Category Archives: Manufacturing & Operations

How Can You Accelerate Offshore Learning Curves? Four Thoughts

Situation: A company has an offshore operation with 10 engineers and a good General Manager. They will hire five more engineers in the next month. Their target billing rate is projected to be profitable when they reach 15 engineers. Their challenge is that they need to bear the investment loss to have an offshore capability, but are not sure that they’ll see a pay-off. How can you accelerate the offshore learning curve?

Advice from the CEOs:

  • Given the current situation, give yourself a window of 60 to 90 days. Create a go/no go decision point and let the General Manager know this. It will provide motivation for the off-shore operation to come up to speed faster.
  • Another company projected a 2 year break-even based on others’ experience in the geographic location.
    • They are nearing the 2-year point with the office up and running, on target with schedule, under a General Manager with proven experience.
    • They see payback on their initial investment at the 2.5 to 3 year point, and thereafter duplicating their payback every 6-12 months or better.
  • It is important not to undercharge for off-shore work.
    • One company charges $125 for work done in India that they would have charged at $180 if done in the US – a 29% discount. This is for high billing rates, with spreads even better for lower billing rate work.
    • If a client pushes for offshore rates, bargain for a lower initial discount for off-shore work compared with US-based work, but combine this with an offer to generously share additional discounts as the offshore location improves productivity.
  • Bottom Line: Stay the course. Long-term this investment will pay off.

[like]

How Do You Motivate Hourly Employees? Five Suggestions

Situation: A company pays employees based on skill level. Raises are given as an employee learns additional skills. In some cases, when they give an employee a raise, productivity drops. The company has tried other approaches including bonus systems and profit sharing but did not find these effective. How do you effectively motivate hourly employees?

Advice from the CEOs:

  • Before trying a new motivation scheme, find out what matters to your employees. It may not be either bonuses or profit sharing.
    • Develop and send out a questionnaire listing different factors – revenue sharing, bonuses, creativity, doing quality work – ask what matters to you? Get their feedback.
    • People work for respect – many studies have shown that as long as the payment offered is fair, salary is secondary.
  • Hire an advocate for your employees – a part-time HR person. An important role for this individual will be to determine what motivates employees, what they want from their jobs, and how improvements in both processes and the working environment can boost productivity.
  • What is the real issue: employee motivation, employee productivity or cost reduction?
    • If material waste is more expensive that labor – create metrics and rewards to reduce waste.
      • At companies that use the Toyota Production System employees receive points for process improvements. At the end of the year they receive a cash payout based on the points earned during the year.
      • Employees are rewarded publicly. The incentives are cash, recognition and respect. These companies find that recognition and respect trumps cash.
    • Depending upon your cost structure, it may be more productive to focus on scrap reduction. Bring in someone with experience who can find the sources of scrap. The effort will pay for itself rapidly.
  • During the hiring process, require educational attainment as evidence of the individual’s commitment.
    • Look for skills experience – machinist, etc. Match skills and experience to your needs. This will lead to faster learning curves and will help to reduce waste.

[like]

How Do Get a Shanghai Office Up to Speed? Six Suggestions

Situation: A company recently set up an operation in Shanghai. An immediate shock has been that that the Chinese engineers have not been able to solve problems creatively. To date their solutions are limited to following an outline provided by the home office. How does the company address this? How do you get a Shanghai office up to speed?

Advice from the CEOs:

  • Current Chinese culture is to do what you’re told, and not to vary from the direction given by those to whom you report. However, these are smart people. Given time and training they will get through this. Can you be patient enough to allow this to occur?
  • The most important role in your Shanghai location is a trusted, competent Chinese General Manager. This individual can get you where you want to be the fastest. It is also the hardest position to fill in China.
  • One option is to investigate connections through the SCEA – Silicon Valley Chinese Engineers Association. Many SCEA members are Chinese who have been educated in the US but want to return to China. You may find good candidates here.
    • The best candidates have bi-cultural exposure – they understand Chinese culture, but also understand US standards, expectations and operations.
    • Be sure to check US references of any candidates who are currently in the US.
  • Early operations and adaptations are the most difficult. Talk to people in Shanghai who have solved this problem.
  • Develop a separate project selection / development methodology for projects you want to transfer to China. This will change as the Chinese employees begin to approach US standards.
  • As you hire new Chinese employees, look for individuals who play and write music. They are naturally more creative. Microsoft has used this approach successfully in China.

[like]

How Do You Handle Demands for Faster Delivery? Four Options

Situation: A company’s clients are demanding increasingly faster response times, particularly in areas that historically have not been considered mission critical. Clients also want faster answers to technical questions. Is this a common occurrence, and would you adjust pricing in response? How do you handle demands for faster delivery?

