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Stanley
Bentley,
President of dsi |
Volume 2, Number 2, April 2002
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Most people in our industry celebrated
the end of 2001 because it was “the end of 2001!” While dsi
did not post stellar numbers, the fact that we were profitable (without the
help of Arthur Anderson, creative accounting, or off-shore affiliates) is somewhat
unique. We can all explain away Q4 of 2001, but what about Q1, Q2, and Q3? We
need to look at how we operated during those times to better understand why
we were affected by September 11.
Virtually every dsi
customer pushed out orders during Q4, and we, in turn, did the same thing. For
our Printed Circuit Board division, this was a fairly smooth process. For our
Assembly division, this was a much more difficult task. The reasons are simple.
PCBs are a process, and while different boards use different processes, the
raw materials for a given process are common to all boards. Therefore, the task
of rescheduling material is predictable because you are dealing with bulk material
and only a few part numbers. With assembly, the number of parts in play is large,
and many parts are unique to a given customer.
dsi has over 30,000 active part numbers in our system; over 15,000 of these actually reside in our stockroom. If all customers reschedule in the same time period (like Q4), then it is reasonable to assume that most of these 30,000 part numbers will require some attention. I can very confidently say, “systems saved our butts!” Many Manufacturing Requirements Planning (MRP) systems were designed to satisfy accounting purposes and tend to view manufacturing as a necessary evil.
The extremely high-mix nature of our assembly operation (we built over 2,500 different part numbers in 2001) requires that systems, reports, and procedures be created in addition to the deliverables necessary to generate an income statement. Properly designed, the same systems that manage growth can also smooth out a decline. Always remember, the market will tolerate and forgive mistakes during growth, but it is brutal to miscues during a decline. I contend that if you examine the growth mistakes of Q1, Q2, and Q3, you will find the root cause to the problems of Q4.
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One of the advantages of a little
gray hair is that people will sometimes solicit your advice (they might even
pay you). Consider the case of an assembler who was losing money. The assembler
felt there was not enough business to cover cost and began taking additional
low margin orders to improve “absorption of overhead.” It took very
little analysis to determine that the problem was the opposite of this assumption.
The assembler did not need more business because, in fact, business was too
good. This company quoted using a “cost per placement” obtained from
some industry publication.
Because the company was a job shop,
not a volume assembler, the assembler failed to understand that survival depended
upon converting to an activity based cost, not an average. If you lose a little
on everything you do, more volume hastens the funeral. A simple example shows
the problem:
Assume a line costs $1 million and
is used for a single product. The product has ten placements and all material
is supplied by the customer. The line runs one shift with three people per shift:
a loader, unloader, and supervisor, and can produce 1 million parts per year.
The customer changes the design to only one placement, which he still supplies.
Does the new design cost ten percent of the old design? Of course not; they
actually cost the same—the same capital, same people, and same volume.
Remember, Average = Auction.
I have long contended that dsi is an early warning indicator. In a company meeting early this year, I told our employees that we believed the bottom had been reached in December and a recovery had begun. We could not predict the shape or slope of the recovery but we did anticipate that it would not be steep. For that reason, we continue investing in new technologies even though the customer demand is still anemic. Why? Simple—no guts, no glory! It takes over a year to train newly-hired CAM operators and at least six months to properly stabilize and characterize a newly purchased process line. If you want to take advantage of a recovery, start before it is in full swing. To quote our new national slogan, “Let's Roll!”
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