|W&WP October 2000
Manufacturing Cycle Time Reduction - A Must in Capital Project Analysis
By Tom Dossenbach
Of the thousands of woodworkers who visited IWF 2000 in Atlanta in August, many returned to their plants with ideas that appeared to offer savings for their company in a variety of ways. For example, robots were displayed at the event performing bandsawing, upholstering and finishing. With the cost of the robots at around $80,000, the consideration of investing in a work center with one of these machines would necessitate in-depth analysis.
On the other hand, there were literally thousands of cost-saving ideas represented throughout the Georgia World Congress Center and the Georgia Dome. Many of these alternatives are less sophisticated and less expensive than work cells containing robots and require less analysis in a project justification exercise. After some consideration, each one of these alternatives would have merits of its own. The challenge is to identify those merits and quantify them.
Some of the traditional financial considerations used in capital expenditure justifications include calculating the present value of future positive cash flows resulting from a project, the internal rate of return of a proposal and the payback period. Usually a company will set a minimum rate of return on an investment that is acceptable and this figure would include "opportunity cost" or the missed earnings on money if it were invested elsewhere.
While project cost analysis is necessary and can include extensive and detailed financial calculations, it is not my intention to delve into this sometimes complicated and confusing exercise in these few paragraphs - a company's financial people can cover this. What I do want to cover briefly is the fact that considerable judgment is required when making capital expenditure decisions in addition to the traditional methods.
Employees either may be in a position to propose a project, or may be the ones who will have to evaluate a proposal submitted by someone else. In either case, they will be presented with many factors that must be considered - some of which they may be tempted to dismiss. Some factors that need inclusion in the analysis are:
The last item - manufacturing cycle time - has become an important factor in every sector of our industry, but unfortunately is ignored by many manufacturers when making investment decisions. The need to respond quickly to a customer order is paramount in today's competitive environment, and a company cannot simply look at dollars when justifying expenditures.
How the project will affect the manufacturing cycle time should be at the top of the list of the many elements to be considered in justifying capital expenditures because if cycle time is reduced there will be a positive impact in all of the other areas.
Eliminating Manufacturing Constraints
Reducing Overhead Costs
Reducing Work-In-Process Inventory
Reducing Floor Space Required
Increasing On-Time Deliveries
Higher Product Quality
Lower Employee Turnover
Lower Product Cost
In summary, always consider cycle time reduction as a goal of every project. Doing so, and promoting such projects, will result in the benefits discussed above, in addition to direct financial benefits.
Reducing Manufacturing Cycle Time
In order to look at cycle times in a company's products, I suggest creating a process chart to look at the flow of the most popular items part-by-part. Any method to document the process flow of parts or assemblies through a plant will suffice.
Put cycle time reduction at the top of the list when considering project ideas - the result will be a new, leaner company producing higher profits.
The following is a simple process map of the flow of cabinet doors through only two manufacturing operations. The activities are broken down into three types:
1. VA - Valued-added operations
Total VA activities: 4.5 hours
In this example, there are opportunities to reduce the cycle time from 6 days to less than 6 hours by eliminating the unnecessary handling and queuing of products.
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