Forget set-up times and focus on throughput

They say results are the ultimate aphrodisiac—well anyway, someone must have said it at some point. Now Lilly Software is challenging a growing list of companies to get the results CEOs only dream of—and helping them do it in just 30 to 90 days.

A dozen companies have signed on, with more lining up, and the results are impressive, including lead times slashed in half, on-time delivery jumping from disastrous to nearly perfect, and ability to boost prices based on guaranteed customer responsiveness.

The gains come from increased throughput, which in turn follows from reducing work-in-process (WIP); controlling release of material to the floor in smaller, more frequent lots; and focusing on maximum throughput through the key capacity constrained resource (CCR).

In essence, it's all about the Theory of Constraints (ToC).

"Working with the people from Lilly, we cut our lead times in half, and that was before we even turned on the software," says Marc Platt, president of Platt Luggage, Chicago, a maker of industrial cases for instruments and equipment.

"They helped us understand that managing production based on minimizing setups caused huge buildup of WIP. By releasing material in smaller lots, we greatly improved throughput."

Platt took the drastic step of running the shop based on actual production time of orders, which was two weeks, ignoring set-up times of everything except their trimming operation, its key CCR.

"We wanted to participate in the program to lower our lead times, and of course to lower production costs. If we could do that, we could lower the cost to the customer, which would benefit us significantly with sales," he says.

Once under way, the backlog of WIP began to evaporate; job priorities became more apparent; and throughput shot up. The test came with an order for which there were no molded case shells on hand. The order shipped in just four days.

ThermoFab, Shirley, Mass., has had similar dramatic results. "We reduced our lead times beyond what we ever dreamed possible," says Tom King, president.

ThermoFab makes plastic enclosures for medical, industrial, and computer products. It has used Lilly's VISUAL Enterprise ERP software since 1998.

"We thought we were pretty good at what we did," says King. "We'd been doing lean for 10 years, focusing on improving margins. The hardest part for me from a cost-accounting perspective was to get the focus on throughput, accepting that set-up times don't cost you. That was big. But the performance results are way beyond lean."

King says the company has been able to reduce lead time on the toughest job from 35 days to five, but that is only a small part of the story.

"Our on-time delivery was awful, maybe 70 percent. Suddenly we're at 98 percent in a matter of weeks," he says. "Excess WIP on the floor disappeared. Disruption from customers calling about orders and expediting has disappeared. We're not making parts customers don't want. We're doing more cross training."

With increased throughput, the key CCR is no longer "paint prep," but sales. And with excess capacity, it accepts lower-margin orders that it used to refuse, adding 10 percent to the bottom line.

In addition, the company guarantees better responsiveness to customers, earning premium prices. It recently renegotiated an annual contract with one large customer with an 11-percent price increase by being able to guarantee more frequent, responsive, reliable delivery.

King believes ThermoFab now has a distinct market advantage by being able to deliver twice as fast as its competitors, which should ease the barrier of the market being his chief constraint.