for a long, uncomfortable silence.

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Finally he opened his arms in a helpless gesture. There are so many reasons, I wouldnt know where to start. Like what? I pushed. Well, Id have to go to his factory, for starters, he answered irritably.

And I swore Id never set foot in another plant as long as I live. What am I going to do? Philip gasped, and, to our dismay, we realized he was hunched up over himself, on the verge of sobbing. Overhead, a seagull gave its high-pitched cry. Once you get over his abrupt communication style, that is. We ended up locking the boat, walking Harry back to the Yacht Club, and piling into my derelict car. As we drove to Phils plant, he talked incessantly about his business and technology to my father, who seemed to follow, although it was all Greek to me.

Dad spoke little and mainly listened, which, for all his faults, he is rather good at. Aw, call me Bob, he interrupted at one time as Phil was plodding on with Mr. I concentrated on the driving, trying to follow Phils directions as we entered the no-mans land of the industrial estates, a desolate land of corrugated iron, security fences, and ugly gray buildings.

Finally we turned into a driveway and parked in front of a large, off-white building looking like a great big plastic box with a glass front. It didnt look like much more than a couple of glorified warehouses, but the lawn was mowed, the signs neat, and my friends company IEV standing for Industrial Extreme Vacuum logo was proudly displayed, with a tacky bolt of lightning coming off the letters.

Matts away, Phil said as he ushered us through the glass doors into the lobby, but I can introduce you to Dave Koslowsky, our production manager. Id rather not meet anyone, answered Dad, bluntly. Lets see your shop floor. Phil led us through a corridor of large windowpanes overlooking spacious, open-plan offices where people were busily working in their cubbyholes.

The Gold Mine by Freddy Balle. Book Review by Stephen Parry

At the end of the corridor, a heavy door opened on the plant itself, and I realized I had never actually been in a factory, no matter how much I heard about it at home.

It was overwhelming the people, the machinery, the noise. I could not make heads or tails of it, but I could see my Dad taking it all in with a sigh.

He knew what he was looking at, and looking for. Phil led us straight to a central display, right in front of us, where several products were showcased along with the major parts going into them. This is the vacuum core, he explained, holding up a white ceramic capsule, roughly the size of a large beer can. The new technology we developed enables us to pack more punch into a smaller and better core, he continued, pointing for contrast to a much larger capsule resembling a fat mineral water bottle.

The Gold Mine_ A Novel of Lean - Michael echecs16.info | Lean Manufacturing | Inventory

The new ones have better efficiency, have fewer failures, and last longer. They are in great demand for new applications, but many of the current market installations are tied up with the old technology. And this is the completed product, he said, patting a squat, ugly, metal box, the size of a jumbo filing cabinet, with an instrument panel. Inside the cabinet, you find these breaker mechanisms, one for each circuit, he said, showing a variety of capsules embedded into mechanical and electrical contraptions of various shapes.

These are what actually do the job of breaking the circuit, to prevent electrical overloads in high-power industrial applications like factories and power plants. We manufacture the mechanisms and the cabinets, and fit them with the control panels our customers send to us. The new technology allows us to build smaller mechanisms, so, in simple terms we can put in more breakers to protect more circuits in one cabinet.

Theres an increasing demand for that. Basically, we build the cabinets in one part of the plant, while we assemble the mechanism that fits around the cores in another.

Then we install a downloadd circuit board in the cabinet, fit the mechanisms in, wire the whole thing together with a control panel provided by our customers to their specifications and, voil, a completed product. An outrageous oversimplification, of course, but, thats basically what we do. These new vacuum cores are what you manufacture at the other plant? But we still manufacture some of the old cores here. You see, the new cores need much higher oven temperatures and they rely on different composite materials.

This is what my original research focused on. Why not just sell the cores? Well good question, answered Phil, frowning. Weve certainly considered that. It turns out that although the new cores are clearly an improvement, we couldnt sell as many as wed expected.

