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Is it a Product or a Project? |
Some required terminology:
A Project: "We're trying to deliver a project here!" –
1. something that is contemplated, devised, or planned; plan; scheme. 2. a large or major undertaking, especially one involving considerable money, personnel, and equipment.
A Product: "We're trying to ship this product here!" –
1. a thing produced by labor: products of farm and factory; the product of his thought. 2. the totality of goods or services that a company makes available; output: "a decrease in product during the past year".
Let's first establish two things that Project Management and Production have in common:
1. The aim for on-time delivery, which has direct impact on sales, receivables and cash-flow.
(Beware; There are two different kinds of “on-time” delivery)
a. On-Time delivery meaning: the originally promised due date:
This due date is met by growing companies that have ample “protective” capacity in machinery, people and technology, these companies have usually a big appetite to continuously improve and keep growing. There are very few companies that reliably do this every time. Often there is clear priority in both product and project schedule, and no-one seems to be rushed or stressed. Also their prices seem higher, their lead-times shorter, and their suppliers paid well enough that they are ready to put everyone else on backlog, to ensure to keep this well paying customer, and to ensure they receive their orders early and sometimes on-time.
There are also companies that temporarily ship on the originally promised due date, because they claim they can predict what their customers need in the future, these turn into Make to Stock manufacturers in an engineer to order market, and fit in a different category, since they can only maintain reliable due dates if, and only if the customer cooperates and chooses to need what’s in their supplier’s “forecasted” inventory. These companies often, eventually, let investment (inventory) requirements outgrow their net profit rate, after which they become part of the group described below.
b. On-Time delivery meaning: the renegotiated due date:
The most common causes and phrases found in environments that use the ship “on-time” to the “renegotiated due dates” approach were identified by Dr. E. Goldratt in the ‘80s.
1. “Our customers keep changing their minds!”
Engineering Change Requests, Customer Approvals, Economy, Unforeseen Reasons, Lean Environments with little or no protective capacity to keep the prices down, and as a result, we now view these as a fact of life, and for the last two years, we have had to re-negotiate due dates, and create surprises on the P&L.
2. “Our vendors are not reliable!”
We have found and firmly negotiated with vendors that ship at unbelievable prices. This enables us to sell cheaper to our customers and to cut our costs. As a result, the production manager of their vendor: “Mike, put these on backlog; there’s no margin on these!” – The predictable result: our vendors have long lead-times and ship late to us, as a result, we have been surprised for the last two years that this keeps happening.
Most companies mentioned in both above categories claim an on-time delivery rate of 80% to 99% on-time delivery. Well established companies may have switched between these two categories over time, or even back and forth, which is similar to the “centralize vs. decentralize” phenomena. Category a. often has time on their side to take advantage of additional revenue and lead-time improvement opportunities, where in Category b. everyone’s busy fighting fires, while shipping on-time to a new due date.
2. Both Project and Product Completion depend on human skill, raw material, and finished good resources to be completed.
In EtO and MtO environments we find a wide blend and interaction between these two, but most often, not clearly defined. In fabrication and production environments with 30 or less employees, often a PMI, or Project Management approach is used, or sometimes a shared spreadsheet with due dates and mile stones is used. In such environments the project and production is managed using a project management approach for engineering tasks and shop-floor, and purchasing. Each project then consists of hundreds of dependent tasks, and are planned with the assumption that each task can be completed at the time it was scheduled, in other words, it assumes that the company has infinite capacity of equipment and skills. The continuous updates required to keep this up-to-date, and the actions required as all these change, leads to weekly if not daily meetings to adjust the schedule, and if required renegotiate due dates and priorities with customers and suppliers. Often there are three different priorities: Hot, Red Hot and Do it right now. The switching between these engineering and production priorities are strongly influenced by the urgency of which customer is most demanding at that moment. For those not familiar with Project management software, it usually displays a screen with squares varying in size based on the length of each task, if a task is then updated, the whole schedule moves to the right. With as logical result that the expected revenues attached to each of these tasks moves further away in time. In other words, the projects following this project get pushed out further, even if only one major task is late.
EtO and MtO fabrication / production environments with 30 or more employees often have a tool such as MRP, or ERP and use that for material, purchasing, and shop-floor planning. In addition to the production schedule, there is usually also a Project Management schedule that looks at engineering and production milestones (lesser detailed) to provide a global view. The level of detail and its reliability, and which detail should come from which schedule is most often, not clearly defined. This still results in many weekly if not daily meetings to have either the Project Planning influence Production and vice versa. Switching a priority in engineering is undesirable, but possible, however, switching priorities in production leads to increased work in progress, which leads to raw material and finished goods inventory increase, purchasing adjustments, expediting materials, sometimes at additional cost, sometimes additional and unaccounted for long setup or staging times, over-time labour, and the wishful assumption that the required equipment and skillsets are available at the right time when the schedule changes are made.
The Question: Are we delivering a Project or a Product?
This question wrongfully assumes that it is either or. Engineering and Manufacturing a product is a project itself. As a result there is no clear definition, whether the production schedule should dictate the project, or whether the project schedule should dictate the production schedule. A compromise between the two would make both the project and the product schedule unreliable, with as result that there is no clear priority.
But then what?
What if the project and product were managed simultaneously and synchronously? What if the BOM or Bill of Manufacturing could guide production and engineering milestone priorities in a coordinated and synchronized effort? What if the shipping and invoicing department guided and pulled the efforts in the right order to increase their performance within the same space of time? This would result in clear priorities, lead-time reduction, inventory and wip reduction, and as a result revenues and return on investment, increase.
As a student of this topic, I'm very interested in your relevant comments, suggestions, and/or questions, regarding this topic...
