What CFOs Learn from the Factory Floor

The latest industrial revolution isn't emerging on the assembly line -- it's focusing on the bottom line. But the long-term gains don't come without some short-term strains.

Hi-Tec had been under tremendous pressure, says Kaiser, from customers who were asking for more-frequent shipments of smaller quantities. In other words, retail shoe outlets had embarked on their own just-in-time campaigns, and trimmed-down shipments would help them reduce inventory and boost cash flow. To satisfy those customers, Kaiser used JIT cash management to reduce the total cost of each shipment, which allowed Hi-Tec to decrease the cost of delivered shoes by 20 cents per pair. That cost-cutting measure enabled Hi-Tec to offer more flexibility to its customers, in the form of smaller shipments — 800 pairs rather than 3,000.

A Free Sample from the Factory Floor

Some lean tactics have less to do with the synchronizing finance and manufacturing strategy and more with swiping ideas right from the shop floor. One example is multivariable testing (MVT), a process that can be retooled for use in the finance department.

MVT is a descendant of Ronald Fisher’s study of randomization in the 1920s and George Box’s analysis of statistics from experiments during World War II. The methodology allows management to test up to 40 variables simultaneously, then sort out which ones have what impact — good, bad, or none at all.

In the late 1960′s, an Oak Ridge Laboratory statistician named Charles Holland recognized the commercial value of a process he developed while working on weapons projects. He trademarked MVT and promptly sold large manufacturers on the idea — DuPont, Monsanto, and BASF among them.

At DuPont, for example, management improved the capacity of a waste incinerator by 41 percent by zipping through an eight-run experiment — testing eight factors, and their interplay, simultaneously. Total elapsed time to test the effects of varying purge flow, delta flow, breech temperature, and five other factors: 33 hours.

By the 1990s, MVT was being used for business processes as well as manufacturing processes. At SBC Communication Inc., says former CFO and CIO Ed Glotzbach, the telecom company completed its MVT experiment in less than three months. That might seem long — if you didn’t know that the testing weighed the impact of 24 variables, ranked in order of their effect on cash flow, simultaneously. And the results? SBC decreased bill cycle time by a day and a half, improved billing accuracy to 70 percent, and increased on-time bill mailing to 99 percent, says Glotzbach, who recently emerged from retirement to become CFO of Houston-based TPI Inc.

“There is an amazing level of sophistication at our factories,” asserts Hi-Tec’s Kaiser, who just returned from a visit to one of his leather suppliers, in China. Lantech’s Cunningham regularly visits the shop floor, too, learning what language makes sense to operations managers and “introducing production-line financial statements that better match the manufacturing process.” And Glotzbach, who rose through the ranks at SBC via operations, says that knowing the dial-tone business from bottom to top helped him tackle a “disastrous” billing problem.

So it would seem that GDI’s Alan Dunn — that self-described “factory rat” — may well be correct. Dunn counsels his clients to manage for cash, not for variances — and to force the finance team to walk the factory floor. “Follow the manufacturing process, and all of its complexity, to the end,” declares Dunn. “Go be a part for a day.”

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