Setpoint Systems Blog

A few months ago Setpoint moved to a 4 day work week.  The plan was to run it as an experiment for 90 days and see how things worked out.  I’m pleased to report the experiment has been a rousing success and that we intend to continue on with virtually our entire workforce on a 4 day, 10 hours per day schedule, Monday through Thursday.

The feedback from our team members has been extremely positive, as everyone has settled into routines of spending most Fridays with their families or enjoying their hobbies.  There are of course exceptions to this.  We have been in a busy cycle for the last 8 weeks or so and have had many people working on Fridays in order to meet our obligations to our customers.  But even with a day of overtime on Friday’s we’ve usually been able to take off Saturdays and Sundays for two-day weekends.  Morale is up, productivity is up.

We did spend some considerable time and effort upfront to alert our customers to our plans regarding the 4-day week, and I believe that helped us to set the proper expectations early on.  There have been a few customers that have needed our assistance on Fridays and we’ve been able to fill those needs by various team members volunteering to take care of those needs.  Each of our regular customers have cell phone numbers for members of the management team, and if something unforeseen comes up on Fridays, they can call and get help most of the time.  But the calls have slowed down as customers have gotten used to us being closed on Fridays and they tend to plan accordingly whenever possible.

One unexpected benefit that came about from the schedule change was an opportunity to improve our Just-in-Time (JIT) procurement process.  In the past we have ordered all parts at the start of a project, which led to them being assembled as they trickled in.  This method caused a number of inefficiencies for us: the assembly technicians wasted significant time starting a project and then stopping when they ran out of parts, we would have to pay for parts often before we really had any use for them, and there was often chaos created by people going through parts and then putting them back when they had to stop.  Sometimes parts would get put in the wrong totes or even on the wrong project rack.  With the new system we order parts as required, we do not accept early deliveries, and we ask all of our vendors to deliver parts on Thursdays.  On Fridays we have a part-time expeditor come in and receive parts and distribute them to their proper job kits.  When the assembly crew comes in on Mondays the parts are ready and waiting for them.

Overall, we’re very pleased with our 4-day work week experience and we plan on continuing with it into the foreseeable future.  If you have any thoughts about trying a four-day week at your company, my advice would be to embrace the concept and do whatever you can to make it work for you.  I know we have been pleasantly surprised by the positives!

It’s Tuesday and your payroll clerk needs to enter payroll to make sure all employees are paid by Friday.  The dreaded phone call comes.  Your payroll clerk can’t come in because her father has had a heart attack and is in ICU.  It will be several days before she can come in because it is pretty serious and she needs to help her mother.  Do you have someone to pick up where she left off?

Although the chances are pretty slim that something like that can happen, happen it does.  My former employer called me because the lady that does all the month-end paperwork and tax quarterlies couldn’t come in for the next month because of an illness.  There are two other people in the office, but they were never trained on how to do her job.  The policies handbook is 10 years out of date and did not explain the process.  Fortunately I was able to help out and they got their taxes filed on time. 

This is a great example on how important it is to cross-train important areas of the office.  Not all areas of a business need cross-training, because there are some things you can put off.  Ask yourself this question, what functions of the business will come to a halt if the person doing it can no longer do it?  Identify the most important aspects of your business and start training from there.

Over the years I have been involved in many different businesses in many different industries.  Over this journey I have consistently been a reader of business books, The Wall Street Journal, and Harvard Business Review.  When I was younger I would try and assimilate into practice what I was learning about.  It wasn’t very long before I began to notice that what one book said was critical for success were the same strategies I had read articles about that showed business failures that from my point of view were the same strategies.

I began to ask myself are there any ideas, concepts, or strategies that will hold the test of time and not have exceptions?

I have boiled it down to what I think really matters.  These are ideas that I believe successful businesses must do to stay successful, and will stand the test of time.

