IdeaParachute Case #1 – Specialty Valve Manufacturer

Hello all,

I’m finally beginning the IdeaParachute initiative.

As my first case I have randomly chosen a Valve Manufacturer company.   The relevant information about this company, gathered from public information (i.e. website, google), is the following:


  • Manufacture specialty engineered valves, for multiple industries
  • Valves come in multiple sizes, types, materials, meaning the possible combinations of end items are probably in the thousands
  • Their products are for critical service operations, meaning downtime is a big deal for their customers in terms of cost and downtime time
  • Their valves are easy to maintain, meaning customers minimize downtime and cost
  • Operations are similar to a Job Shop, which manufactures parts that are later assembled, which is a usual process flow for valve manufacturers
  • They likely stock some common items, but also custom manufacture specialty items, meaning their operations are both make to stock and make to order


Below are several ideas that I am proposing:

1.  Choke The Release of Plant Orders

Regardless of the type of manufacturing operation, choking the release almost always has an immediate positive effect on a plant’s performance.   Choking the release means releasing plant orders only when they it is really needed.

Most of the time, orders are released with ample time in advance, just for the sake of keeping machinery and labor busy.  This behavior is induced by traditional cost accounting measures, as maximizing efficiency will minimize cost of goods sold.  However, aiming for efficiency everywhere in a manufacturing plant leads to high work in process, long lead times, lower due date performance and less effective capacity.

Running a very efficient plant, in all work centers, is often the case for sub par plant performance.   Controlling the release of orders improves the situation significantly.

For more information about how this is implemented, explore the S-DBR methodology

2.  Use Replenishment Times in Target Inventory Levels

Companies often determine inventory levels based using a target levels of weekly or monthly sales.  For example, an Operations Manager might say that he defines target finished goods inventories at a maximum of 6 weeks of average demand, plus some safety stock of 2 weeks.

However, what is often not considered in setting these levels is replenishment time, or the time that elapses since an item is sold until it is replaced.   Replenishment time is composed of order lead time and resupply lead time.  Order lead time is the frequency with which orders are placed and resupply time is the time it takes to resupply that item, which often includes manufacturing time and/or transit time.

If the total replenishment time for a company is composed of 1 week of order lead time (i.e. orders are placed every week) and 1 week of resupply time, then perhaps having 8 weeks of total finished goods inventory might be too much.  This concept applies to all stock items, including raw materials, intermediate components or finished goods.

For more information about how to use replenishment times in inventory levels definitions, see the DDMRP buffers model.

3.  Operational Excellence as a Decisive Competitive Edge

Michael Porter famously said two decades ago that there is a big difference between strategy and operational effectiveness.   Strategy is about deciding what business a company is in (i.e. what does it stand for) and operational operational excellence is all about execution.  Porter suggested that when it comes to execution, there is convergence, meaning all companies will achieve the same level of operational excellence over time.

But is this really the case?   How many companies do you know that consistently deliver their product and/or service on time, all the time?

I happen to believe that operational excellence can be the source of creating a decisive decisive competitive edge, or something that exceeds customers needs and that competitors cannot imitate easily.

If you want to read more about how operational excellence can be used to create a decisive competitive edge, you might be interested in the concept of Ever Flourishing organizations.

4.  Sell Products Below Cost and Still Make Money

Traditional cost accounting shows us how we should calculate the cost of products.  The cost of the product includes raw material, and direct labor and manufacturing overhead. Cost accounting helps allocate or assign overall company costs to the different product families, by using allocation factors such as direct labor.

The problem with allocation, is that it often leads to distortions.   When the product cost concept was invented, companies had much more variable than fixed costs.  Today, the majority of costs are fixed, and cannot be adjusted when sales volumes change.

In addition, cost accounting ignores real capacity of manufacturing plants.   If a plant has capacity, and you can sell at a price that covers are your real variable costs (i.e. such as raw material), you will be bringing in additional margin to cover your fixed expenses.

Yes, GAAP requires us to calculate product costs, but we don’t have to use these same calculations for our decision making.   A company’s primary concern should be to generate enough gross margin to cover operating expenses, not to sell at prices that are above product costs calculated with cost accounting measures.

So should you accept this new deal, at a price below your usual cost accounting cost?   Perhaps you should.

If you are interested in the alternatives to using product costs in decision making, you can read about the Throughput Accounting concepts.

5.  Hold Stand Up Meetings 

Meetings take too much of our time.   What would happen if we followed the rule of only holding stand up meetings?

Stand up meetings are just that:  meetings where no one sits down.   An agenda is defined, only those required are invited, and the meeting is short and sweet.   These types of meetings are common in the software development world, and several manufacturing companies do them too.

How much time can we save if we hold these types of meetings more often?

For more info about stand up meetings, see how this company  is doing them effectively.

[For more information about the IdeaParachute initiative, visit]

**The ideas suggested here are proposed to ignite additional ideas to those who are reading.  It is likely that additional contextual information is required to implement them successfully.

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Guess Who’s Back!

After several years without actively blogging, I”m back.  Writing about what I like the most, business.   But not in the way I used to.

I am testing a new concept, called IdeaParachute.   Hope you like it.

PS #1 – The older posts you see in this blog used to be part of my Value Borne Blog, where I used to write about interesting ideas I found about life and business.  I moved them to this site as I will be probably suggesting many of these ideas to businesses.

PS #2 – It took me a while to write the first entry, but here we go!

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An Unconventional Way To Retain a Client

I have always thought that honest goes a long way.   This approach to life may be interpreted as naive, but I do believe that becoming trustworthy will often work out for your best interests in the long run.   Trustworthiness is beneficial both in your personal and work life.

