The Importance of Measuring ROI in Manufacturing

For the last few weeks, I’ve been talking about important leadership qualities, and how being persistent and decisive was key in automating one of our oldest, dirtiest, and most hazardous manufacturing processes. (We were hand galvanizing certain pipes, and the galvanization chemical contained arsenic!)

So we tore out all the hand-operated process and built up a new automated system that helped us make the pipes better and faster. It cut out our least productive associates, while greatly increasing our output, which led to higher profitability and productivity. However, I faced a lot of resistance and had to be courageous and decisive, including dealing with a few people who purposely sabotaged what we were doing to prove me wrong.

That wasn’t the only issue I faced at the time. We had another “we’ve always done it this way” practice that I had to eliminate.

Robroy makes galvanized and coated conduit (tubes) for the electrical and oil industries. It was our practice to buy conduit shell in 20 foot lengths and cut it into 10 foot lengths before we threaded them. It was cheaper than buying pre-cut 10 foot lengths, but we also didn’t want to make our own conduit. So buying the 20 foot conduit shell was our most economical option.

However, some of the conduit shell would get bent either during transportation or by virtue of forklift operators being careless and running into the conduit shell in storage. This would ruin the conduit, so in the years before I arrived, they had installed a pipe straightener. And they had two people working 18 hours a day — nine hours per shift; we did let them go home and sleep! — straightening up the bent pipe before it could be introduced into the manufacturing process.

When I saw this, I asked the question, “What is the yield we get from that? If you straighten 1,000 pieces of pipe, how many good pieces do we get once you run them through the process?” They came up with the method of marking a black dot on the inside of each pipe they straightened, and then they counted each one that got used and each one that got scrapped.

It turns out the yield was less than 10% of our bent pipe; that meant that 90% of the processed pipe was still being discarded. And if we were damaging 10% of our pipe to begin with (just to pick a number at random), we were only adding 1% of usable materials back to our total pipe inventory.

Here were two people continually processing and reprocessing pipe that would never turn into a salable product. But the organizational culture was so committed to this process — we’ve always done it this way — that they just kept doing it.

So one day, I made the decision to cut up the straightener and throw it in the garbage. We literally trashed it and put an end to the straightening process altogether. And I said to our associates on the floor, “Now I want you to figure out why you’re bending pipe and quit bending it.”

They started looking at the process and the causes — because, remember, the boss doesn’t know everything. You have to empower your associates to do their own research and make their own decisions — and realized the solution was to solve behavior and fix the environment.

For one thing, we had been stacking 20 foot lengths of steel pipe directly onto an unpaved/non-flat area. And when it rained (which does happen in Texas), the area turned into a muddy quagmire. So the product would just bend by being on an uneven surface.

Second, some of the forklift operators were totally careless in how they handled the product. They often drove into it instead of lifting it. We had a to let a few of the more careless drivers go, especially after they had been told several times to stop, and that solved a lot of the problem.

But I also had a concrete slab installed in the storage area, and the pipes were then stacked onto 4x4s so the forklift driver could guide the forks under the bundle and lift it with more care.

Once the problem had been identified, and the behaviors had been corrected, the scrap rate in this operation fell to less than 1% — the same amount of product our pipe straighteners were rescuing — and we could more easily afford to scrap 1% of our inventory, not the 9% we were previously discarding.

How do you find and correct inefficiencies? Do you have your own stories or problems? Please share them in the comments below.

I’ve been a manufacturing executive, as well as a sales and marketing professional, for a few decades. Now I help companies turn around their own business. If you would like more information, please visit my website and connect with me on Twitter or LinkedIn.

Photo credit: Sean MacEntee (Flickr, Creative Commons 2.0)