1. You must move - businesses that think they can remain stagnant will find themselves out of business.  Any business that thinks they don’t have to actively evolve and change will find themselves with a shrinking margin first, and out of business the next while thinking “what happened, we were doing so well last year.”
2. Surround yourself with the smartest people you can find or afford - listen to what they say as you pose concerns and questions.  It doesn’t matter whether they are partners, board members, industry experts, employees, or consultants, get them helping you as often as you can.
3. Get reality on the table - it is the beginning of solving everything.  No progress, or very little progress, can be made if there are things that can’t be talked about, hidden agendas, or any kind of politicking.  It is as basic as it gets, that all those around the table have to feel equal and free to express their feelings.  Heated conversation is ok if it leads to the realities of the business.  It doesn’t matter who has the best answer - only that the best answer surfaces.
4. Try things - iterate at a rate that will not put the company at risk.  No business can afford to do everything.  Figure out what you can afford to try and then identify the critical components that must be tested to validate or invalidate the strategy.  Then do it quickly.  Waiting to try a concept or strategy till you have all the answers will paralyze the business.
5. Measure quickly - feed winners and chop losers.  The faster you can figure out what works and what doesn’t the less resources (money, people, time) you waste.  The faster you can recognize when you are off-course and then correct back to course is often more important than picking the right course.

Continue to read but realize that the success stories may or may not work for you and the business you are currently in.  Use books and magazines to increase the idea of “surrounding yourself with the smartest people you can find.”

I’d be interested in your feedback - in keeping with “surrounding yourself with the smartest people you can find.”

Joe did a great set of videos explaining the financial crisis including what led up to it and who is to blame.  We filmed this one before but I hear it was pretty boring and had bad lighting.  So we refilmed it and here it is.  We got some professional lights thanks to Steph!  Joe also went to a thrift store and got some props.  My personal favorite is the Napoleon bobble head - I love Joe’s smile when he uses it it’s like he’s ready to start laughing.

Joe talks about the savings & loan crisis and the bailout that the government did back in the 1980’s, about the creation of Freddie Mac & Fannie Mae, what a subprime mortgage is, a bank’s balance sheet and how they become insolvent or bankrupt.  That’s in the first video Financial Crisis: Freddie, Fannie & Subprime.

Let me know what you think, do you like this one better?  Are there other questions that you would like to have answered?

The second video is about Who is to Blame, Joe walks through the entire process of a loan and what happens and then lists out who he feels is to blame…and there’s plenty of that to go around.

Recently I was asked what Rich Internet Applications (RIA) were and whether they were good or bad, useful or something that we might be able to see in the future. Rich Internet Applications have been used on the web for many years. They are great for engaging the customer and drawing them deeper into your site. One of the earliest ways I remember using a RIA is dreaming about buying a new car and having all of those extra’s added on. So since my dream car is the new Dodge Charger I’m going to use that as my example.

RIA’s allow you to go in and select a product and then choose all the features that you want all the while seeing the price of the product so that you can see how your selections affect the price. So if I want the Charger R/T All Wheel Drive P package in the dark titanium metallic, I’m looking at a starting base price of $36,135. However, who wants a base model when you’re dreaming? After adding the “essential” extra’s like the power sunroof you’re looking at $39,785. Then I can go through and look at the Daytona R/T in Stone White starting at $37,035 add in the same extra’s and the price is $40,320. So within a few minutes I can see it is better pricewise to go with the R/T AWD and save or for less than $1000 go for the cool paint job of the Daytona R/T.

That is what is so great about RIA’s, they allow you to go through the selection of something you are looking at and pick and choose what you want to get the solution that is right for you. You could see if you added a feature if you could still afford it or if by adding another one you couldn’t. Another website I have seen where the RIA is great is on the Sony Ericsson site. Their site lets you go through the options of cell phones and it narrows down which phone would work the best for you (of course it has to be one they make). Verizon tried to use it but they still need to work on it. You can go in and select options but then you have to select view phones and if you select options that are not all included in a phone you get an error of “no match found, please modify selection and search again.” What I like about the Sony site is once you select an option it changes the features and phone selection to only have the options that are truly available shown. If you choose a phone that doesn’t have and option, it grays it out so you can’t select it.

One of the things I really like about a Rich Internet Application is that it doesn’t require me to download anything onto my computer in order to use it. It’s all a part of their site and doesn’t require me to spend 3 minutes allowing something to be added to my computer.  Allow - hey I said allow already! I can see the use of RIA’s growing and more websites that offer a lot of features or options to use them to help customers narrow down what they are looking for.

