For Manufacturers - How to Take Advantage of the Border Adjustment Tax

By Taylor Milner

Congress is considering using a Border Adjustment Tax to increase the financial incentives to produce goods in the United States. If successful, demand for US-made products will increase significantly.  Most US manufacturers would likely benefit in some way over the long term, but some would win much more than others. The biggest winners will be those that are able to find and utilize excess capacity in their existing operations.

If you are a manufacturer, how do you find this excess capacity? It’s not as if you have been sitting around doing nothing in a low competition environment. If the hidden capacity was obvious, you’d have already found it. However, every business has significant unrealized operational potential, and realizing it requires looking at your business differently. 

Finding Excess Capacity to Win With the Border Adjustment Tax

Change the conversation with your ops team.  Until recently, the conversation in most manufacturing operations has been about cutting costs in response to increasing competition, pressure from large customers, and the need to invest in sales generation. This kind of conversation has caused people to knowingly or unknowingly sandbag their potential so as to not create too challenging a budget.  In the push for capacity, shift the focus away from cost and reward highlighting opportunities for more throughput. The payoff can be huge: one food and beverage company increased its output by 50% without capital when it changed the conversation from focusing on cost savings to adding capacity for a new line of products.

Ask different questions.  Instead of, “why can’t we get 20% more out of our operations,” ask, “What would need to be true [or “what would it take”] to get 20% more out?” Go back to first principles when looking for opportunity. Block out all of the constraints and things you “know.” Here are a few specific places you can look:

  • What is the bottleneck of your line? You may think you know, but you should measure the decoupled output of each asset just to make sure it has not moved.
  • What is the theoretical maximum speed of your bottleneck? Not the highest speed up until starting to have production problems or the manufacturer’s recommendation: the actual fastest it can run as constrained by physics. The problems it runs into at higher speeds should be seen not as constraints, but as problems that you can solve if you take the right approach.
  • What are the biggest downtime opportunities on the bottleneck? Most production lines have dozens of downtime issues, but the 80/20 rule tends to hold true: a few downtime issues are responsible for most of the total lost production time. Figure out what these few downtime issues are, and focus on them.
  • Challenge “scheduled” downtime. Many businesses inadvertently sandbag by not counting scheduled downtime--like cleaning and maintenance--in their OEE numbers. But improving each of these processes can bring your assets online for longer.
  • Ask how to improve the use of accumulation. Accumulation is often under-utilized in manufacturing businesses, as operations teams try to ensure “smooth flow.” Accumulation has also gotten a bad name through the over-application of Lean principles.  How can you change your operations to use all of your accumulation?
  • Go after the hard problems. The hard, unsolved problems in your business shouldn’t be accepted as impossible. Go after them to solve them and realize that capacity. Get outside help if you need to.

Stop kidding yourself.  There is a whole lot more there.

Challenge the Business

  • What problems have you accepted as “part of business” that could really be solved?
  • What performance metrics have been sandbagged to indicate that the operation is performing close to 100%, when really there’s much greater potential for each asset? Are any of your metrics suspiciously round?
  • What does “everyone know” to be true that hasn’t been challenged by the business?
  • What “good reasons” about why an asset can’t perform better can you challenge?

Because the biggest winners will be those who can increase the capacity of their supply chain without waiting for capital improvements, business leaders should make it an imperative to take a new look at their operations. Ask hard questions, challenge what is known, get the data, and ask your team what they need to make more possible.

Like this article? You might like: 

Border Adjustment Tax: Who Will the Biggest Winners Be?

For Investors - Picking the Biggest Winners from a Border Adjustment Tax

Have We Entered the Twilight of CI (And What Comes Next)?