Improving production to cut costs

Electrical Apparatus, May 2002 by Wiersema, William H

Accounting for management

Look to scrap, salvaging of used materials, reducing downtime, and component planning to improve profitability

WHEN TIMES ARE TOUGH, you need to look closely at fundamentals. In their efforts to maintain profitability, service shops and manufacturers alike need to adapt new and useful ideas for improving operations and reducing costs. For most manufacturers, materials is the largest single category of costs, followed by plant capacity. For service companies, labor is a high priority item, but materials must also be taken seriously. Whatever a company's top costs, reducing them should be given top priority.

Assuming that a company is buying as well as it can, the area for material savings is reducing scrap losses incurred in processing. As metal is cut or machined, expensive material is naturally lost. When in the hands of an inexperienced operator, these losses multiply.

For certain manufacturers, the issue is much easier to discern than for others. For example, steel service companies that take large coils of metal and convert them into narrow coils according to customer specifications encounter scrap on every order.

The leftover coils are known optimistically as "reapplication" inventory, or more commonly simply as "drops." Drops proliferate quickly as most orders generate at least one. Pretty soon, storage space must be expanded to handle it all.

As the problem grows, it seems no one accepts responsibility. Purchasing blames sales, production blames scheduling, and eliminating the problem becomes secondary to politics.

New policies must be designed and implemented toward the goal of cost reduction. For steel service companies, this might take the form of a quoting procedure that considers and appropriately charges for drops generated by an order. If an order consumes excess material in the form of scrap, it should be charged.

Some companies run the risk of kidding themselves into assuming that offfall may be reused on another order when in reality the material is too unique for any other customer to demand it. Assigning responsibility and implementing a mechanism for monitoring improvement helps a great deal. Managers as a team could be made responsible for improving on the historical drop percentage of total material processed. In that way, the exact problem and progress made is communicated to everyone. The problem then gets the urgent attention that it deserves.

Some types of material may be salvaged for reuse in operations. Plastics from molding operations, for example, may be reground. An off-fall metal piece can be substituted for a prime piece, as long as material handlers are aware that it's available.

A tracking system, or at least an organized storage area for this type of item, is essential to see that reusable material doesn't sit gathering dust This applies to parts salvaged from motors as much as bar stock left over when machining.

The biggest problem is accounting for the reuse. Shortages or losses may be covered through use of regrind material, unless it is watched. In the shop, when previously written-off materials are used, the same risk arises.

When scrap cannot be reused, focus on selling it. Adding value to material by sorting or compressing is a way to maximize your selling price. Some machinery vendors will even provide the equipment free in return for the processed scrap. A baler is a common improvement to implement.

Downtime and uptime

Downtime may arise from lack of production volume. In that case, downsizing an operation based around its most profitable product mix may be the solution. But breakdowns are also expensive and must be avoided. Direct labor is idled. Maintenance personnel are jerked away from their scheduled tasks. A fire fighting mentality predominates.

Consider a hypothetical paper mill. Maintenance is best done when the plant is closed. If a major part needs to be replaced while the plant is operating, on the other hand, the entire operation must be shut down, and the maintenance staff work feverishly to bring the plant back up as quickly as possible. Managers might grumble about maintenance crews being idle, but it sure beats the alternative.

The same principle applies in the shop. Old tooling can ruin product as well as incur delay costs as it is replaced. Sometimes, the order may have to wait while replacement tooling is purchased from outside suppliers. Policies are needed.

Tracking consumption and use of tooling is essential. With this information, an optimal time between runs for tool changeover may be determined. It's a matter of weighing the cost of the interruption and downtime against the cost of replacing the tool before it breaks. Then, setup or maintenance crews must be held responsible for implementing the program.

Another aspect is maximizing capacity of the machinery while it is running. This requires having the information to plan.

In the extreme, the capacity of an entire plant facility may be at risk. A company that hot-rolls steel bars into other shapes, for example, experiences variable throughput based on the product being run.