The following YouTube is my quick take on the financial crisis.  I think that a lot of the problems in our financial system come from a lack of understanding of the numbers.  I find this problem throughout the country when I am training.  We do not train our managers in business how to read financials.  The media makes it worse by feeding the fear with dire predictions and misinformation.

I am trying to explain how this financial crisis happened and why the solution will probably work.  On the other hand if the wide spread panic continues, we may be in for a rough ride.  We need to calm down and let the system correct…it will.

Also, if you get a chance read my book Financial Intelligence, it will give you a nice background on how to read the statements and what to look for in a company’s financials.  For you entrepreneurs, we just introduced Financial Intelligence for Entrepreneurs.

It was too long for one video so be sure to catch both part 1 & part 2.

Part 2:

Previously in my career I worked as a Project Manager for a large project-based business.  Our product was amusement rides, and we had the tallest, fastest and coolest roller coasters on the planet!  Each of these projects were multi-million dollar in value, and they would generally last between 8 and 18 months from concept to installation.  These projects also were often on the cutting edge of technology, as we were constantly trying to find the proverbial ‘edge of the envelope’ for speed, g-forces and general panic-inducing thrills for the paying customers.  As you can probably imagine, projects of this size and nature were a nightmare for a project manager.  You had to keep the customer happy, the team on task, the project on schedule, and the budget under control. 

That last issue was never an easy task!  Customers in search of the perfect cool ride combined with engineers in search of the ultimate cool features constantly intersected with ever-fluctuating material costs.  to make this messy situation that much worse, you never knew how financially successful your project was until months after it was wrapped up and complete.  The bean-counters would huddle up, crunch all the numbers, allocate your overhead, and then see if you had any cash left over to throw into the profit bucket.  This all equated to ulcers for the project manager, constant worry by the finance gurus, and a general lack of the feeling of “being in control” of these nasty monster projects.  Once, when a particularly discouraging project had just concluded, I remember telling a colleague something like this:  “man I don’t manage these projects…I just get dragged along for the harrowing ride!”  All roller coaster puns aside, it was a pretty helpless feeling at times; and the fact that the financial tracking was so far behind the manufacturing and construction of the rides meant that budget-driven course corrections were almost non-existent.  You had to just spend whatever it took to get to the finish line, and then hope you had something leftover at the end to dump into that profit bucket.

Fast forward to today, here at Setpoint I have many of the same challenges that I did at the roller coaster factory: gray scope of work, customers clamoring for more, engineers looking for the best, etc.  But guess what?  I now have a saving grace.  What could THAT possibly be, you say?  Well I’m glad you asked, it’s gauges my friend!  If you can visualize the project as an airplane, and the project manager as the pilot, it’s easy to see that this aircraft desperately needs some gauges!  Big fancy gauges to measure the projects metaphorical airspeed, altitude and direction.  Without constant real-time feedback on those critical navigational parameters, this plane is gonna be in trouble; it’s just a matter of time, and we’re talking “auger into the side of a mountain” trouble!

So, what are these magical project gauges?  For our business, they are the priceless project whiteboards that we update meticulously and review weekly with our entire company on Monday afternoons.  These boards are a key component of the Open Book Management philosophy that Joe has described in the excellent blog previous to this one.  Here at Setpoint, we love Open Book, we live Open Book.  Each project has a line on the board that details the ongoing project revenue, material costs (both actual and projected), labor hours invested, project gross-profit per hour (both for each week and cumulatively for the life of the project), and forecasted versus actual completion percentages of the project.

Every Monday afternoon we gather our entire company around these boards and the project manager briefly explains to everyone where each project stands on the critical and often brutal scope-schedule-budget trifecta.  This can, on occasion, be a very painful experience for the project manager, as his words are sometimes a forewarning of pending financial impact to the project, which translates directly to bonus money slipping right out of everyone’s pockets.  Obviously, that’s never a fun conversation to have with folds.  However painful this early warning system may be in that respect, it’s MUCH BETTER than just waiting until it’s over to see how your profit score turns out.  Why?  Because once we identify a problem early on we can make course corrections to try and minimize or eliminate the negative financial and/or schedule impacts.