Charles Green has been an advocate of trustworthiness for a long time, and stresses the importance of using trust as a competitive advantage.  However, becoming easy to be trusted by others often implies taking counter intuitive actions and significant risks.  In one of his books, he has an an excellent example of how an auditing firm approached a situation with an unsatisfied client that was thinking of changing supplier.  New auditing companies were called to present proposals for the required services, and this auditing firm did the following:

“Instead of using their 90-minute time slot to do a conventional presentation, four of their partners acted out a skit for the four client executives. They role-played those very execs having that decisive meeting”

The company took a risk, talked about their current decline in their performance, and how they would improve it.  The result:  they were awarded the business again.

At the end, honesty’s all we’ve got.

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Knockoffs Decrease Sales. Really?

Authors Kal Raustiala and Chris Sprigman have a new book out, The Knockoff Economy, exploring the effects of imitation on innovation and on profitability.

Common sense would say that when imitations (knockoffs) of products appear on the market, the sales of that product will be negatively impacted.  But is this really the case?

The studies the authors conducted show that as long as users can distinguish between the originals and knockoffs, the availability of knockoffs have several positive effects:

  • There is free advertising for the brand of the original product
  • There are increased sales in the long run, when customers that use the knockoffs products are able to transition into the originals, or in other words, when they can afford them.

A short excerpt from the book:

“In short, copies of branded goods—counterfeits—can have a counter intuitive effect on originals. While these copies can steal away some would-be buyers of the original, they also can help create new buyers through the advertising effect. Some counterfeit buyers “graduate” to the real thing, whereas others who never buy a counterfeit become buyers of the original because the counterfeits serve as advertising.”

In conclusion, imitations of your product may actually be good for your company.

At the end, if you are continuously the best in your category, everything will work fine, no matter how many try to imitate you.

Are you the best in what you intend to do?

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Trailers and Lean Accounting

Bill Waddell, famous lean expert and consultant, describes in a short talk the basics of Lean Accounting.  It is always positive to see that leaders of various continuous improvement disciplines agree that an accounting and measurement system focused on real value and not artificial numbers is an essential component of effective management.

An example of a company that understand real value and effective metrics is ATC Trailers.   You can understand their lean journey in this short video, and how they defined distinct value streams and eliminated waste to deliver products more quickly and profitably.   End result:  delighted customers, motivated employees and a growing company.

Are you using an adequate scorecard to manage and grow your business?   Are you focusing on performing value added activities and eliminating waste?

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Sleep No More, Zimbardo and Milgram

Stanley Milgram and Philip Zimbardo are two recognized psychologists that conducted a some of the most famous social experiments in history to try to better understand human behavior.   What they were trying to prove in their own ways was that behavior can be significantly altered by your surroundings, and a certain environment will induce you to behave in ways that you would not expect to under normal circumstances.  

Enter Sleep No More, a fascinating and different type of theater play, created by an group called Punchdrunk.  Instead of attendees sitting and watching the show in traditional style, they are given masks, walk through rooms, decide when to interact with actors, follow actors into rooms, and even eat and drink.   Every decision the viewer makes shapes your experience, and by being anonymous participants do things that they would normally not do.   Often, at the end of the show, attendees are surprised of their actions.

Read all about behavior, your surroundings and Sleep No More in the latest Freakonomics podcast, Fear Thy Nature.

Are you sure you would act as usual, if your surroundings change significantly?

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The Flip a Coin With a Twist Method

Ever been in a dilemma, and have no idea what to do?

When implications are so big that even an conflict resolution diagram will not help you find an answer, there is always the traditional “flip a coin” advice.  But is it really effective?

Although flipping a coin may feel that you are leaving your decisions to randomness, there is an alternative method with a twist, that includes your gut feelings.

Making  decisions is part of life.   When unable to decide, the flip a coin with a twist may help you out.

So what will it be?  Heads or Tails?

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Instant America Infographic

In a world were information can be accessed immediately with the tap of a finger, the click of a mouse or a couple of keystrokes, have you asked yourself how the instantaneous world we live in has changed our behavior? created an interesting infographic that shows how impatient we have all become.  To illustrate through an example:

  • 1 in 4 people abandon a website that takes more than four seconds to load.

The internet has become as essential as electrical power, one of the great inventions of the ultimate geek.

I just have to wonder what Nikola would have done with the internet.

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Are You A Linchpin?

If you don’t know about Seth Godin’s Linchpins, maybe Hugh’s illustration can help to understand the gist of it.

Bottom line:  Are you indispensable?  If not, what are you doing about it?

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The Laws of Subtraction – Free Preview

Matt May, the former Toyota consultant and innovation expert, is in the process of writing his newest book, The Laws of Subtraction.

Matt has reminded us over the years that what constitutes an elegant solution is the ability to remove excess detail, and even leave some things unresolved so that users can fill in the blanks.  The Laws of Subtraction guide us through three critical choices inherent in every difficult decision in business, work and life:

  • What to pursue versus what to ignore?
  • What to leave in versus what to leave out?
  • What to do versus what to don’t?

You can download a free preview of his new book, were the Laws of Subtraction are discussed:

  • What isn’t there can often trump what is.
  • The simplest rules create the most effective experience.
  • Limiting information engages the imagination.
  • Creativity thrives under intelligent constraints.
  • Break is the important part of breakthrough.
  • Doing something isn’t always better than doing nothing.

In a world were time is limited, it is essential to decide what not to focus on, and just subtract it from your life.

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