Developing the commercial aspect of engineering through Lean
17 July 2014
Author: Michael Healy, former commercial manager of Winthrop Engineering
As a mechanical and engineering services provider, Winthrop Engineering Ltd works on a variety of projects throughout the country, ranging from industrial and pharmaceutical to public-sector clients. As a result, the type of engineer required is a diverse character with a broad range of skills, from technical engineering to commercial acumen. This is to ensure the ability exists within the company to meet challenging requirements in the areas of design development, co-ordination and technical procurement.
Winthrop’s former commercial manager, Michael Healy, explains how the company deals with this. “Over three years ago, we had a discussion regarding the engineering element of the business. We knew the type of company we wanted to be and the segment of the market in which we wanted to operate. The company, until that point, had been focused on engineering services contracting. Most of our project management teams were from an engineering background and, due to their project management role, they were also responsible for the commercial management of the project.
“Whilst the intention was to increase our engineers’ commercial ability,” he continued, “the outcome was a lower-than-required technical and commercial competency within the company, quite simply due to overburden.”
The company started by reformulating its project management cost-reporting system, which broke every project cost down into more detail. When this was complete, training was given on the new system to the project teams and the system was standardised throughout the company. This allowed transparency into where the company was performing from a cost perspective on each project.
It further identified three very different distinct roles, namely engineer, commercial management/quantity surveying, and project manager. Originally, engineers were expected to develop competencies in all three of these areas, but the company’s continued development required it to recognise the distinct nature of each role, and the distinct training and development routes required to achieve the desired competency levels in each.
This was not to say the company no longer encouraged engineers to have an understanding or an appreciation of commercial management, or project management; far from it. However, the sectors in which the company now operates require the engineers to be fully focused on providing solutions for engineering problems and delivering value in terms of client satisfaction. It sounds obvious, but the fundamental key to attaining customer excellence is the quality of the people and their skill set within the organisation.
OVERBURDENING OF ENGINEERS
Another key area identified was the engineer’s workload. In order to improve consistency, the company had to ensure it mitigated overburden of its engineers. This was achieved through broadening the project management team by introducing a quantity surveyor into the team. As a result, engineers were released to focus on their core responsibilities named above in co-ordination of services, design development and technical procurement.
Whilst this reduced the engineer/project manager’s workload on the day-to-day commercial management requirements of the role, they still retained responsibility for the successful completion of the project and, consequentially, still required good commercial acumen.
Every project is exhibited in an ‘end of project’ PowerPoint presentation, which was delivered internally to the operations department as a knowledge-sharing exercise. This allows learning development and discussion as to what works well, or not, in areas such as co-ordination, technical procurement and design development. Quite often, an individual will find a solution in their project as a direct result of attending one of these presentations.
This level of understanding builds on an engineer’s ability to create value engineering opportunities in terms of co-ordination and technical procurement, which in turn will benefit the project – and, ultimately, the client. This is the interesting dynamic between the two areas, as engineers may not necessarily identify the commercial aspects of the project as being their responsibility. However, an engineer with this level of understanding will automatically have developed their value-engineering skills to a level that not only enhances the project performance, but also creates value through the eyes of the customer.
For example, quite often a change will occur in a project, introducing a new requirement that challenges the existing design in simple areas such as physical space constraints. It is the engineer’s responsibility to not only create a solution to this problem, but also manage to achieve this within budget.
Another key element in the commercial development within the company has been the Engineers Ireland CPD (continuing professional development) initiative, which was introduced into the company in 2010. This allows the formal structure to develop the company in areas such as knowledge management, individual professional development and continuous improvement, which are all aligned with the high-level strategy of the company.
As part of the CPD initiative, the company has embarked on its own Lean journey. The reason Lean was chosen was the all-encompassing, end-to-end systems thinking upon which the Lean philosophy is built. The company was already in transition phase due to the economic environment of the industry. It knew it simply could not rely on crudely reactive practices and needed something that would strategically deploy policy to the workface that would enhance the company’s offering to its client base.
INTRODUCTION OF LEAN
Having originated in manufacturing, Lean does not necessarily translate into construction. This may be due to the fact that whilst innovation has occurred in certain areas of the industry, it still operates in very much a traditional paradigm from a managerial perspective. Also, Lean uses manufacturing terminology that construction personnel might not understand, or simply cannot see the relevance of, when it comes to their role.