Invariable, when an issue like this comes up in our Monday huddle, it’s always followed by a company-wide discussion/brainstorm session that more often than not presents viable solutions to the problem.  The bonus checks are saved, the project gets what it needs, the project manager is taken off suicide-watch, and the team camaraderie is ratcheted up a few notches on those days.  It’s really quite a wonderful sight to behold.  Our examples of successful mid-course corrections are many, and the ability to do those sorts of things makes life reasonably bearable for a harried project manager.  Instead of feeling like he has to solely carry the burden of the problem, he knows that the whole company will be right behind him to help grab the wheel, pull back on the stick and keep our airplane from auguring into that upcoming mountainside.  In comparison to the old days at the roller coaster factory, the best we could do there was when someone came along months after the crash and said something to the effect of “Hey did you know that you were flying too low when you hit that mountain?”  Well DUH!  Where was that nugget of knowledge 6 months ago!?!?!?!?!?

What are your project gauges?  Can you tell when the mountain is coming at you, or are you destined to know of the crash only when you’re picking up the pieces of the aftermath?  Get yourselves some gauges kiddies, today, or sooner for that matter, and watch them closely.  Keep that nice shiny project-plane in the air where it belongs!  And what do you call a non-airborne project-plane?  A scrap pile!  Please, stay off the pile if you can.  Your sanity will thank you for your efforts, I promise.

Keep your eyes on those project gauges folks!!!

Setpoint Systems, Inc. is an open book company, which means we open our books to our employees.  Every Monday at 1:00 pm we gather together to see how the prior week went financially.  It’s been that way at Setpoint pretty much from the beginnings of the company in 1992.

After arguing with their CPA and trying to understand QuickBooks, the founding Joe’s became confused and were looking for help.  I was working as a financial consultant after starting my career at Ford.  Joe Cornwell called me and asked if I could help him with his challenges in finance.  I remember Joe bringing me into Setpoint Systems which at the time had 5 employees, the two Joe’s and three others.  It was in the evening and it was just me and him.  He said “why do you finance guys have to make this so hard?”  He then went to the white board and said this is all that matters.  Then he wrote the following on the white board:

           Sales
- Stuff to Buy
——————————-
Aggregate Remainder

I told Joe C. that in finance we called aggregate remainder gross profit.  Joe told me that it is so great you finance guys have a name for that number because that is an important number in business.  So instantly I became the gross profit expert for Setpoint.  Later I would become a co-owner and CFO for the business.

Over the years we have developed our own system for tracking financial success in our business.  We have used Joe C.’s philosophy to keep it simple.  I told Joe that we did not need to follow GAAP (the Generally Accepted Accounting Principles) which is what his CPA was requiring.  Since we were a private company, we could present the numbers in a way that makes sense to our employees and managers.  I could take our home cooked numbers and present them to our banks and the IRS for taxes in the right format after the fact.

We developed three training courses on the income statement, balance sheet and cash flow.  We started a bonus plan based on our financial performance.  Along the way we realized that we had developed a unique open book approach to manufacturing automation equipment.  We now realize that the weekly board and our tracking system that is behind us is our single best asset in the business.

Over the years we have seen competitors come and go.  We have seen our employees work through problems on our books.  Recently one of our project engineers was under on the accrued profit on a very profitable job.  When it was presented on our board several of our shop employees challenged the numbers.  They knew that the conservative reporting understated the profits of the business for the month which would affect their bonuses for the month.  So our project engineer was forced to update the profit on the project more accurately.

I could tell several stories like this one.  Over the years our system has kept us honest.  When the board looks bad we have all worked together to solve the problems and when the board looks good we share in the success through bonuses.  If you are interested in learning more about Setpoint Systems open finance approach you are welcome to visit us on a Monday at 1:00 pm in Ogden, Utah.  Our system was featured in an article in Inc. Magazine, September, 2001 issue.

