Transcript Innovation and Lean Manufacturing

R&D Innovation and
Australia’s
Manufacturing Future
Dr John Blakemore
Principal
Blakemore Consulting International
Sydney
[email protected]
www.blakemore.com.au
Australian
Manufacturing
Has a Problem
Problem
• Manufactured imports greater than
manufactured exports
• Net contraction in real terms, of the
production of value added goods
• Despite record terms of trade we trade
in deficit with CAD = approx 6%GDP
• Solution is Innovation of process and
product and increase in Business R&D
R&D $ & Productivity
GERD
Per cent of GDP
MFP Growth
Per cent of GDP
Per cent
Per cent
4.5
5
5
4.0
4.0
4
4
3.5
3.5
3
3
3.0
3.0
2
2
1
1
0
0
4.5
2.5
2.5
Australia
Japan
Sweden
02
20
20
20
19
19
19
19
19
19
19
19
Year
19
19
90-91 92-93 94-95 96-97 98-99 00-01 02-03
01
-2
00
-2
99
0.5
98
0.5
97
-1
96
-1
95
1.0
94
1.0
93
1.5
92
1.5
91
2.0
90
2.0
Year
United States
Source: OECD Main Science and Technology Indicators, 2005-1
Australia
Japan
Sweden
Source: OECD Productivity Database, 17 December 2004
GERD is defined as total expenditure by all sectors — business enterprise, government, private non-profit,
higher education — on R&D that is performed within the boundaries of the country
United States
Australia Exports & Employment
Excellent Correlation
CSIRO Exp vs Comparative Adv
Process Innovation versus
Product Development
• There is no point in adding a new
product to a bad system
• Process innovation and product
innovation must be integrated together
to achieve the flexibility needed
• Products need to be modular and
design and customer friendly
Where Do You Start?
The World is your Market
1. Processes must be world class
2. Concentrate effort in areas in which we have a
competitive advantage
3. Join the global supply chains
4. Integrate processes and systems, pull
by customer, then spread out both ways.
5. Recognize that it is all about QCD
6. Use internal digital data on shorter periods
7. Hook up digitally with customers & suppliers
8. Reduce or Eliminate forecasting as much as
possible
Parameters 1
• The resources boom and a weak US$ has led to an
elevation of the $A and squeezed manufactured
exports…Dutch/Spanish Disease in the future?
• Labour costs often blamed (incorrect?)
• Serious infrastructure constraints
• Servicing costs on foreign debt high
• Interest rates high by global standards and will go
up higher when Net Financial Debt seen as a
problem (60% GDP, CAD = 6% GDP)
• Italy highest on record in 1924 at 7.1% of GDP, then,
in 1925 what happened?
Parameters 2
• R&D and Innovation are the key drivers
of manufacturing growth and
sustainability
• Australia’s private R&D investment is
very low by world standards
• Australia concentrates its innovation
and R&D in the middle of the supply
chain. This effort is more valuable
closer to the customer.
Innovation and Performance
• We need to be flexible and fast like
Australia 2 in the America’s Cup in
1983 when we came from behind 3 to 1
and had to win the next 3 races in a row
Even though we lost the next 3 starts
we won the cup.
• The secret was the Ben Lexcen’s
innovation.
• We need a winged keel!!!
Manufacturing or Service?
•There is no such thing as a pure
manufacturing company
• All companies are service driven
•What is your position in the supply
chain?
Solutions
• Two plans needed
• 1. Short term objectives to immediately build
a planning system to release working capital
by reducing the planning cycle and making
to order ( Process and System Innovation)
• 2. Long term strategies to utilize all national
resources to link process and product
innovation systems and R&D and maximize
performance by reducing planning cycles
and maximizing value added in the whole of
the supply chain (Process, System Product
Dev).
Key Business Financial Ratios
To Aid Process & Product Innovation
•
•
•
•
•
•
•
•
•
•
•
EBITA
ROWC = Return on Working Capital (Dr=Cr)
Days Inventory
Value Added Percent of Sales and Product
WC as % Sales
Cash Flow (Current Ratio)
(Labour + oncosts) as % Sales $
Quality (Waste), Cost (COS), Delivery (OTD)
R&D as % Sales (Process vs Product)
Intangible Assets?
