Tuesday, May 03, 2011

Small Enough to Manage by Feel and by Walking Around

Just spent time with the President of a small manufacturer of cable and harness assemblies. They assemble multi-conductor cables for "wire jockeys", printing labels on the plastic coating on the conductors that are then bundled together into one cable to reduce time on industrial job sites to figure out which wire goes where. They specialize in short cable (100 feet long and up) lengths. I visited him to look at the systems he uses to run his business. He uses a multi-tab spreadsheet to calculate quotes for each job. The spreadsheet is a work of art, developed over a number of years, that takes into account the nuances of the cable business - different gage conductors have different weights, costs, time to print, the number of spools used for a job, etc... He updates the material costs on a weekly basis based on market value, necessary because of the changes in copper prices in particular. The spreadsheet has formulas that reference different tabs to calculate the final quote, building in a reasonable profit margin for the business (less than 25%). One of the tabs on the spreadsheet is a printable document that he sends to customers by fax, and manually creates a single-line quote in Peachtree (Pro, I think).

His two pain points in running the business are that (1) he doesn't have a very good way to track his inventory, particularly the short lengths of cable that can be re-used but are not inventoried once separated from the 2,500 ft. spool, and (2) he can't measure the true profitability of each job with the systems he has in place. An additional pain point is the potential for an error in the quote work-up, because the cells on the spreadsheet are not locked and can be inadvertently changed.

Could MISys Manufacturing solve his pain points? Sure, but it is more firepower then he needs. It is a small operation, and he is intimately involved with the whole process, able to see the entire production process and see his inventory, including short scraps of cable that can be re-worked. Like most small manufacturers, his estimates of the costs are really close, validated by his month-end financials which include a monthly physical inventory. And because he enters all of the quotes himself, he can use his intuition and a couple of key ratios (gross margin on materials, hourly rate calculation) to control the prices and costs. Real pain will set in if the business grows in volume or product diversity, making it so he can't review each quote or manage by feel and by walking around. Then he will need a solution like MISys Manufacturing to better manage his inventory, his shop floor and his costs, and have a system that is scalable so that other employees can participate in the management of the manufacturing process.

Until that happens, we will remain colleagues in manufacturing, not vendor and customer.

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