Advice from the CEOs:

  • If clients are demanding faster delivery, it’s entirely reasonable to tier your rates for different levels of service and delivery. Create cost / ROI breakdowns for different options, and let your clients make a business decision about the level of responsiveness that they need.
  • When brining on new clients, do a worst case down time analysis for the prospect as part of your evaluation process, then provide price options and let the prospect evaluate what is important to them. This is similar to different price / deductible levels with health or car insurance.
  • You will need to educate your current client base on what you are doing for them, and when they are reaching the upper levels of service provision under their current contract.
    • When you provide remote service, communicate what you have done.
      • Email individualized update reports to client contacts.
      • When you meet clients face to face, have a printout of service provided and toot your own horn about your service and delivery.
  • Be aware of the needs of clients who have distributed locations across time zones. A two-hour response time on the West Coast at 8:00 in the morning, translates to a half day for an East Coast location because they can’t call you until 11:00am Eastern time.

[like]

Do Balanced Scorecards Aid Decision-Making? Three Factors

Situation: A company is investigating Balanced Scorecards as a management tool.  They want to get the perspective of others who have used Balanced Scorecards on how these are used and where they are effective and ineffective. Do Balanced Scorecards aid decision-making?

Advice from the CEOs:

  • To make good decisions in times of uncertainty one needs readily available up-to-date information on the key drivers of the business. Balanced Scorecards answer four important questions:
    • How does the customer view us? (Customer metrics)
    • At what must we excel? (Key Performance Indicators and Internal Business Processes)
    • How do we continue to improve and create value? (Learning/Growth & HR metrics)
    • How do we look to our investors? (Financial metrics)
  • To effectively use Balanced Scorecards employees must be empowered to make necessary changes, and there must be an effective system for prioritizing efforts – so that when a company has multiple opportunities they can decide what to do first, second, and so on.
  • Empowering people to make a necessary change
    • To improve project estimating systems, identify those who are best at estimating project timelines and costs. Have them develop a template of their process, focusing on how they complete projects on schedule. Implement this template across your estimating function.
    • To improve project on-time completion, shift the development focus to calendar and, if necessary, narrow specs to hit the deadlines.
    • To focus scope of work issues, decide test procedures up-front then work on deliverables that will determine whether requirements have been met. From this, develop project assumptions and budgets. Create a template that focuses on internal best practices and clones these for other projects.
  • Queuing Systems & Priorities
    • Define the vision of success. Then drill down to what’s most important. Look at impact of different options on the organization and performance. Finally, force this issue – if we can only do three projects what will they be?

[like]

How Can You Best Reduce Costs? Six Points

Situation: A company wants to reduce their cost of engineering. They are considering outsource options, both domestic and overseas, as well as remote offices in lower cost regions domestically. How can you best reduce costs?

Advice from the CEOs:

  • An emphasis on cost may be misplaced. Consider instead of where you can offer the best value to your customers or clients. Focus on and compete in best part of your market – the place where you possess the strongest advantage; then worry about cost.
  • Outsource companies can be dangerous partners. Assume you only profit from the first job that you give them and that they may be your competitor the next time around.
  • We’ve learned from the last decade of experience in Asia that cost advantages are often temporary. Salaries for top talent in India and China now approach those in the US. This experience is likely to be repeated in Southeast Asia.
  • Focus on high dollar services and opportunities.
    • There are limitations to offshore talent – especially in complex, multi-step development projects. Keep high dollar projects in-house because they justify higher prices and margins.
    • When you outsource, negotiate retainer contracts with additional charges for work above and beyond the scope specified in the retainer.
  • What do you want to be? Consider your options:
    • Become a project management company and outsource development.
    • Be a development company and just look for cost effective sources of labor.
    • Start your own outsource company – a split-off staffed by your own employees – and feed them work.
  • Before you invest substantial time or money, do a test.

[like]

Does It Still Make Sense to Off-Shore? Seven Suggestions

Situation: A company is investigating off-shoring to lower costs. Trends are confusing with some companies returning operations to local production and others continuing to offshore. In addition, options include partnering with an existing company with expertise, or developing off-shore resources themselves. Does it still make sense to off-shore?