RONA (How do you value assets?)
Key Operational Ratios
•
•
•
•
•
•
•
•
On Time Deliveries % (CROTD, Actual)
Changes to plan
Planning lead Time
Lead Time ( Time to produce from RM)
Value Added Time (Run Time/ 168 )
Measures (Setup,Run,BD,PMT,Idle,CU),
Manned Time (% Available)
% Major Ops with adequate backup
personnel
Current Accounting Procedures
are Inadequate and Mislead
• Spread overheads over all processes. ( but
Admin Overheads?)
• Isolate what is in the overheads and allocate
them correctly to products and processes
• Use the appropriate line entries in the P&L to
focus on the cost of non value added
processes
• Do not be misled by the fact that inventory is
seen as an asset on the Balance Sheet… it is
a waste.
P&L and Improved Flow
Fcast
Actual
C Flow
Sales
S
100
100
100
Purch
P
50
50
50
Inv Start
InvSt
50
50
0
Inv Finish
InvFin
50
60
0
Gross Margin
G Profit
50
60
50
Dir Lab
DL
20
20
20
Indirect Expenses I Exp
18
18
15
Total Exp
Exp
38
38
35
Net Profit
NP
12
22
15
Cash Flow
CF
12
2
15
Productivity
Prod
50
60
50
Some Operational Measures can
be Misleading
• % up time may be high because run or batch
sizes are too large and this creates excess
inventory of some and out of stock for others
• Solution is to measure and reduce
continuously the Economic Production Run
(EPR) and reduce setups, idle time, cleanups,
colour changes, breakdowns,
• Preventative maintenance needs to be
optimised
Machine Measures Typical
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
No Machines
23
10
15
1
1
1
1
1
9
24
11
51
20
1
1
1
No Shifts per Wk
18
18
13
2.5
2.5
5
10
5
15
15
15
5
10
5
5
10
0
0
0
3.6
7.9
0.4
0.4
0.4
0.4
-
3.1
4.5
1
Ops
Setup %
Run Time %
(7d)*
33
26.6
18
-
-
-
-
-
-
45.3
40.9
-
-
-
-
-
38.5
31.1
21.4
21.2
58.3
72.4
-
55.7
96.5
63.4
57.3
59.3
49.2
50.7
82.2
7.2
67
73.4
82
-
-
-
-
-
31.1
52.1
56.5
-
-
-
-
-
61.5
68.9
78.6
52.7
24.5
15.6
-
42.1
23.4
32.9
39.1
39.3
50.8
32.6
6.2
25.2
Cleanup %
4.8
0.8
3.4
2.2
2.2
1
7.5
2.4
2.1
Idle % h
5.1
5
8
5.7
4.7
0.5
Run Time %
(5d)**
Down time
%(7d)*
Down time
%(5d)**
2.1
0
Prevent Maint %
R&D %
Rework %
5.6
1.3
0.1
0
7
2.2
0.3
0
My R&D and Innovation Grant
Observations
• 800 R&D Innovation Applications (6yrs)
• 50% received grants, 5% successful
• IP mostly exploited Overseas
•(e.g. Shi Zhengrong and Suntech)
• Tasmanian windfarm technology to China
• Small no. people rich
• Little National Benefit
• Favours Product over Process Innovation
• Commercial Ready needs Improvement!
Industry Statement May 2007
•
•
•
•
•
•
Recognizes the need to act now
3 Major initiatives
1. Productivity Centres
2. Global Opportunities Program
3. R&D concession improvements.
Claims Manufacturing has grown by 1.2% pa for the
last 10 years, (inflation?)
• Recognises that large overseas owned enterprises
are not contributing significantly to private R&D
• Initiatives for these to use Overseas Intellectual
Property in Australian R&D. Is this surprising?
Judging Commercial Ready
1.
2.
3.
4.
5.
