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:

 

  • Manufacturing Constraints
  • Overhead Costs
  • Work-In-Process Inventory
  • Floor Space Requirements
  • On-Time Deliveries
  • Product Quality
  • Employee Turnover
  • Product Cost
  • Manufacturing Cycle Time

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

A constraint is an activity that acts as a bottleneck in any workflow. If a project results in the reduction of cycle time in the factory or office, one or more constraints have been eliminated.

Reducing Overhead Costs

Longer cycle times necessitate more handling and other manufacturing overhead costs. The table below shows how some activities generate unnecessary non-value-added activities, such as the movement of products from one point to another. Eliminating these unnecessary activities reduces indirect labor.

Reducing Work-In-Process Inventory

Shortening the time necessary to process products through a plant will result in less inventory in that plant at any given time. This means that valuable capital has been freed for other projects instead of being tied up in WIP (work-in-process).

Reducing Floor Space Required

By reducing WIP, as above, the floor space required to store and move that inventory will be eliminated. While some accountants would argue that there is no direct cost savings in this element, a project that reduces requirements for floor space will - at a minimum - delay or cancel future requirements for capital expenditures in buildings.

Increasing On-Time Deliveries

Shorter process time through a factory makes it much easier to schedule products for on-time shipments. Therefore, shorter lead times give the customer a double dividend - quicker and more reliable product deliveries. Again, cost savings in dollars may be hard to document but will become evident in avoiding expedition of product through the plant and the extra cost associated with rush shipments.

Higher Product Quality

If a plant is processing and stacking products - as in the cabinet example on page 31 - damaged goods will certainly result. Anytime items are moved, there is a risk for damage and a resulting expense to repair or to salvage those items. These activities invariably lead to compromises in quality -which is better managed in a plant that has shorter process times.

Lower Employee Turnover

It is not a stretch to say that approaching continuous flow through reduced cycle times makesa better environment for employees. Working in a more organized factory with better flow results in less stress in manufacturing supervisors and in workers due to a reduction in the constant shifting and juggling of priorities, which tend to keep everyone up tight.

Lower Product Cost

Finally, the cumulative effect of all of the above will be lower product cost for the company and its customers. Plants may not be able to prove each element of cost savings in hard dollars and cents, but overall cost will be lowered.

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

2. NVA - Non-value added but necessary

3. NVAU - Non-value added and unnecessary

 

 

ACTIVITY DESCRIPTION DURATION TYPE
1. Material Handling Get panel stock 15 minutes NVA
2. Set-up Set-up saw 15 minutes NVA
3. Saw Cut pieces required 30 minutes VA
4. Queue Store cut pieces 6 hours NVAU
5. Materials Handling Move cut pieces 15 minutes NVAU
6. Queue Store cut pieces 4 days, 2 hours NVAU
7. Material handling Move cut pieces to CNC 15 minutes NVA
8. Set-up Set-up CNC machine 15 minutes NVA
9. Machine Machine cabint doors 4 hours VA
10. Queue Store machines pieces 2 days, 30 minutes NVAU

Total VA activities: 4.5 hours

Total NVA activities: 1 hour

Total NVAU activities: 152.75 hours

Total cycle time: 6 days

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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