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MARKETING MATTERSCEO JOURNAL


First, Control I


DAN MARCUS, TDC CONSULTING INC., AMHERST, WISCONSIN


’ve been preoccupied lately with a too little appreciated maxim of the quality control profession: systems


must be in control before sustainable improvement is possible. Of the many important applications of this nugget of wisdom, I have recently been thinking about and working on two of them. Metalcasters generally have done a


quite good job driving out scrap by con- trolling and then minimizing manufac- turing process variation. As I see it, this has been achieved through a combina- tion of process automation, improving quality systems, and better manufac- turing work instructions. However, as these gains have been made, the relative importance of mistakes–of human er- ror–has increased. In other words, as one aspect of the manufacturing system has come under control, an invaluable op- portunity for sustainable improvement in another aspect has presented itself to the astute CEO. From the quality department’s per-


spective, this newer opportunity means adopting the tools and techniques of mistake-proofing which, in the lean vernacular, is referred to as poka-yoke. Mistake proofing is a powerful, yet frequently overlooked tool which focuses on detecting and correcting upstream conditions that could cause downstream mistakes. In particular, poka-yoke most often is associated with elements of product and process design which prevent incorrect worker behaviors (i.e., mistakes). My favorite examples of poka-yoke in metalcast- ing are production design features, in molds, cores or both, which make it impossible to set cores incorrectly. Beyond the quality department, eliminating mistakes also has key implications for production supervision, supervisor development and worker training. Specifically, when it comes to eliminating mistakes, supervisor selec- tion is of critical importance; they must be quality- and process-minded above all else. Moreover, how we define the supervisor’s job is equally important, as is the way we train and support them. Finally, having deeply and consistently


trained production workers is the neces- sary complement to and extension of the investment many have already made in manufacturing work instructions. It’s not enough to have good work instructions; they must be unfailingly followed by a properly trained and disciplined work force if mistakes are to be prevented and scrap is to be further reduced. In contrast to our industry’s success


at manufacturing process control, we still have a very long way to go in con- trolling the business side of the metal- casting business. Tis is especially true for capital investing and the profit and loss (P&L) statement’s supremely im-


Profitability can only be maximized in an environment of limited capacity.


portant bottom line. Here, too, astute CEOs will recognize an enormous opportunity—perhaps the biggest one of all—that sustainable and even dramatic improvement in bottom-line performance is predicated on control of the P&L and capital spending. On the investment side, metalcast-


ers have long espoused the belief that aggressive capital improvement and, all too often, capacity expansion, is key to business success. Tis is patently untrue and abundantly refuted by the continuing ability of metalcasters that operate old equipment to earn double-digit pretax profits and the many shuttered technology showplaces which fell into bankruptcy in spite of (often because of) their investment in state-of-the-art equipment. For our industry to rein in its passion


for capital spending, CEOs need to adopt a new principle by which investing can be controlled. I suggest the follow- ing: profitability can only be maximized in an environment of limited capacity.


Short of embracing such a profit-ori- ented investment approach, sustainable bottom line improvement will remain endlessly elusive, and genuine P&L control will remain out of reach. Above all else, improving the bot-


tom line requires control of the P&L itself, and that begins when CEOs choose the revenue stream’s size and composition. As to size, the new ap- proach to capital spending will provide the necessary guidance—limit invest- ment, limit capacity and, thereby, limit sales so that attention and resources can be shifted away from endlessly unsat- isfying revenue growth to immediately impactful profit margin enhancement. Shaping the revenue stream’s composi- tion means applying the principles of compatibility to choose which products to market and how to price them. Controlling the P&L also means


installing a robust performance man- agement system and getting manage- ment’s head on straight when it comes to the primacy of fixed cost absorp- tion. Regarding the latter, absorption is obviously important but, insofar as P&L control and profit improve- ment are concerned, is a gigantic red herring. Instead, a singular focus on controlling the mainly variable cost of goods sold is the expense-side key to sustainable profit improvement. A contemporary performance manage- ment system, in combination with a commitment to compatibility, will first enable legitimate cost control and then allow CEOs to drive the cost of goods sold lower so that real bottom-line improvement can take place. Like other systems, a metalcasting


business’s profit performance must be controlled before sustainable improve- ment is possible. CEOs interested in achieving sustainable double-digit profitability would be well advised to invest less in capital and capacity and more, much more, in the control made possible by compatibility and robust performance management.


Keep the conversation going. Reach the author at tdcmetal@wi-net.com to comment on this or any CEO Journal column or to suggest future topics.


December 2012 MODERN CASTING | 45


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