How the Theory of Constraints Impacts Industrial Coatings

By: Andy Odorzynski, Induron Sales Representative

Financial accounting metrics can be both useless and misleading for those of us seeking to make real business decisions. Not the first sentence you expected to read in an article about industrial coatings, right? Well, bear with me, and I’ll explain how Induron helps our clients see the intersection of these two topics.

When Warren Buffet sits down to evaluate the performance of a firm, he has a lot of work to do because the only information available is what is reported in the company’s SEC required financial disclosures. Mr. Buffet would tell you these financial metrics are far from the most useful and informative; they are simply the ones required by the law. So, his team begins the process of deconstructing these financial disclosures and rearranging them into the financial metrics that best reflect the real value and performance of a firm.

The methods his team uses are taught regularly in college classrooms (Financial Statement Analysis, Fridson & Alvarez). It’s no secret that financial reporting metrics are a flawed tool, yet SEC disclosures have not evolved. Thus, we have Managerial Accounting. A second set of analytic numbers that are meant to inform business managers in a way financial accounting does not. While managerial accounting provides indispensable data, it can still be very difficult to translate the insights it offers into meaningful action on your factory floor or job site.

Theory of Constraints (“TOC”) was introduced to the world at large by Eliyahu Goldratt in his 1984 book The Goal.  TOC proposes an even simpler version of operations management informed by just three accounting metrics: Inventory, Operating Expense and Throughput. The purpose of this construct is simply to minimize inventory and operating expense while maximizing throughput. Goldratt argues that this is all we really need to focus on. The rest is just noise that will distract and mislead us. The fundamental requirement for increasing throughput is to identify the constraint that is slowing your throughput down, and fix it. In a perfect world, you would do this so efficiently that the constraint moves outside of your facility, i.e. “they can’t bring us steel fast enough”.

During my time with Induron, I keep coming back to the lessons of The Goal as I work with contractors and facility owners. On a recent visit to a large rail car fabrication facility, I learned from the operations management team that all 4 lines of their production facility sit on hold waiting for a full shift after primer is applied so that it can dry and the line can advance. Once finish coat is applied, they are all waiting until the next shift again. Clearly, we have identified a MAJOR constraint on throughput.

What if primer and finish coat could both be applied in one shift? The plant’s 4 assembly lines would be able to move 3 times in an 8 hour shift instead of once every 8 hours.

We have moved the constraint and now the question becomes, “can the final assembly teams keep up with this many painted cars?” Assuming they can, imagine the increase in billable finished goods the factory would experience. The best part: they didn’t spend a penny! Neither inventory nor operating expenses increased. They simply partnered with the right supplier who brought the right insight and products to the table.

I also see this at work with many paint contractors who are bidding projects and trying to figure out how to put the best number on the table. It’s common for me to hear “I need the best price you can give me.” While price competition is very real, my reaction is often to say “let’s look at your process and see what we can find.” If, for example, a firm knows their operating expenses in the shop will include 5 painters per 8-hour day, we can simply treat these costs as a known operating expense. Just like light, heat or any other cost of goods metric. Rather than getting caught up in man-hours, we sit down and focus on what we can do to get the most billable units of throughput possible out of that operating expense investment. In addition to focusing on things like process flow, Induron’s industrial coatings can offer throughput increases in multiple forms:

  • Shrinking recoat wait times (like the example above).
  • Eliminating coats by using dual-purpose products. Induron 9400 Epoxy Siloxane, for example, offers the color, gloss and UV protection of a urethane with the durability of an epoxy in a single coat.
  • Eliminating coats by using thicker build products. Induron ceramic epoxy products are capable of tremendous film build in a single coat. This can often shave days off of projects as you eliminate waiting time between coats and the actual application time of each coat of paint.
  • Lowering surface preparation requirements. Induron’s E-bond 100 penetrating epoxy sealer has the ability to penetrate and lock down tightly adherent corrosion and previously existing coating. For many atmospheric exposure projects this can reduce or eliminate the need for sandblasting.

When project planning is approached this way, we often find the increases to be gained in schedule, billable activity per dollar spent on operations, and goodwill with clients renders the cost of coating material moot. Our job at Induron is not to provide your paint. Our job is to add value to your organization by being an indispensable business partner. We just happen to have some amazing products that help us do that.

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