5 Common and Costly Manufacturing Mistakes Made

by Job Shops
Topics: shop management software, cost of doing business
Posted On Feb 5, 2013 3:44:00 PM by Dave Lechleitner
As a job shop owner, you face a unique set of challenges in
todays business world. Owning and managing a job shop may
never have been particularly easy, but the modern manufacturing
situation in the U.S. has only worsened. This has many job shop
owners questioning whether they can even remain in business,
much less thrive.
Since the early 2000s, North American manufacturing has taken
a huge hit as more and more manufacturing moves offshore. This
has left many job shops with reduced business, if it has not put
them out of business completely. The Great Recession of 2009
only worsened the situation. The combination of these events
resulted in a loss of over 5 million manufacturing jobs in the U.S.
from May 1999 through May 2009.
As challenging as the situation may be, it is possible to survive,
and even thrive, in todays manufacturing environment. However,
for many job shop owners, it will require a shift in thinking. No
longer is it enough to be a skilled machinist or a good fabricator - you must become a smart business
person as well.
To succeed in todays manufacturing climate, you have to run your business like a business. This means
thinking strategically. To do so, you must move beyond the tactical thinking that you use to solve day-to-
day issues, and begin to see the bigger picture.
For shop owners who are planning a transition event, such as selling the business or handing it over to
someone, this shift in thinking is a must. Only by thinking strategically can you hope to build a business that
will be worth selling, or handing on to someone else.
What follows are five common manufacturing mistakes made by many job shop owners, as well as some
potential solutions. It is not always possible to avoid mistakes, but running a successful job shop requires
that you address the mistakes you do encounter in the best way possible.
Mistake #1: Failing to understand the real cost of doing business - which jobs are truly profitable
and which are not
Many job shop owners assume they know how much it costs to run a job or manufacture a part, but this is
often not the case. Looking at an income statement at the end of the month to measure the success of your
business is not enough. You need to know all the specifics of the work that earned you money, and the
work that didnt. You can only do this by understanding the true cost per hour by individual department or
work center, and appropriately costing the work that goes through those areas of your shop.
Generating a truly accurate picture of all the variables that go into the true cost of a part or job can be
difficult and time consuming. This is where a shop floor management system becomes so useful, as you
can automate almost all of the process, and translate the cost down to the work center or department level
quickly and easily.
Consider all the factors that must be calculated to see the true cost of a job:

Labor costed to the job based on the actual employee hourly rate
 Labor overhead (fringe benefits, vacation, other employer paid benefits and taxes) applied to the job
based on direct labor hours

Manufacturing overhead applied (by work center) based on the cost of running machines in that work
center

Selling, General, and Administrative overhead (all the other costs of doing business) applied
proportionally to each job, either based on direct labor hour or another appropriate allocation method

Material and outside service costs such as heat treating, plating, anodizing, etc. applied to the job
based on actual cost (rather than standard or average) to correctly analyze the effect of the rising cost
of material or the actual cost of the service performed
For a shop owner to ensure efficiency, the cost structure of the business must be analyzed regularly, and
the overhead rates adjusted accordingly by work center. This allows for the correct absorption of the costs
for the jobs run during each period.
There is incredible value in understanding true job cost. With this understanding, you can easily eliminate
jobs that consistently lose you money. If eliminating them is not an option, you will still at least understand
the opportunity cost of running these unprofitable parts.
Mistake #2: Underestimating the importance of your customers
Good customers are the lifeblood of a business. Relationships with customers become even more important
during a weak economy. Too often, shop owners become complacent towards their customers, and miss
out on important opportunities to form quality relationships.
It is not enough to assume that no complaints from a customer means the customer is happy. Good
customer relations require that you be proactive, contacting your customers frequently to understand what
is happening in their business.
Regular contact will allow you to gain information on issues key to your own shop, questions like:

Are they experiencing any significant business issues?

Is there an opportunity to gain more business or a new project?

Are they planning on downsizing or expanding their supply chain?

