You must be intrigued by my statement, “AI Simulation: Every Company is a Factory.”
Here at Business Laboratory, we get the privilege to work with companies of all shapes and sizes in locations worldwide. We have a front-row seat on a large swath of the global economy. Today, it’s a metal fabricator in Minnesota; tomorrow, it could be a marine terminal in Dubai (these are both real examples, by the way). Even after 40 years of doing this work, I am amazed at the breadth of experiences that come our way.
You begin to appreciate some of the differences and similarities among disparate firms. One of the most prevalent concepts we’ve discovered is that every firm, be it a manufacturer of chemicals, a bank, or a trucking company—is really a factory in disguise.
Regardless of background, we all know what a factory is—a place where a sequence of machines transforms raw materials into some finished product. We’ve all seen videos of car assembly plants as the half-built car moves slowly down the line while workers affix doors and windshields. Everyone knows factories, but the real insight comes when we imagine our own businesses working as factories, even if the notion is foreign to us.
Let’s think about what factories have:
- They have an identifiable starting point where the production process begins and an ending point where the finished product is completed.
- There is a known routing sequence for the product.
- There are N steps in the production process, each involving a transformation. Each step is often a “queue” with products waiting to go through. The process step itself has a cycle time.
- Every factory has an objective to make X products (or more) in a given time period (usually a shift)
- The configuration of the factory—the plant floor layout, the setup of the individual machines, and even the distribution and roles of workers across the floor—has a strong bearing on the overall efficiency of the place.
- Products incur costs as they move through the factory. Each product has a “true” landed cost to manufacture
The straightforward manner in which a factory operates makes it equally clear to apply optimization methods to factories. It is perhaps why, in 200 years, manufacturing has become one of the most efficient economic activities known to man. It is credited with creating a phenomenal source of wealth for nations that support its development.
Yet, much of the economy does not directly manufacture a physical product. Rather, they make software, deliver goods, grow food, convey information, or repair machines. How are these kinds of businesses aided by the idea of pretending to be a factory?
Every business does have a value chain. The value chain is analogous to the car assembly line. A given step in that chain may not involve connecting a physical part with another but does involve a transformation of some type, just as when a bank decides to underwrite a loan to a consumer. That transformation from a loan application to an approved loan involved a virtual “machine” at the bank that had to be designed and configured deliberately to perform that function. It also consumes resources—computing or human or both—in its execution of the function. In essence, the bank is a factory that, among other things, produces many loans using the raw materials of money (capital) in a series of value steps. By thinking of this as a factory, we can apply the frameworks of lean manufacturing to ensure that the factory operates as efficiently as possible. We can even simulate the factory to test the use of various machines or labor alternatives, just as in real factories. In short, the factory analogy gives us a whole new bag of tools to look at and improve non-factories. Factory-like efficiency is still relevant even when the individual steps are accomplished by computing power in milliseconds.
Those of us in the ⅔ of the Western economy who are not manufacturers might ask: OK, so how do I get started using a factory analogy at my company?
The answer is this: the same way factories create value. Start by drawing the firm’s value chain on a piece of paper. Write down each step of the process, then connect them with the intermediate inputs and outputs of those steps. Also, add the controls to the steps—those “recipes” that govern how the step works. And don’t forget to add the resources used by the step, the human labor, and the machines and assets needed to make the input-to-output conversion. It is not an easy exercise, and you may not succeed in one sitting. But stay with it, and you will have a clear representation of your factory for discussion among the company personnel. Just the very act of committing your company to paper means that you are “modeling” the company in a way that allows for optimization.
No matter where we are assigned to work, one of the first things we do as a team is pull out a blank sheet of paper and begin drawing a schematic of what we see. If done well, drawing is a portal through which value is created. The drawing becomes a “language” for describing the company as a system, ultimately leading to system thinking that is the engine of greater value.
Go discover the hidden factory in your firm. You will be glad that you did. Need help getting started? Reach out to us, and we would be happy to assist.
