Home > NewsRelease > Art Koch's Profit Chain™ Series - Product Life Cycle | Manufacturing | Supply Chain | Volume 2 | Number 4 | April 2019
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Art Koch's Profit Chain™ Series - Product Life Cycle | Manufacturing | Supply Chain | Volume 2 | Number 4 | April 2019
From:
Arthur Koch Arthur Koch
Miami , FL
Sunday, April 28, 2019

 
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Art Koch's Profit ChainTM Series

Product Life Cycle | Manufacturing | Supply Chain
Volume 2 | Number 4 | April 2019
I organize plant tours for a client's leadership team.  The purpose of the tour is to help the team recognize different areas of operation and supply chain management and how those areas affect the operating agenda and financials."

On a recent tour we visited two well-run facilities, which we will call "Susan's" and "John's". Both facilities assemble nearly identical products. Both have been on their respective improvement journeys about the same amount of time and each has demonstrated respectable bottom line improvements."

After the tour we noticed that Susan's facility was consistently out-performing John's but no one could say why that was so. The standard answers were labor cost, material cost, volume, etc. Remember, both products are nearly mirror images of each other.

What did Susan know that John didn't? She knew that products whose volumes or options are sufficiently different should be built in different cells even if the products are within the same family, and these cells or value streams would need different; type of machinery, labor and leadership skills, and KPI targets.

This is related to understanding the interrelation of the Product Life Cycle, types of manufacturing processes, and order: winning, losing and qualifying attributes.

Let's start with Product Life Cycle. All of us are familiar with this concept and even have been tested on it but a quick review won't hurt.

Product Life Cycle consist for four phases
  1. Introduction - low production, high product alternatives, higher pricing, narrow distribution and often personalized to the consumer 
  2. Growth - increasing production and market popularity, product alternatives tend to decrease (seller knows what the customer wants), pricing decrease, distribution increases and promotion is less personalized focusing on benefits
  3. Maturity - Market popularity and production is at it highest, low product alternatives, price drops lower, distribution is robust and intense, and promotion focuses on differences from competition.
  4. Decline - production and market popularity decreases as product is at end of life, product alternatives tend to increase, price tends to increase, distribution contracts and promotion focuses on reminding customers of the item.                                           
simple or complex keep it easy or simplify solve difficult problems with simplicity or complex solution no difficulty 3D_ illustration
Next is a review of the different types of manufacturing processes.

Job Shop - Usually don't have production lines, they have production cells. Very low volume with high product alternatives or versions. High labor content with specialized labor, highly flexible machinery, cost per unit high.

As demand increases, the a new operational area will be needed or the current area transformed into a discrete cell and selected labor operations are replaced by automated equipment.

Discrete - Still high degree of manufacturing flexibility. You tend to see more automation, especially in change over time. Volume increases, labor content and specialization decreases, machinery less flexible and cost per unit decreased.

Repetitive - dedicated production line or cell for one item or a very similar family, typically stays step up of this product for long periods.  24/7 or annually.  High volumes with low product alternatives.  Low labor content with little specialization (except of certain highly skilled technicians) and cost per unit low.

I won't spend too much time on the remaining two manufacturing processes as they are somewhat specialized to chemical and pharmaceutical industries.

 

Batch - Typically requires significant cleaning and or sterilization between batches.  Otherwise very similar to job shops and discrete processes. High labor content with specialized labor, highly flexible machinery, cost per unit high.

Continuous - The main difference between repetitive and continuous manufacturing processes are the types of materials used and produced: chemicals, liquids, fine powders and gases. The operations are very similar to repetitive and usually run 24/7. Low labor content with little specialization (except of certain highly skilled technicians) and cost per unit low.

  

As we saw in the previous example of the two manufacturing facilities, Susan clearly recognized the need to create a separate cell to differentiate product.  She created a custom line or a "factory within a factory" that functions as pilot and job shop area.

By doing so she is now able to reduce cost through:
  • Eliminations of costly interruptions. Removing a low volume product from high volume lines.  Sometimes a product might only be manufactured once every 12-24 months. When it's built again, it's almost like a pilot or new build, and must be treated as such.
  • Was able to assign team members to cells/values streams that best matched their skill sets.
  • Differentiate how each area performance should be measured.  For example the low volume, high mix area would have a higher labor and scrap content and should have attractive margins.



While this seems clear and logical, I often see just the opposite.  Most factories are not adept at low-volume product intermixed into high-volume productions areas. Toyota is a notable exception to this due to their many years of refining their processes.  For most manufacturers who do not have the benefit of Toyota's skill in this area I strongly recommend creating a separate cell or value stream, leveraging the total cost saving.  My recommendation is only combine the product lines when and where it absolutely makes sense and there is no impact to cost.

Your goal is to maximize profits.  This a nice real-world example of how the value chain can be turned into a Profit Chain™.


Inventory Is Evil™!
 
in·?ven·?to·?ry / 'in-v?n-?t?r-e / noun
Inventory is the term for the goods available for sale and raw materials used to produce goods available for sale.


in·?ven·?to·?ry is evil! / 'in-v?n-?t?r-e  is  'e-v?l  / phrase
Left unchecked inventory has many negative unintended consequences to profitability.

It hides problems; therefore, it delays fixing problems!  


 
 
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Thanks in advance for your time. As always, thanks for being a loyal client. Looking forward to helping you and your team again soon.

Carpe diem,

Art Koch

Arthur Koch Management Consulting, LLC

info@arthurkochmgt.com

+1 (336) 260-9441

 
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Arthur Koch
Miami, FL
336-260-9441