Do they have a preferred supplier program that you should be a part of?
Keeping track of this information in a way that everyone in your company can reference is far easier than it
once was. Through the use of integrated customer relationship and contact management systems, you can
ensure that all interactions with your customers, and all pertinent information, is readily available.
Another key to maintaining good customer relationships is to address problems as quickly as possible,
hopefully before they even happen. Using effective shop floor management systems, you can often see
issues coming before they get out of hand.
Real time information can also help you prevent problems from persisting. With insight into bottlenecks and
overloaded work centers, as well as employee efficiency issues, shop management software allows you to
focus on the specifics of what is going wrong. This way, issues with on-time performance can be reduced
or completely eliminated.
Customer relationships can also be improved by increasing the information you make available to them.
The customer portal capabilities found in some shop management software allow you to give your
customers 24/7 access to the status of their orders. This saves you and your employees the hassle of
answering phone calls and emails about order status, and gives your customers peace of mind. That way,
when there is an issue, you have the time and resources to provide human interaction to address the
problem. Thus, you can systemize the routine so that you can humanize the exception.
With the right systems, technologies and people in place to manage your current customers, you can then
expand your business to new customers. Your energy will be freed up to investigate new market
opportunities and new industries that are experiencing growth. By networking with shops that are already
in those markets, you can learn about new opportunities available to you. You can also invest in your most
growable customers through nurturing campaigns.
Mistake #3: Relying on quality as a differentiator
It is not uncommon for most small and mid-sized shop owners to believe that quality is what sets them
apart, that its their key differentiator. Unfortunately, this is rarely the case. Many shops recognized early
on that quality was a key differentiator. They implemented quality management systems to monitor quality,
including non-conformances and corrective actions. This allows many other shops to claim the same level
of quality that you have.
To stay competitive, you must have a formal quality management system in place that is integrated with
your shop floor management solution. This is the best way to ensure quality control throughout everything
that happens in your shop. And even then, you cannot assume that this will set you apart. Factors such as
efficiency in your business, and relationships with your customers, are far more likely to differentiate your
shop than quality.
Mistake #4: Undervaluing your greatest asset - your employees
Highly skilled and qualified shop employees are hard to find, and even harder to keep. The current shortage
of skilled machinists and fabricators is evidence of this. Often, when you go to find an employee in your
local labor market, you find no one with the qualifications that you want. This reality demonstrates how
important it is for shop owners to become involved in their community to find future employees, and to
invest and develop the employees they do have from within the company.
These goals can be accomplished in a variety of ways, including:

Developing apprenticeship programs within the company, thus improving the skills of the employees
you do have and keeping them engaged in the business

Working in cooperation with local technical colleges and universities, including developing appropriate
school-work programs

Consider participating in a mentoring or internship program

Visit your local high school vocational department or technical school regularly and participate in their
available boards
To keep a relationship with your employees, it is important to participate in regularly scheduled employee
reviews. This allows you to understand your employees from direct experience, including their future goals
and aspirations, as well as any issue they may be having with their jobs. Regular reviews also provide you
the opportunity to develop and deploy individual employee training plans, so you can keep the best of the
best.
The company culture you build will also have a large impact on the retainment of your employees. High pay
does not necessarily mean someone will stick around. The quality of the work environment and
management style are often just as important as the salary. Employees want to feel like they are part of
something, and as the job shop owner, you can do a lot to create such an environment.
Mistake #5: Relying on disjointed systems to run your business
There is no longer any excuse for relying on outdated floor management systems. Even the smallest job
shop or custom manufacturer today can afford an integrated shop floor management system. Such a
system allows for the management of every business transaction, from quote to cash, and is an invaluable
tool for ensuring efficiency.
Relying only on accounting systems and spreadsheets, with no connection to what is actually going on out
on the floor, is a recipe for disaster. When such systems are not integrated, leaving you to wonder if the
data is timely or if data entry is being duplicated, you cannot operate with optimum efficiency. This slows
you down and leaves you tailing behind your competitors.
A disjointed system only allows for so much growth before you either must hire more people to manage it,
or you must stop growing. Otherwise it all falls apart. With an integrated shop floor management system,
you can:

Integrate all business information from quote to cash

Avoid hiring additional staff to manage an unruly and disjointed system

Allow your current staff to become more efficient so they can focus on the business issues most
important to running your shop

Give you the time and information you need to accurately analyze your business and make decisions
accordingly
There are several scalable business solutions on the market right now that you can adopt, even if your shop
is very small. Being scalable, they will grow with your business, and they often integrate seamlessly with
common accounting solutions such as QuickBooks. Some even come bundled with their own accounting
solution.
Conclusion
Running a profitable job shop always presents certain challenges, but if you focus on avoiding these five
costly mistakes, you will go a long way towards establishing a business that will last.
Remember, to make the best business decision, you must understand the true cost of what you are doing.
You also need to keep a clear understanding of the value of both your customers and your employees.
Never assume that quality will differentiate you from the competitors. Lastly, do not rely on disjointed
systems to run your business.
Your shop will have a much better chance of succeeding if you utilize the proper systems, technologies and
people at your disposal. In the end, that is all any of these mistakes come down to - a lack of awareness of
what is really important. Adopt a quality shop management software system to understand the realities of
your business as accurately and timely as possible, and foster relationships with your employees and
customers. These steps will ensure you avoid any of these major mistakes.
http://blog.jobboss.com/job-shop-software/bid/217131/5-Common-and-Costly-Manufacturing-
Mistakes-Made-by-Job-Shops

Case Study Reports

Please fully utilize the concepts, approaches, and tools presented in the lectures and in
the text. Below is a generic format for a case study report. Use this as a general
guideline, recognizing that some or even most of it may not apply to some of the
assigned cases. Also, make sure the report addressed the Case Study Questions. You
may either answer these as part of your narrative or in a list format at the end of the
report. If they are part of the narrative, indicate what question you are responding to
as part of the answer.
Current Strategic Profile

A. Identify and describe the companys strategic vision, mission, products, services,
and target markets. Provide as much detail as possible.

