Find the Bottleneck
In every business no matter production or service, there exists a bottleneck. Your job as the owner or manager is to find it and fix the problem. Once this one is found and resolved; move onto the next one. There is always a bottleneck to find and fix. What is important is to find the problem, identify the core issue, and then resolve the bottleneck. This may sound simply, but it takes someone in a position of knowledge and experience to complete this task. As the owner and or manager of the business, you are the in best person to act and address the bottleneck.
How do you find the problem? Start out with a flow chart of your business. Identify the main areas of the business and what is required to complete each section. For this article I will use a real life example of a manufacturing plant I had the privilege of analyzing the cost accounting system they used. They wanted to know what it cost to produce one single unit, a package of the unit, a case, a stack (pallet of cases) a trailer load and a lot (contract amount). They produced baby bottle liners. The system took a sheet of plastic and cut the plastic in a round blank (the engineers used the term ‘cookie’), heated the cookie and used a form of extrusion to form the liner. The liners were packaged by the dozen and the packages were dropped into a case of 24 packages. From there, the case was stack on a pallet in pattern and each pallet held 36 cases. The pallets were stored in a warehouse and prepared for shipping.
In this case the flow chart identified four major areas of production. Believe it or not, the front office was one of these areas, however for the purpose of this article; I will focus on the other three.
Cookie Cutter – the company had a stamping press that essentially had a roll of plastic loaded into it, the plastic was about 30” wide and had proper thickness. They bought the plastic from a large fortune 500 company on a roll and there seemed to be no problems with the quality or quantity of raw material. The stamper was a different story. This machine used a die that apparently took a couple of hours to change out as the cutters became dull. Each cutter had to be milled in order to stay sharp. The die could run for several hours and punch out enough cookies to run the manufacturing process for several more hours.
Manufacturing – Once cut, the cookies were placed on trays that had a milled out form for the cookie, kinda like a muffin pan. You would set the cookie into the muffin pan and from there the pan was placed into the manufacturing process. The pans were heated up slowly and then once the plastic reach the proper temperature for forming, a blow mold would form the baby bottle liner. From there, the liners were stacked into each other until the system counted twelve in that channel (sleeve) and then the entire rack of sleeves would be released for packaging.
Packaging – Once extruded, the liners were packaged using another line that received the rack of sleeves and then using human hands were inserted into the packages and aligned onto a table feeder to go into cases. The cases were sealed and taped and hand stacked onto a pallet.
From above you can see there were many opportunities for bottlenecks to exist. But the flow charts were critical in understanding the process and where problems were most likely to develop.
Right from the start of processing the chief engineer had problems. He coordinated efforts with the plant manager to keep up production. You see, if either one of the first two stages went down; the labor in the packaging area came to a complete standstill. It was a constant battle at first to keep production going. There was a lack of experience in making these liners and I had no clue it was this difficult. Step by step the chief engineer and his staff resolved production bottlenecks. He was a smart man and focused on the single bottleneck that caused the greatest delay in production. Notice that he finds and fixes the bottleneck that creates the greatest delay in production. Over time the system went from complete shutdown to sputtering to final a roughly tuned motor.
He developed standards of care for the equipment to maximize up time. He identified the key or critical factors in each of the three main areas that trigger a delay or total shut down of the plant. He even figured out how to create a reserve of cookies and racks of sleeves to keep production going in case there was a major issue. All of this and he still complied with the Food and Drug Administration Rules and Regulations (sanitary conditions, proper testing etc.). He kept the flow charts in the engineering room on the white boards to remind everyone of the value of each area of production in keeping up with the contract quantities. When he needed to test a new sub system in any area of production, he made sure that there were alternatives available to keep up production. He illustrated the value of using flow charts, creating alternatives and exercising good judgment in running the plant.
By the time I left the plant he was dealing with bottlenecks that created short delays in production. He really understood the process and how the plant worked and what it takes to keep producing.
As the owner of business, you too need to fully understand your operation, identify the major areas of production, what flow is required to keep the business moving along. Identify those issues that have the greatest impact on production first and then move on to the little ones. Once these are resolved, you can begin to tweak and deal with the little issues. Find the bottleneck and fix the problem. Act on Knowledge.
Do you want to learn how to get returns like this?
Then learn about Value Investing. Value investing in the simplest of terms means to buy low and sell high. Value investing is defined as a systematic process of buying high quality stock at an undervalued market price quantified by intrinsic value and justified via financial analysis; then selling the stock in a timely manner upon market price recovery.
There are four key principles used with value investing. Each is required. They are:
- Risk Reduction – Buy only high quality stocks;
- Intrinsic Value – The underlying assets and operations are of good quality and performance;
- Financial Analysis – Use core financial information, business ratios and key performance indicators to create a high level of confidence that recovery is just a matter of time;
- Patience – Allow time to work for the investor.
If you are interested in learning more, go to the Membership Program page under Value Investing section in the header above.
Join the value investing club and learn about value investing and how you can easily acquire similar results with your investment fund. Upon joining, you’ll receive the book Value Investing with Business Ratios, a reference guide used with all the decision models you build. Each member goes through three distinct phases:
- Education – Introduction to value investing along with terminology used are explained. Key principles of value investing are covered via a series of lessons and tutorials.
- Development – Members are taught how pools of investments are developed by first learning about financial metrics and how to read financial statements. The member then uses existing models to grasp the core understanding of developing buy/sell triggers for high quality stocks.
- Sophistication – Most members reach this phase of understanding after about six months. Many members create their own pools of investments and share with others their knowledge. Members are introduced to more sophisticated types of investments and how to use them to reduce risk and improve, via leverage, overall returns for their value investment pools.
Each week, you receive an e-mail with a full update on the pools. Follow along as the Investment Fund grows. Start investing with confidence from what you learn. Create your own fund and over time, accumulate wealth. Joining entitles you to the following:
- Lessons about value investing and the principles involved;
- Free webinars from the author following up the lessons;
- Charts, graphs, tutorials, templates and resources to use when you create your own pool;
- Access to existing pools and their respective data models along with buy/sell triggers;
- Follow along with the investment fund and its weekly updates;
- White papers addressing financial principles and proper interpretation methods; AND
- Some simple good advice.