The initial Lean foray for the company consisted of a simple process-mapping exercise of procurement, from the point of requirement on site right through to processing the invoice for payment. The results were eye opening to say the least, identifying significant wastage in the system – such as silo management of departments. Although departments were meeting their own key performance indicator (KPI) objectives, this was detrimental to the overall throughput of the process.
The exercise also brought understanding to cross-functional teams as to an individual’s operational behaviour and why they might require certain information. A key point of Lean, which is often misunderstood, is the term ‘value through the eyes of the customer’. Taken at face value in a low-margin industry, individuals can fail to fully understand this term. It means looking at processes through the eyes of the customer, as to whether a customer would be prepared to pay for a certain process.
Put simply, if a client is not prepared to pay extra for a product or service, it has no value. By identifying the parts of the process that were ‘value added’ and ‘non-value added’, the company was able to take out the non-value added elements (e.g. checks and sign offs) and free up valuable engineering time whilst still maintaining control of the process. The time saved as a result allowed time for engineers and other personnel to add more value in their areas of expertise.
Another area Winthrop looked at was the whole area of inventory, which is identified as one of the seven wastes of Lean. The company had thought it had a very low inventory due to just-in-time (JIT) practices in its procurement policies. However, looking at the business model from a throughout perspective (which is normally from a manufacturing perspective), significant inventory was identified and freed up as a result. Throughput is concerned with two criteria: cash-flow and gross margin. Traditional methods only measure inputs and outputs. In a construction sense, inputs could be labour, material and overhead costs, in a monthly timescale.
Viewed from a traditional perspective, the output from this would be the monthly valuation, with the obvious formula to ensure productivity measuring whether the valuation is higher than the costs. However, if the valuation is under certified for any reason, this significantly alters the equation. This is throughput in a construction environment.
The resultant difference between the valuation and the certified amount can now be classed as inventory, because for all intents and purposes, it is completed work. And, in a manufacturing environment, it would have to be consigned back to the warehouse. In construction, it is simply deemed work in progress (WIP) and accepted as ‘the way things are always done’ in the industry, with significant impact on cash-flow and margin.
By addressing these issues in a monthly KPI such as this, the company is able to keep all issues relevant, deploy resources at each constraint as it emerges and reduce bottlenecks in a consistent and sustainable fashion. To help keep this continuous improvement moving forward and deploy it to site personnel, Winthrop recruited a quality manager from a manufacturing background.
MANAGING QUALITY AND LISTENING TO THE CUSTOMER
Winthrop managing director Ger O’Leary further explains, “We didn’t want a quality manager to ‘tick the boxes’ and just be something we could put on a brochure. We wanted a real result from this department. We could have recruited from the construction industry, but we thought a candidate from a manufacturing background would give us a real understanding of our manufacturing customers’ requirements.”
This resonated with another Lean term; ‘the voice of the customer’, which would generally be an uncommon term to a mechanical and electrical engineering firm. The new quality manager has experience in Lean, having implemented it in a previous role, and he is trained to identify the voice of the customer – hence giving the company a real chance of meeting and exceeding that customer’s requirements.
By developing these Lean initiatives through the CPD and engineering personnel, the company is endeavouring to enhance its culture into one of sustainable continuous improvement.
Whilst these skills may not be the usual set of engineering techniques, Winthrop feels that building these skillsets and culture into its personnel at all levels will help empower them by taking responsibility for the commercial outcomes of their engineering decisions. The resulting value-enhanced offering should offer a return on investment to see the company well into the future and further establish its position in the market place.
Michael Healy was Winthrop’s commercial manager at the time of writing this article. He is currently completing an MBS in Lean Practice in Waterford Institute of Technology (WIT). He has previously attained an MBA in WIT, where he completed his thesis on Lean for the Construction Industry. His current MBS primary research concerns balancing capacity with demand in a construction environment. He has previously worked in London with over 20 years’ experience in a number of roles in the electrical contracting sector, ranging from large inner-city commercial and industrial projects to the London 2012 Olympics.http://www.engineersjournal.ie/2014/07/17/developing-the-commercial-aspect-of-engineering-through-lean/http://www.engineersjournal.ie/wp-content/uploads/2014/07/Winthrop-1006x1024.jpghttp://www.engineersjournal.ie/wp-content/uploads/2014/07/Winthrop-300x300.jpgMechCPD,lean,manufacturing,Winthrop Engineering