Because they have different parameters than the old vacuum cores, theyre complicated to design into mechanisms. And so our customers or their vendors tend to have trouble building mechanisms for my new cores. In the end we were even contemplating building a manufacturing capability from scratch, but then this opportunity came up. What we finally did is modify their existing mechanism design to work better with our new core, and we made additional savings on the way.

So were now building the entire breaker box, which our customers can integrate with their other electrical equipment. Indeed, thats where the real markup is. Thats why we bought this plant. We wanted to be on the higher-value part of the food chain. Hmm, other than the cores, the parts dont cost that much, but are more labor-intensive to manufacture and assemble.

Dad asked. This is what we found out, Phil agreed ruefully. We were not prepared to run a factory of this size. We did not realize all that it entails.

Making the vacuum cores is a highly technical process, but can be done with just a few expert operators. There are very few steps involved and very few parts to download from outside vendors.

Making the complete product is another matter. Anyway, we sell four types of completed breaker boxes in the market. Our highest runner is the STR model. It uses our new core, which is very compact, meaning we can fit four mechanisms, to protect four circuits, in a slim cabinet.

Its by far the best performing device on the market, and Matt says we can sell as many of these as we can produce. But Im not so sure. STRs dont adapt well to old plants and are meant for high-power applications, so the market is mostly limited to new power plants. Then we have two additional products using our new technology.

Finally, we still manufacture the DG product using the old D core and a single mechanism, he added, pointing to a large metal cabinet. These are mostly replacement items for existing power plants, and managing the high-power requirement with the old technology requires a much larger cabinet. I dont know much about equipment, mumbled Dad.

Are any of these industry-standard items? Not quite, Phil answered with a shrug. The cores and mechanisms are standard in terms of the job they perform, but each customer order requires some customization, mostly in the interfaces with the circuit board and the instrument panel on the front of the cabinet. Plus the cabinets themselves.

Customers all seem to want to specify cabinets that will fit neatly in the intended installation. We dont manufacture circuit boards or panels, and often the customer specifies the design and even the vendor. So we have to integrate the mechanisms, the circuit board, and the instrument panel within a confined space in the cabinet. Thats what all the designers you saw in the office are working on: costing and customizing orders.

Right, Dad muttered, looking doubtful. The complete device is assembled in four steps, after we make the core, Phil continued, pointing to a diagram of the assembly process. First, we assemble the mechanism, which is mostly mechanical parts including a small motor to move the core back in position if the circuit is broken. Its like a hand-held drill motor we actually use the same vendor. Then we fit the core into the mechanism, which is a pretty delicate operation with a lot of adjustment.

Next we wire up the completed mechanism at the end of the assembly line and send it to electrical testing. Once the mechanisms pass the test and we often have to change out parts they are fitted into the cabinet and wired to the circuit board and instrument panel, again with a good bit of adjustment. Never mind the rest, son. Just show me the plant, said Dad. Phil stood for a second in mid-explanation, closed his mouth, and muttered, This way, please.

I followed them both, trying to keep my usual irritation with Dads appalling manners under control. The plant was a large, bustling place, with tubes and wires running along the ceiling and down columns, and people milling about among racks of odd-looking parts and machinery. It smelled of large empty places, oil, and metal dust.

A loud banging could be heard rhythmically. It felt like walking through a gigantic garage not the type of place in which to spend the best part of your daylight hours! To Phils credit, the place seemed rather clean, albeit painted in a grubby, off-white greenish color. Alleys were clearly marked on the floor, and I managed to more or less stay out of the way of the speeding forklifts, honking away as they rounded corners.

Phil took us around to a huge glass-walled side of the building. Through the tinted glass wall, we could see a clinically white environment, which looked more like a lab than a production facility. This is where the old cores are manufactured. We need to dress up in protective clothing to go in there. The cores are very vulnerable to dust contamination.