Advice from the CEOs:

  • Instead of looking at broad trends, narrow your focus to what other companies in your industry or closely related industries are doing. You can get this from industry publications and trade associations, as well as from other companies with whom you have personal relationships. This will help to clarify trends that potentially impact you.
  • Consider whether there are complimentary objectives that will influence your decision. For example, do you want to expand your market presence abroad and would off-shoring operations help you accomplish this?
  • Look at other US locations – for example the Midwest. Midwestern moms working from home provide high quality customer service for Southwest Airlines. Part- or flex-timers may be less expensive than full-timers.
  • Make this move in steps. Consider breaking up your needs into distinct components and outsourcing each component from a different provider or vendor. This will help to preserve your “secret sauce” and corporate IP resources from those who might want to steal it if they saw the whole picture.
  • Good off-shore functions utilize as little management as possible. Distinct tasks are easier to off-shore than complex processes.
  • Look at scalability issues – based on your own past experience.
  • Tie the resources that you need to what is readily available in different geographies.

[like]

How Do You Work With a Protector? Three Thoughts

Situation: The CEO of a company has a Director of Operations who aspires to more professional responsibility, but who is also hesitant to take on more work. This conflict in the mind of the Director poses a challenge for the CEO. How should the CEO work with this individual?

Advice from the CEOs:

  • Key managers in certain roles, for example operations and finance, are naturally more conservative in their outlook. Often this is desirable for the role and is characterized as protector behavior in contrast with the ambitious entrepreneur’s builder behavior. These complimentary behaviors are essential to a successful enterprise – the builder to push the envelope and the protector to assure that the company’s resources aren’t stretched too thin.
  • Take the time to determine the source of hesitation by asking questions. Is it because the individual is meticulous and precise, or is there something else behind the hesitation? If the former, then a plan of action will enable the person to assess whether the next level of responsibility is in line with his or her expectations. If there is something else, work with the individual to define what this is and whether it is a barrier to additional responsibility or a temporary situation that can be alleviated.
  • Because this individual aspires to additional responsibility, be precise in explaining the demands of the next level position and the performance that you expect at this level. Develop a plan and objectives that will demonstrate whether the individual is ready to take on additional responsibility or not. For the meticulous, precise individual the plan will serve as confirmation of what is expected and will help him or her determine whether they are ready for more responsibility.

[like]

How Do You Manage Cash Flow and Growth? Five Thoughts

Situation: A company faces dual challenges – assuring that payments are collected for work done and developing a business model that facilitates growth. How do assure that payments are collected to support your cash flow needs and that employees are focused on growth?

Advice from the CEOs:

  • It may be that the two problems are closely related. Ask whether your compensation and incentive system is focused on cash flow and growth. If not, you need to change it.
    • Restructure your compensation and incentive systems to create a direct link between profitability and compensation. Augment this with training. For example, if your engineering team isn’t good at assuring that change order costs are paid by their clients, teach them how to write statements of work to anticipate change requests and to include charges in the SOW. Then tie the team’s compensation to how well team members follow though in assuring that work is properly accounted for, billed, and payment collected.
  • Create simple procedures that are innate and complementary to team members’ natural behavior. The best way to do this is to involve them in the writing of the procedures.
  • Give them easy tools that take the guesswork out of negotiating change orders with clients. For example, if a client asks for faster delivery, give them a formula that ties delivery to cost::
    • Standard Delivery = 8 weeks at Price X
    • 4 Week Delivery = Standard delivery price times Y
    • 2 Week Delivery = Standard delivery price times Z

This turns client demands into a simple economic question – what is expedited delivery worth to you?

  • Hire a contracts manager to track contracts and change orders with authority to assure that change order costs are being billed.
  • Create “learning” teams to develop solutions. Allow the teams to speak to each other and to learn each other’s best practices. Supplement this with regular tutorial sessions to bring the whole group up to speed on new technologies.

[like]

How Do You Respond to Demands for Process Upgrades? Five Suggestions

A company manufactures components for an important large customer. That customer now specifies that all components need to be manufactured under clean room conditions. The company can’t afford to lose this customer but is at a loss as to how they should respond. How do respond to demands for expensive process upgrades?

Advice from the CEOs:

  • Start with a discussion. Ask them exactly how clean production must be, and what their concerns are. You can also offer to perform destructive testing (at the customer’s expense) to demonstrate that your current processes meet their specs.
  • Look at the overall cost of the clean room conversion versus your anticipated profits on the job. Make sure that your profits justify the conversion.
  • Increase your prices to the customer based on the new requirement, and make sure that the increased price pays for your conversion at a minimum. If they ask why your prices have increased, explain that the process that they now demand is more expensive because of the costs of operating under clean room conditions.
  • If the customer is a very large player and is doing this because of demands placed on them by their customers or regulators you may have little bargaining room other than complying and adjusting your prices accordingly.
  • Consider a prefab clean room. Especially in high tech areas like Silicon Valley you may be able to find older rooms at a bargain rate. If you don’t have space in your current location or upgrades will be very expensive consider leasing new space for this job.

[like]