Management Capability (P&L, Fin Ratios, Balance
Sheet, Organization)
Commercial Potential (Market, Export Potential,
Plan)
Technical Strength (Innovation, Proof of Concept,
Plan, Integration of R&D with functions,
milestones)
Need for Funding (Proof can fund 50% )
National Benefit (Australian employment potential,
export potential)
All 5 of equal weight, (6 points each), must score
min 17 to be supported
Reasons for Failure of R&D
Poor Understanding of the:
1. connection between Process & Product Innovation
2. use of correct resources (inc Partnerships, Pana/Leica)
3. ways to release working capital to max Technology
4. needs of the market (needs versus wants)
5. scientific method (observation and measurement)
6. need to articulate the concept and plan
7. way to raise funds to support the application
8. best way to use capital
9. measurement of risk
10. need to tap the wisdom of the worker
Innovation
Process versus Product
There is no point in adding a new
product to a bad system.
Honda, Canon, Kawai, Toyota,
Panasonic, all link Process and
Product Innovation
How do we Implement
Creative Manufacturing, the
immediate need and the Step
Beyond Lean
It is all about
People, Training,
Culture,
Leadership and Commitment
Kyosei
• Kyosei = Living and Working Together for the
common good
• Kaizen = Continuous Improvement
• Genchi genbutsu = place of understanding
• Obeya = big room
• Sensai = teacher
• Poka-yoke = mistake-proofing
• Jidoka = stop machines (Toyoda Loom)
• Miyamoto Musashi “The Book of Five Rings”
the Samurai warrior after Shogun liberation
Rule 1
Make to Order (MTO)
Demand = Production
•Pull by Customer
•Apply Continuous flow rules (26)
•Continuously reduce batch sizes by
reducing the Economic Production
Run (One piece Flow?)
•Plan by replacement short Lead t
•Reduce forecasting as much as
possible
Rule 2
Maximum Flexibility Machine and
Labour
• Match Manufacturing Capability with Demand
• Tirelessly improve flexibility by reducing EPR’s
• Continuously reduce lead time
• Focus on the financial parameters to prioritise
• Aim for continuous flow
•Maximise the use of Appropriate Technology (Six Sigma)
• A process can be treated like a machine (Adam Smith)
Rule 3
Innovate
•
Drive Product Innovation with
Process Innovation
Rule 4
Use Digital Data Effectively
•
Recognise that Digital Data can be
obtained at the POS and sent to any
point in the supply chain
Rule 5
Design for Flexibility
•
•
•
•
•
Reduce Complexity
Modularize
Introduce Complexity late in SC
Universal design (Toyota)
Backup suppliers (standardise)
Rule 6
Reduce Waste in All Forms
• Planning waste
• Expenses waste
• Resources waste
Some Values of Key Parameters
• Days Inventory = 8 Days (Canon
Panasonic) actual 38 Days but 30 Days
on Water
• Value add % = Never stop Improving
(Samurai Warrior, Toyota < 10%)
• Planning Cycle = 7 days to one day
• R&D as % Sales = > 5%
• Process Control at 6 Sigma
• On Time Deliveries (CRLT) = 100%
Australian Example 1
Profit in $300M T/O
(Ref Blakemore Consulting Reports )
EBITA for 6 Months Periods
25
20
Millions of Dollars
15
10
5
0
July Dec2001
Jan-June2002
Jul-Dec2002
Jan-June2002
-5
6 Months Period
Jul-Dec2003
Fcast
140
Australian Example 2
(2X Productivity
(Ref Blakemore Consulting Reports)
120
Output
100
80
60
40
Defectives
20
0
1
2
3
4
5
6
7
8
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37
Months
Conclusion
• Build a flexible system that can respond to changing
markets quickly and optimize the supply chain.
• Remove wasteful inventory by matching lead time
and cycle time and continuously increasing value
added time
• Use the capital released from wasteful inventory to
innovate flexible systems and processes that can
respond faster to new products.
• Continuously innovate new products and processes
• Use a consistent strategy based on the systems of
Honda, Toyota and Canon
• Use all resources and be aware of the tools and
knowledge available and foster partnerships with the
best.
Innovation, R&D and
Australia’s Manufacturing
Future
We need to be Creative,
Innovative, Fast & Flexible
(Like Australia 2 1983)
John Blakemore
The End