Reducing Rework Adds Plant Capacity — Inexpensively

By getting everyone to focus on quality, products can be manufactured right the first time and effectively allow a plant to increase its production.

By Daniel M. Marak

 

The robust health of the contract furniture industry creates a double-edged sword. On one hand, it is great that companies are taking on more business. The downside is that there are many examples of suppliers using questionable sales tactics to pressure furniture manufacturers into purchasing machinery and services to increase production capacity.

Inevitably, sales growth does suggest increasing capacity. However, before considering increasing capacity by way of expansion, careful consideration should be given to increasing efficiency by decreasing rework. Ultimately, a decrease in the amount of rework may essentially be the answer to a plant’s capacity problems.

Decreasing Rework

Decreasing rework inevitably improves capacity. More importantly, the cost of focusing on reducing rework is less expensive than the costs associated with expanding capacity. In addition, quality control can make or break a company. This article attempts to explain how increasing capacity by way of better quality control is an inexpensive solution to lead-time pressure. Consider the following example and its assumptions:

• The hypothetical company is a nightstand manufacturer that has a case goods finishing line with 400 finishing pans per eight-hour shift. Each nightstand consumes two pans. Each pan costs $4 including labor. The retail price of the nightstand is $100. There are 22 working days in the month, excluding overtime. The quality control manager estimates that 75 pans get reworked each shift, or 19 percent of the plant’s total production each day.

• Success in the contract furniture industry lies in the ability to produce a quality product more efficiently than your competitors. Furniture manufacturers can increase their profit margins simply by reducing rework, instead of increasing capacity. Implementing this strategy requires less capital expenditure than expansion.

The example given here is not unique. The plant is producing at what is believed to be its capacity. However, the plant’s managers did not consider that the real issue is efficiency. In fact, additional capacity via volume increases will cause a larger gross loss based on the percentage of rework the plant averages. The fact is that volume will increase problems, rather than be a solution. This is illustrated mathematically in the examples and tables below.

Day One

Recall that 400 pans are available and 19 percent, or 75 pans, are basically producing no finished goods inventory. Thus, the finished goods inventory is 162 nightstands versus 200 at 100 percent capacity after Day One. The next day will require 19 percent of the plant’s available resources (pans) for rework. Therefore, plant capacity is just 81 percent.

 

     
     
    Table 1: Day 2 Explanation

No. of nightstands to be rerun: 38

Day 2 capacity rediced by pans (2 pans per and 38 in rework from Day 1): 76

Available pan capacity: 324

Number of nightstands possible with no errors (324/2): 162

or what percentage of capacity: 81$

     

Day Two

Day Two requires rework of 38 nightstands, which will consume 76 pans. Thus, the availability of the following day’s production for new items is reduced to 324 pans, as shown in Table 1.

Given the rework percentage, on Day Two the plant remains at 81 percent capacity. Second, of the 38 nightstands that needed rework, only 81 percent made it to finished goods inventory. Table 2 illustrates that without overtime or better quality control, the available pans for new product remains at 324, or 81 percent of capacity throughout the production cycle.

 

     
     
    Table 2: Day 3 Capacity Reduction in Pans Available

19% on Day 2 new (162 X 19%): 31

19% of Day 2's rework (31 X 19%): 7

Total nightstand rework: 38

Pans available: 400

Pans needed for rework: 76

Pans available for new: 324

     

The situation is amazing when considering the finished goods inventory at the end of production after five days, as seen in Table 3. At the end of five days, the plant is running at 81 percent of its expected capacity. Unless it adds hours to the schedule or improves the quality of its product, it will not meet the lead times based on plant’s capacity estimates. Furthermore, the cost associated with delivering the product increases substantially. On paper, the cost of reworking the item is $8. On Day Two, it is probably closer to $12. Table 4 illustra

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