B. Analyze and thoroughly describe the companys competitive strategy. Be sure to

technology, product uniqueness, and pricing dimensions of the companys
competitive strategy. Special emphasize should be given to the technology factors.

C. Identify and fully describe the activities the company chose to focus on to
implement its chosen competitive strategy. Knowledge about the competitors and
alternate technologies should be explored. Fully describe the resources-
capabilities (strengths) utilized to perform these activities and sort these out in
terms of rendering core competencies (associated with competitive parity) and
distinctive competencies (associated with temporary and sustainable competitive
advantages). Also, identify the resource-capability deficiencies (weaknesses)
within the companys structure which have resulted in the competitive
disadvantages (if any).

D. Describe the companys current strategic objectives.

E. Evaluate how well the companys Current Strategic Profile has been working. As
appropriate explore the financial condition, competitive position, and especially
their technological positioning.

External and Internal Analysis

A. Analyze the industrys five forces.

B. Rate the strength of each force (weak /

moderate / strong) and explain your analysis
and rationale. Describe how the companys
position compares in relation to each
force. Identify the opportunities the company
must exploit and threats it must neutralize in
order to improve its bargaining power in
relation to each of the five forces. Determine
the resources-capabilities the company must improve (if existing weaknesses from
step C above are applicable), reinforce (if existing strengths from step C above are
applicable), develop and/or acquire (if new resources-capabilities are needed) to
deal with theses opportunities and threats.
B. Fully describe the drivers of change in the relevant industry and the potential
impact of each change factor on the company in terms of posing either
opportunities or threats. Determine the resources-capabilities the company must
improve (if existing weaknesses from step C above are applicable), reinforce (if
existing strengths from step C above are applicable), develop and/or acquire (if
new resources-capabilities are needed) to deal with these opportunities and threats.

C. Provide a summary list for the resources-capabilities identified in steps A and

B. Provide additional information for each resource-capability in the list with
respect to: (1) whether an existing weakness to be improved, an existing strength
to be reinforced, a new strength to be internally developed, or a new strength to be
acquired, (2) its competitive implication (i.e., parity, temporary competitive
advantage, or sustainable competitive advantage).

Proposed Strategic Profile

A. New strategic profile is to be synthesized based on the external and internal

analysis performed above. Provide a diagram which consists of two columns
representing opportunities/threats and resources-capabilities; draw arrows to show
the matching links between the two columns.

B. Based on the above diagram, describe the changes you propose to the companys
Current Strategic Profile. If changes are not recommended in certain parts of the
Current Strategic Profile, then a rationale for the recommendation to maintain
status quo in these aspects must be provided.

C. Discuss the technological and financial implications of your proposed

changes. Analyze the impact of the proposed changes (if implemented
successfully) on the company. What would be the objectives the company should
expect to achieve? Rational for the numbers proposed must be provided. Does the
company have sufficient funds to invest in the proposed changes? If not, how
should the company raise the required financial capital?

Implementation

A. Provide detailed functional area action plans to implement the Strategic Profile
changes proposed above. The functional area action plans must be provided and
elaborated upon for each specific proposed change.
B. Provide detailed management and organizational plans to implement the Strategic
Profile changes proposed above.

Grading Criteria

Write a business style report which exhibits competent writing proficiency. In the
event that information required to meet the criteria of providing substance and
completeness in carrying out the above steps could not be obtained, then the
information search effort should be fully described in the report where applicable. In
the absence of complete and accurate information, reasonable assumptions should be
made and these should be fully stated in the report where appropriate.

Grading Criteria Points

Current Strategic Profile 10
External and Internal Analysis 10
Proposed Strategic Profile 10
Implementation 10
Use of Additional/Outside Sources of
5
Information and citing these correctly
Report Organization, Business Writing
5
Style, Writing Proficiency
Total 50

Further Instructions

The report must be typed, double-spaced, with a minimum of two pages for the
individual case reports. Write clearly and succinctly, while providing adequate
elaboration to the reader.

Group reports will have increased expectations. These reports should offer a complete
analysis with a greater depth then the individual reports, and should include a written
report to be submitted along with a multimedia case presentation to the class of
approximately 15 minutes, to be followed by a presenting group led discussion of the
interesting points of the case. Thoughts and questions for this discussion should be
prepared to fill a minimum of 10 minutes
https://www.andrews.edu/~greenley/INFS510/casestudies.html