Dont bother, Dad cut in. I see you hold entire racks of these capsules. Technological time, Phil answered with the hint of a smile. Not all of it is inventory. The cores need to cool down for at least 24 hours before being safe to use. Well, thats still 24 hours of cash sitting there, replied Dad dryly. You mean, you have to incur the cash outlay to download the material, but you can only use it after a certain time? I asked, feeling like an idiot. Thats right, Mickey, said Dad, using my childhood nickname.

And thats the whole trouble. Youve got to download materials upfront, and then youve got to pay for labor, and finally you get a check back from a customer after a sale. All this while youve been financing your own production so the longer it takes to get the cash back from the customer, the costlier it is for you.

And in their case, the materials themselves are expensive. Which compounds the problem, correct. But doesnt every business face the same problem? Phil asked. Of course, but not necessarily in the same way.

A supermarket, for instance, gets the cash out of the shoppers pocket way before it pays its suppliers. In essence, the company gets cash from goods it hasnt paid for yet not a bad way to run a business, he added with a grin. Yes, everyone deals with the same type of issues. The trick is resolving them, and there is no one set of answers.

It all depends on your customers and your markets. In that area over there, we have all the cabinet-making equipment sheet-metal cutting, punching, bending, and assembly, Phil continued, pointing at a confusing area of machines, boxes, and people. This is where we make the metal parts for the cabinets. And, yeah, he added, giving Dad a sidewise glance, this is the inventory.

We walked by a large room lined with racks of wire-mesh crates filled with all sorts of metal plates. We know about this, he went on. We call it the wall, but we havent found a way to reduce it without penalizing production. Dad said nothing, just shook his head. Now, over there, Phil continued, is our big innovation. We have three parallel lines specialized by products. The first line assembles the STR mechanism, incorporating the capsule.

The second, deals with both variants of QST, and the third is a DG line, but it doesnt run full time. Two shifts or one? We work from 8 a. And, of course, a short midmorning and midday break. Were looking into moving to two shifts, but we dont have enough people as it is, and it would be a serious investment to hire some more qualified operators. But would you have the business to sustain two shifts? Matt claims so, Phil answered dubiously.

We currently have quite a backlog, so I guess we could. On STR I think we could. But given our current cash situation, its not even in the cards. We just couldnt pay a second working shift. On each production line, operators were working bent over their tables, assembling a variety of rigs, which, I guessed, somehow would transform themselves into completed products in the end. At the end of the lines, we send the assembled mechanism and capsule over to that electrical testing area over there, showed Phil, pointing toward a partitioned cubicle with a number of racks filled with mechanisms waiting in front of it.

Testing is actually quite sophisticated, and we use high voltages in there, so it has to be kept clear of the rest for security purposes. It needs special equipment that we couldnt include in the lines. Dad turned away and exclaimed, What the heck is this monster?

Im sorry? This conveyor. Just look at that! A row of cabinets was hanging by hooks from a massive superstructure, fixed to the ceiling, like carcasses in a butcher shop. Operators worked at different assembly stations, fitting mechanisms into the cabinets, and then pushing the cabinets to the next station to add cabling or the circuit board or the instrument panel, while a number of cabinets waited patiently between the stations.

Ah, thats where the major components are assembled into the cabinet to make the finished circuit breaker, as you can see. The cabinets are supported from the ceiling by the conveyor to allow the operators to walk all the way around the cabinet as they work.

The wiring in particular is a bit of a pain and requires assembler access from many points, including the bottom. At the end, they fit the control panel, wire it up, and lock the breaker.

Doesnt it move? Well, not automatically, Phil continued. Its not a conveyer in the usual sense, just a way to keep the cabinets at working height and to allow access. It has no built-in pace. When the operator is finished, he pushes the cabinet ahead to the queue before the next station. And all of your products end up going down this same line?