I’ve been in the Industrial Automation business for over 15 years now and have seen quite a swing in the way manufacturers produce their products.   About 12 years ago I was working for a major tier 1 automotive components supplier as a process engineer.  The production lines were comprised of these large sophisticated machines that were all linked together with conveyors.  Parts were transported from station to station on small conveyor pallets and would stop at each station to either have value add work done or some sort of test or inspection performed.

There were several key issues with the large fully automated systems that produced our company’s products.

1. The lines were very expensive.  Many times ranging between $10-$15 million each.
2. The lead time for getting a full production line in place was anywhere between 15-24 months.
3. The machines were very complex and required a high level of engineering and maintenance support to keep them running.
4. The inventory of spare parts required to keep the systems up and running was huge
5. The systems, although “fully automated”, required more operators and support than expected to keep the systems running and clear all the faults, jams and other issues related to a complex system.
6. Changeovers took shifts if not days in some cases.  (Loss productivity and lots of labor for the CO)
7. The overall systems up time was terrible and in most cases ran in the 60-65% range
8. If one machine in the overall system went down, the entire line stopped while issues were resolved
9. The lines took up a huge amount of floor space and impeded process flow in many areas

Nice overview of traditional factory automation huh?   Well, the leaders of the company realized that this was not working out.  By the time a system was ordered, built, installed and commissioned, up to 2 years had gone by and many changes in both their product’s technologies and customer demands had changed. 

So lean thinking was introduced into the company and embraced by senior management.  This is ABSOLUTLY!! key for lean thinking to even have a chance.   The first task, after the basic 5’s stuff was out of the way was to find a better way to manufacture parts with simple, flexible equipment solutions that would address all the above listed issues.  Here is what happened.  I actually took part in this transformation and can vouch for how real and powerful Lean is.

1. The cost of the manufacturing lines went from $10-$15 Million to $850k-$2.5 million
2. Lead time for a lean line was around 6 months instead of 1.5 to 2  years
3. Machines were simple, flexible and easily reconfigurable because they were no longer connected via a vast network of conveyor systems.   Most machines were set up in cells in some sort of “U” shaped arrangement that allowed for easy access, flow and visual reference of what was going on in the cell at all times.
4. Spare parts inventory was cut by over 80% due to simple machine solutions.
5. Operators worked on the line to pass parts through the process but it offered the flexibility needed to handle a huge variety of products within a family.  We found that even though there was a manual interface requirement, the overall labor minutes per unit actually went down dramatically.
6. Changeovers from one model to the next were fast, efficient and mistake proofed.
7. Because the equipment was simple, easy to maintain and far less complicated, the overall uptime typically went from 65% to near 95%. 
8. If one machine in the overall system went down the other machines had small buffers that allowed the cell to keep running while individual machine issues were dealt with.
9. The floor space required for the cells was cut by over 75% in most cases.  This freed up valuable floor space for expansion for future business.

All in all, Lean Automation has made a huge impact for those manufacturers who have adopted the Lean philosophy and have strived to keep their competitive advantage intact through out the years of their specific business evolution.

So the theme I’m seeing here is, Go Lean or Go to China.  You decide.

How are you going to take your business into the future?  How will you compete with price-cutting competitors?  How will you reduce overhead costs and increase profits?  Every business struggles with these same questions.  The book The Toyota Way by Jeffrey Liker suggests that the answer to all of these questions is operational excellence.  What is operational excellence?  It is being the best at what you do, improving the speed of your business processes, improving the quality of your products and services, and cutting unnecessary steps and costs from your operations.

The Toyota Way lists 14 management principles that Toyota uses to achieve operational excellence.  These principles focus on eliminating waste, standardizing processes and learning from experience.  They facilitate a continuous flow of quality parts and information precisely when they are required.  By following these principles, hidden problems are brought to the surface and employees are trained to solve these problems.  The best part is the process is circular, it’s continually improving.  Kaizen!

Setpoint believes in Kaizen, which is a Japanese term that roughly means “continuous improvement.”  As part of the continuous improvement here at Setpoint, we have studied this book to identify ways to implement these 14 principles within our own company and for our customers.  One area that we are focusing on is the way we receive parts.  We are moving towards Just in Time so the parts are available to the assembly technician precisely when they are ready for them rather than having them sit for a week or two before they start working on the project.