3 Problem Manufactured imports greater than manufactured exports Net contraction in real terms, of the production of value added goodsDespite record terms of trade we trade in deficit with CAD = approx 6%GDPSolution is Innovation of process and product and increase in Business R&D
4 R&D $ & ProductivitySource: OECD Main Science and Technology Indicators,Source: OECD Productivity Database, 17 December 2004GERD 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
5 Australia Exports & Employment Excellent Correlation
8 Process Innovation versus Product Development There is no point in adding a new product to a bad systemProcess innovation and product innovation must be integrated together to achieve the flexibility neededProducts need to be modular and design and customer friendly
9 Where Do You Start? The World is your Market Processes must be world classConcentrate effort in areas in which we have a competitive advantageJoin the global supply chainsIntegrate processes and systems, pullby customer, then spread out both ways.5. Recognize that it is all about QCD6. Use internal digital data on shorter periods7. Hook up digitally with customers & suppliers8. Reduce or Eliminate forecasting as much as possible
10 Parameters 1The 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 constraintsServicing costs on foreign debt highInterest 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?
11 Parameters 2R&D and Innovation are the key drivers of manufacturing growth and sustainabilityAustralia’s private R&D investment is very low by world standardsAustralia concentrates its innovation and R&D in the middle of the supply chain. This effort is more valuable closer to the customer.
12 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!!!
13 Manufacturing or Service? There is no such thing as a puremanufacturing companyAll companies are service drivenWhat is your position in the supplychain?
14 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).
15 Key Business Financial Ratios To Aid Process & Product Innovation EBITAROWC = Return on Working Capital (Dr=Cr)Days InventoryValue Added Percent of Sales and ProductWC as % SalesCash 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?)
16 Key Operational Ratios On Time Deliveries % (CROTD, Actual)Changes to planPlanning lead TimeLead 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
17 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 processesUse the appropriate line entries in the P&L to focus on the cost of non value added processesDo not be misled by the fact that inventory is seen as an asset on the Balance Sheet… it is a waste.
19 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 othersSolution 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
20 Machine Measures Typical Ops12345678910111213141516No Machines23245120No Shifts per Wk182.5Setup %18.104.22.168-3.14.5Run Time % (7d)*3326.645.340.9Run Time % (5d)**38.531.121.421.258.372.455.796.563.457.359.349.250.782.27.2Down time %(7d)*6773.48252.156.5Down time %(5d)**61.568.978.652.724.515.642.123.432.939.139.350.822.214.171.124Cleanup %126.96.36.199.188.8.131.52Idle % h184.108.40.206.5Prevent Maint %R&D %220.127.116.11Rework %0.3
21 My R&D and Innovation Grant Observations 800 R&D Innovation Applications (6yrs)50% received grants, 5% successfulIP mostly exploited Overseas(e.g. Shi Zhengrong and Suntech)Tasmanian windfarm technology to ChinaSmall no. people richLittle National BenefitFavours Product over Process InnovationCommercial Ready needs Improvement!
22 Industry Statement May 2007 Recognizes the need to act now3 Major initiatives1. Productivity Centres2. Global Opportunities Program3. 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&DInitiatives for these to use Overseas Intellectual Property in Australian R&D. Is this surprising?
23 Judging Commercial Ready 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
24 Reasons for Failure of R&D Poor Understanding of the:connection between Process & Product Innovationuse of correct resources (inc Partnerships, Pana/Leica)ways to release working capital to max Technologyneeds of the market (needs versus wants)scientific method (observation and measurement)need to articulate the concept and planway to raise funds to support the applicationbest way to use capitalmeasurement of riskneed to tap the wisdom of the worker
25 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
26 It is all about People, Training, Culture, Leadership and Commitment How do we Implement Creative Manufacturing, the immediate need and the Step Beyond LeanIt is all aboutPeople, Training,Culture,Leadership and Commitment
27 Kyosei Kyosei = Living and Working Together for the common good Kaizen = Continuous ImprovementGenchi genbutsu = place of understandingObeya = big roomSensai = teacherPoka-yoke = mistake-proofingJidoka = stop machines (Toyoda Loom)Miyamoto Musashi “The Book of Five Rings” the Samurai warrior after Shogun liberation
28 Rule 1 Make to Order (MTO) Demand = ProductionPull by CustomerApply Continuous flow rules (26)Continuously reduce batch sizes by reducing the Economic Production Run (One piece Flow?)Plan by replacement short Lead tReduce forecasting as much as possible
29 Rule 2 Maximum Flexibility Machine and Labour Match Manufacturing Capability with DemandTirelessly improve flexibility by reducing EPR’sContinuously reduce lead timeFocus on the financial parameters to prioritiseAim for continuous flowMaximise the use of Appropriate Technology (Six Sigma)A process can be treated like a machine (Adam Smith)
31 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
32 Rule 5 Design for Flexibility Reduce ComplexityModularizeIntroduce Complexity late in SCUniversal design (Toyota)Backup suppliers (standardise)
33 Rule 6 Reduce Waste in All Forms Planning wasteExpenses wasteResources waste
34 Some Values of Key Parameters Days Inventory = 8 Days (Canon Panasonic) actual 38 Days but 30 Days on WaterValue add % = Never stop Improving (Samurai Warrior, Toyota < 10%)Planning Cycle = 7 days to one dayR&D as % Sales = > 5%Process Control at 6 SigmaOn Time Deliveries (CRLT) = 100%
35 Australian Example 1 Profit in $300M T/O (Ref Blakemore Consulting Reports )
36 Australian Example 2 (2X Productivity (Ref Blakemore Consulting Reports) Defectives
37 ConclusionBuild 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 timeUse the capital released from wasteful inventory to innovate flexible systems and processes that can respond faster to new products.Continuously innovate new products and processesUse a consistent strategy based on the systems of Honda, Toyota and CanonUse all resources and be aware of the tools and knowledge available and foster partnerships with the best.
38 Innovation, R&D and Australia’s Manufacturing Future We need to be Creative, Innovative, Fast & Flexible (Like Australia )John Blakemore