Yes, Phil acknowledged, which is why we often get pile-ups upstream as the different fabrication operations feed the one line. But in any case, we are now finished with assembly. You can see where the fully stuffed cabinets are lowered to the ground and onto pallets, then picked up by forklifts and taken to the final testing area. When they pass the test, which may require more changing of parts, they are taken by forklift to the packing area for crating and then to shipping.

He guided us around the packing area and up a long aisle running the length of the plant, past endless floor-to-ceiling racks of boxes with components, until we finally reached the shipping dock.

A few men were stretch-wrapping the finished circuit breakers in their crates while, further off, other employees were unloading a truck on the dock, moving piles of cardboard boxes through what looked like an airplane crash site.

Yeah, I know, said Phil, rubbing a hand on his face. It still looks a mess, but it used to be much worse. Anyhow, thats about it.

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If you come back over here, he said, walking us back toward the door to the offices, we have an actual map of the plants layout. Okay, Mr. Woods, what do you think of it? Well, son, said my father looking at the plants hustle and bustle, I can see your inventory. But where is your factory? Ouch, said Philip, downcast. Look at it like this, Dad pressed. Youve got three big piles of inventory with a little manufacturing in between.

Youve got a heap of vacuum cores over there by your glass box, mountains of metal parts across the aisle, racks of assembled mechanisms right after testing, and I dont know how many of your cabinets queuing on the conveyor. What do you expect? This place is storing and moving around a lot of stuff, with very little useful action.

What makes you say that? I asked Dad. All I could see was a beehive of activity. It was just what I expected of a plant and, even though I had never set foot in a factory before, there didnt seemed to be much wrong with it. After I got used to the din, it was a far cry from the dark satanic mill Phil and my father had led me to expect.

Well, let me put it this way, started Dad, which was a sure sign Phil was in for a serious put down. I dont know much about your industry, so I try to look at your operations as if I was a potential customer. Eye of the customer, yeah, weve done that with the consultants, interrupted Phil, attracting the glint of Dads stare.

Consultants, hah. Well, here it is. Lets assume I dont understand anything about your process itself. Ill worry about two things: the quality of the product and the inefficiencies I see, because I know that somehow, all of your inefficiencies will be reflected in your price. Our qualitys not too bad, Phil ventured. Weve had only five customer complaints over the past month from about 1, units sold: five defects per 1, Five per 1,! Thats outrageously high! Never mind now, thats not what Im looking for at this stage.

I want to see how quality is built into your product. Phil looked at him, puzzled, reaching instinctively for his notebook. Well, look at your process. Im sure that mistakes and defects must happen here and there. But I havent seen any.

Which means that there is no system to identify nonconforming parts. In other words, whenever a defective part appears, I have no guarantee that it will not find its way back into the product somehow.

But our people are trained to spot and isolate defects! Hey, you asked me, son. And if I were a potential customer, Id be worried. You guys can tell me whatever you want, but I dont see any system in place making sure that defects are systematically identified at each step of the process, and separated from good parts. Nor am I sure that anyone is asking why these defects show up when they do. That tells me you dont control your quality. But what about our testing? Youve seen our testing procedures, and theyre very rigorous!

Dad seemed to weigh Phil for a moment and replied, All well and good, but testing doesnt tell me how quality is built into the product, or, more to the point, how nonquality is built into the product. See, any defect that turns up on one of your products has in fact been put there. It is the result of work, albeit bad work. You need to understand this. Do you track how many defective parts are found at each testing phase?

I dont know, Phil mumbled, but Im sure that Dave would. Let me go and find out. Forget it. I told you I dont want to talk to anybody, Dad said crossly. Anyhow, thats not the point. The point is that I am troubled about quality in your production process. Five defects per 1, in the customers products are terribly high in my book.

Thats about how often airlines lose your luggage. You happy with that? What about inefficiency? I asked, to get Phil off the hook. Well, look at it this way. Anything that does not directly add value to the product is inefficient, correct?