Scientific Operation and Creates Value
— On Operational and Value Control in Steel Structure Fabricators
Part 1
1.Foreword
Today, the traditional manufacturing industry is in a phase of restructuring and transformation, with market competition getting fiercer by the day. Most of steel structure fabricators are struggling to stay afloat. On the customer side, the prices customers are willing to accept keep dropping, while their demands for quality and service are getting higher and higher. Domestically, fabricators face fierce competition from many peers.Internationally,big players are emerging in emerging markets — it’s truly a case of "being caught between two fires". Against this backdrop, how to move from the "Red Sea" to the "Blue Ocean" and achieve the best economic benefits has become a question that every corporate leadership team thinks about day and night. Yet reality often falls short of expectations: even though enterprises have taken various measures to improve operations, the actual business results they achieve often fall far below expectations.
As a representative of traditional manufacturing,steel structure fabricator is a perfect microcosm of them. Steel structures are highly competitive products. Asia's steel structure industries have developed a fairly large production scale and strong production capacity since it took off in the late 1990s. With market competition growing fiercer in China and nowaday Middle- East has been blooming for new production capacities to join. With drawing on the experience of overseas steel structure industries with a long development history from developed countries , the management methods of fabricators are bound to shift from "Extensive Management" to "LEAN and Intensive Management System". Low prices have become the new normal in today's market, and the external environment facing enterprises is getting more complex and volatile.In addition to conducting scientific management in line with the characteristics of steel structures and leveraging cost advantages to make profits, fabricators must also fully utilize their existing resources and make great efforts in every link of operational management, thus building their own unique core competitiveness and fostering an innovative corporate culture.
By analyzing practical business cases and combining with my own practical experience,I will discuss how fabricators can create benefits through "LEAN and Intensive Management" from the following aspects. I hope this can serve as a modest spur to induce more valuable insights and inspire some thoughts for business operators.
2.Optimizing Product Flow for Maximum Efficiency to Shortest Distance and Fastest Moving
Equipment capacity and production processes directly determine the overall efficiency of the entire production process, from raw material input to final product output. To make products move the shortest distance and flow the fastest, we must carefully plan the product flow and equipment layout right from the start of factory construction. By analyzing product features and production capacity requirements, we can maximize production efficiency and output within the limited factory space.
First, we need to use fabrication historical data and combine it with the capacity of all types of machines to simulate and analyze the input load and output capacity of each production stage. The goal is to achieve a balanced production flow. This can’t just be a theoretical exercise.It needs practical simulation and testing.Through continuous design optimization, we can work out the most scientific production layout. This way, we boost efficiency with the shortest, fastest and most optimal production process, and secure the fabricators’s long-term competitiveness.
During the planning or proposal phase, it’s critical to gather different opinions and fully listen to feedback from all sides. We must avoid decision-making mistakes caused by the limitations of the decision-maker’s own experience and ideas. We should firmly reject the practice of just placing equipment wherever there’s empty space. At a company I used to work for, the decision-maker ignored suggestions from other relevant staff. They placed the BH assembly line and hot-rolled steel assembly line too close together, without considering equipment capacity, storage space or crane capacity. This created a production bottleneck. In actual production, downstream processes were constantly waiting for upstream processes to finish, leading to idle equipment and wasted labor. This is a classic example of misunderstanding the "Shortest Distance" concept: they achieved a short physical distance, but failed to make production flow fast.
Learning from international experience,the LEAN Production Management System pioneered by TOYOTA in Japan takes production processes and equipment capacity as top priorities.By focusing on the input and output details of every single production stage,they achieve smooth and highly efficient production.
3. Cultivating HighestProfessional and Most Efficient Operators for Every Workstation
A key focus for fabricator managers is to ensure” the qualified people are assigned to the right jobs”and more specifically, to turn operators into skilled assembly workers on the production line.
Whether an operator clearly understands their job responsibilities and has the necessary knowledge and skills to be competent at their work is just as critical to boosting production efficiency. A qualified operator must be able to know the operating procedures, understand product quality requirements and proficiently operate equipment. After all, if an operator does not understand the relevant requirements, how can they perform their work correctly and improve efficiency? In practice, even qualified staff may not always do their work correctly. That is why enterprises must invest significant time in providing adequate training for every operator and conducting continuous assessment and evaluation of their capabilities,then they can achieve twice the result with half the effort.
Nowadays, many fabricators in a rush to meet production schedules and output targets, simply put untrained workers on the job directly.They push their staff to work hastily without any prior education or training, and with the operators unaware of the relevant technical requirements, quality standards and equipment capabilities. This inevitably results in a steady stream of Non-Conformance Reports (NCRs) from customers. What’s more, this will lead to rising costs caused by repeated rework, as well as doubts from customers about the company’s management level and capabilities.Therefore, only through systematic training and developing more skilled and professional operators can fabricators reduce error rates and unnecessary rework, improve product quality and thus boost production efficiency. In this way, fabricators can not only build a strong brand reputation, but also achieve better economic benefits.
4. Driving Efficiency and Profit through Effective Man-hour Management
When discussing the production capacity of a steel fabricator, it is common practice to use monthly or annual tonnage output. However, this metric is often unscientific. In reality, structural configurations and component complexities vary significantly across different projects. Consequently, the labor input required per unit weight is also different. Therefore, a more scientific method for evaluating a steel plant's production capacity is to adopt a man-hour-based assessment, converting weight into time.
In today's environment of strict labor protection regulations, what a factory can reliably produce is "man-hours"—the effective working time of its workforce. Advanced fabricators in Western countries firstly categorize components based on their structure, connections, and processing requirements. They then calculate the total man-hours required for the entire production process, from processing to shipment. By incorporating the average cost per hour, they establish an internal "
Standard Labor Cost Rate", which serves as a core competitive advantage.
During project bidding, the "Standard Labor Cost Rate/Hour" is used to calculate project costs based on the required hours. The expected profit is then determined by setting a target gross margin rate, which leads to the final bid price. This allows sales teams to understand the fabricators' cost bottom line, enabling more strategic and confident negotiations.
After winning a bid, production managers must clearly understand the budgeted man-hours. This allows for targeted tracking of actual hours during production, effective monitoring of deviations and timely issuance of alerts. The budgeted hours reflect the factory's overall efficiency, while deviations indicate existing operational control issues. Only by continuously analyzing and improving management to reduce man-hours per unit weight can a fabricator lower its costs below the industry average and generate excess profit.
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