July 28, 2011 -- According to the US Department of Labor, productivity in the nonfarm business sector in the United States is currently growing at the fastest rate (2.8% 2007-2010) since World War II (see figure, Source: United States Department of Labor)

How can we become more productive? Provide more of our goods or services for the same or less cost? The typical answer is automation. However, automation -- whether a new shop floor control system or enterprise resource planning (ERP) system integration in the back office -- is not the panacea today's businesses need to cure lack of competitive products or services.

Especially in technology companies, decision makers can be drawn to the next whiz-bang automation improvement opportunity. But increased productivity is not a guaranteed result.

So how can we systematically improve productivity? What does automation automate? In processes. If we can fundamentally optimize our processes -- with or without automation -- we can systematically improve productivity.

Methodologies abound for improving processes:

• Lean, popularized from the Toyota Production System (TPS);
  
• Six Sigma of Motorola and GE fame; 
• Business Process Management (BPM); etc.

Most of these systems utilize similar pillars to drive process improvement: document the current state; define customer requirements; create a standard; document the desired future state; implement change (and measure results) to drive the process from the current state to a desired future. If these steps are performed to improve the processes we try to automate, desired productivity gains are possible without investing in new automation.

Document the current process

One of the primary challenges with automating our processes is understanding exactly what needs to be automated. Many times, automation solutions are selected without full knowledge of the process requirements and customer desires. Sub-optimal solutions are then implemented to "make the automation system work." Automating non-value-add activities that manufacturers don't care about does not improve productivity.

In a recent electronics client engagement, we encountered an "automated" inventory management system that had grown bloated over years of new product additions, creating many exceptions for each new design. We spent multiple weeks "at the Gemba" (Japanese for "where the work gets done") documenting the actual steps personnel were required to complete. There were many exceptions to the original standard, and the folks doing the work had created numerous fixes and work-arounds to enable the "automated system" to function correctly. Unfortunately, it created thousands of dollars annually in lost material, and material variance costs. It was highly automated -- but not productive. The process issues were resolved to gain the company $950,000 of annual reductions in inventory costs.

Set the standard; improve the standard

Planning for future needs is often difficult when implementing automation. System requirements continually evolved in the above example due to the firm's expansion of multiple product lines over time. Optimization activities that set a standard and then systematically approach improving the standard over time can be much more fruitful, with or without the capital expense of an automated system.

Over a 5-year engagement with another client, we worked with a 500-employee team to develop and implement a phased plan to systematically improve operations by constantly defining, improving, and redesigning standards across workspace designs, personnel training, production equipment operation and maintenance -- and the corresponding business processes for each function. These activities yielded $26.5 million in labor savings and a $21.1 million reduction in inventory costs by the end of the project.

Continuous improvement indefinitely

The last drawback with automating processes I'd like to discuss in this blog is the presumed finality of automated solutions. We've seen time and again where companies have invested in an automated solution to some problem, and over time conditions changed that eroded the productivity improvements initially provided by the automation system(s), as described in the first client engagement above. It cannot be overemphasized that business conditions will change, and that a culture of sustained continuous improvement of processes is necessary to achieve true, not fleeting, productivity improvements.

Greg Harr is a manufacturing integration engineer with CH2M HILL with more than 15 years of experience providing consulting services for diverse manufacturing industries internationally.  His most recent projects include Lean analysis and optimization of assembly operations and labor utilization for two photovoltaic manufacturing firms in the U.S., and supply chain development and analysis for a semiconductor manufacturer in the Middle East.  He specializes in business process improvement, production and material handling systems, cost reduction and productivity.  He has developed world-class sustaining solutions and manufacturing efficiencies for retrofit and greenfield projects yielding millions of dollars in capital expense and cost of operations savings.  Contact Greg at Greg.Harr@ch2m.com.

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