Isen workshop: adventures in batch production (or not...)

Interesting anecdote from Dave Kirk about batch production, in response to a question from Gary Smith of Indy Fab:

Hey GS,

You have asked the $64,000 question my friend and I have a very long answer that might be best done over a beer, lunch and dinner – but – I’ll give you my Cliff’s notes version for now and if you ever want to talk more just let me know.

Cash flow and profit are obviously the things we are shooting for here and one without the other is worthless in the long run. The question is how does one get both of those things to happen at the same time.

I would call your shop a medium sized shop and IMO this is by far the toughest place to be. Not small enough to be small or big enough to be big and caught in no-man’s land. One thing I’ve seen over and over is that medium sized shops think that by getting the production numbers up, and building in batches, it will make you more profitable. It will not – period – full stop. It just won’t. Most shops don’t believe this and struggle perpetually to sell a few more bikes and to then build those bikes in batches that will save money and they all, if lucky, just make ends meet. Most will never break out of the cycle and really turn a solid profit.

If I may be so presumptuous I’d guess you are building about 10 frames a day and to follow sales some are steel, some are Ti, some are carbon and all are different sizes. If you try to organize them as they pass through the shop with the hope that you will save some money by making two 56 cm steel bikes on the same day you are wasting your time and lots of money. I don’t know where you stand on this and if it hits home at all but if you lean this way it’s best to give up on the idea entirely. It will not save money and in the end will cost you plenty.

It should go without saying but just in case it doesn’t – all the tooling needs to be silly flexible and have short set up times. If you have a chainstay bridge mitering fixture that takes so long to set up and you have the urge to cut a months worth at a time to ‘save’ money you are burning money in a huge way. Take the time to invest in the tools that will allow for very quick set ups. That said…………..

The medium sized shop needs to concentrate on throughput time. Actual hands on hours are important but throughput time is more so. Lets say it takes 10 man/hours to make one of your bikes but you have that bike in WIP (WIP = Work in Progress) over a two-week period. In other words it takes 10 days to do the 10 hours of work – this is common BTW. So you are doing on average 1 hour a work a day for ten days. Doesn’t sound too bad until you realize how many man-hours you have ‘on the shelf’ or in stock if you will. On the 9th day you have 9 hours of labor and the entire pile or raw materials that you are in effect floating and financing. The medium sized business cannot make a profit and have good cash flow doing this.

IMO what needs to be done is to change the way you look at your production. In most shops the sales dept shoves work into production and hopes it comes out the far end ASAP. The shop deals with this by holding onto some orders so that they have a few of the same size to build at a time to ‘save money’ and be more ‘efficient’. This is the classic way to do it and it feels right. But for a medium sized shop it is slow death. Instead the shop needs to concentrate on getting as many bikes into the UPS truck as possible everyday. Nothing else should matter. One needs to look at the end of production because that is where the money is. We don’t get paid for starting things; only for finishing them so concentrate on finishing them. This means you should not start a bike that will stall because the shipping dept is understaffed or at capacity. If the end of the line needs help and can’t keep up there is zero reason to start more bikes at the front of the line so the guy who normally miters the tubes needs to go over into the shipping and crumple newspaper and get the things into boxes and out the door. It might sound crazy to pay a welder $20/hr to stuff boxes but it is cheaper than putting his welding labor and raw material on a hook for ten days while the rest of the shop tries to catch up. Keep careful track of how many bikes go into the truck every day and let the rest serve that.

If you concentrate on getting bikes out the door and not how many you get into WIP then you will find that batching work makes no sense. The welder should finish welding the bike and then NOT hang it on a hook and wait until the rack is full so he can then be ‘efficient’ and roll that entire rack to the guy doing the braze-ons. He should instead finish his task and walk it across the room and put it in the hands of the next guy and so on and so forth. In a perfect world the bike would never hang on a hook. Never. It should always be being worked on. This is near impossible but it is what needs to be aimed for. If you do this you will find that people stay fresher and make fewer ($) mistakes, your inventory costs will plummet, you will put bikes through the shop faster and get paid for them sooner and you will have a marketing advantage as you can brag about your fast delivery.

I will leave you with a short story of what happened at Serotta. Ben bought the company back and I came back to work there (things were so bad I took a leave of absence) and we had the goal of completely changing production. At the time it took about 10 hours to build a given bike and we were doing about 12 bikes a day and it took a whopping 15 work days to get a bike through the shop and into the truck. There were racks everywhere full of ½-completed bikes. We worked on average only about 40 minutes a day on any given bike and there were well over 200 bikes in WIP. Think about the carrying cost of that. Staggering. We then concentrated on not getting bikes started but getting them finished. For a few weeks no new orders hit the floor and we just took the bikes that were closest to be done and worked on those and got them in the truck and then worked out way back. This meant highly paid welders and machinists stuffed boxes. Once we started to get the shop flushed out of all the WIP I went around and removed the storage racks from around the shop. I eventually started cutting pegs off the remaining racks and the rule was that if you set a bike on the floor it was your last day working there. So that meant that each guy finished his task and had to bring it to the next guy as there was no where to put it otherwise and on down the line it went.

The results were fantastic. We reduced the throughput time from 15 days to 3 ½ while reducing the WIP from 250ish to 45 bikes, we got the bikes out the door so damn fast that we could promise 2 week delivery on anything worldwide, we reduced our inventory and labor-carrying cost by 60% and we had a one time cash infusion of $250,000 from getting all that shit out the door. The fact that all that WIP was gone meant we had a huge amount of free floor space and we had cash so we bought more machines that we could set up for a dedicated purpose to save set up time/cost. It was a revelation. We had cash flow and profit at the same time for the first time ever. People took real pride in their work even if it meant the machinist was sweeping the floor and so much money came in that it made financial sense for the welder to wad up packing material if need be. It saved the company from certain demise.

There are 1000 steps I’ve skipped in the middle but you get the idea. If I have completely missed the mark and you are not in this situation I apologize for wasting your time. If that’s the case then maybe someone at Waterford will read this and take note and stop the swirl they are no doubt going through.

FWIW Ben and I did not invent this idea but it’s the work of a guy named Goldratt who wrote a book called “The Goal”. We used it like a bible. We bought a stack of them and each employee was required to read it. If you didn’t read and understand it you were shown the door. I’ve bought many copies of the book and given to many builders and some have made real changes that have helped them in a big way. Some view it like Amway or some shit and are too cool to read it. It’s their money to waste and they are the ones that suffer. I use the principles even in my one-man shop everyday. Buy a dozen copies and give them to the entire staff and then implement the ideas with brutal force and you will have money in your pockets.

I hope that is the direction you wanted to go with this and that I didn’t bore you. Let me know if you need anything else.

Dave