The Diemasters. Manufacture Smarter. The very short version

Transcription

1 The Diemasters Manufacture Smarter The very short version

2 Continuing to do the same thing and expecting a different outcom

3 Velocity = Cycle Time Value Added Time The rate per unit of time at which an object moves in a specific direction

4 Manufacturing Velocity compares lead time to that time which is theoretically possible when value-added operation/activity time is considered. The average time in industry ranges from 200 to 300:1 (They require hours to add 1 hour of value)

5 Transformer Quote (excerpt from an actual quote) Labor: 10 minutes Labor: 3.73 minutes Labor: 7.3 minutes Material: $.88 Material: $.93 Material: $.45 year 1 price = $3.79 year 1 price = $2.21 year 1 price = $2.29 year 2 price = $3.51 year 2 price = $2.07 year 2 price = $2.41 year 3 price = $3.51 year 3 price = $2.18 year 3 price = $2.52 year 4 price = $3.87 year 4 price = $2.29 year 4 price = $2.65 Quoted lead time = 8 weeks

6 But if it takes 12 minutes... and the lead time is 8 weeks: 60 minutes X 8 hours X 5 days X 8 weeks = 19,200 minutes 12 minutes Velocity ratio = 1:1600

7 Process Cycle Time Customer Sales Order Entry Engineering Scheduling Customer Service Acknowledgement Suppliers Warehouse Shipping Distribution Backlog Inventory check Purchasing Mfg. Engineering Manufacturing Quality Accounts Receivable

8 Shorter Cycle Times = Cash for Sun Microsystems, Inc Cycle Time Average days from component purchase to revenue collection 0 '89 '90 '91 '92 '93 '94 ' Inventory Turns Number of times inventory is turned per year 0 '89 '90 '91 '92 '93 '94 '95 Business Week/June 26, 1995, p.102 Generated $700 million in cash (on $5.6 billion in sales)

9 Evaluating a Company Yours or someone else's Current Average Lean Class Lead Time 1. Velocity = Value-added Time = 200+ < Inventory Turns = 3-7 >20 2. PONC (% of Cost of Sales) 3. PAT (Profit After Tax) = 7-11% <2% = 4-6% >10%

10 The Price of Non-conformance (PONC): (can be as much as 25% of the cost to produce) Inspection Returns to suppliers Sorting Remakes Scrap Repairs Rework Poor yields Non-functional tests Added handling Longer lead times Additional space Premature failure Material review board Warranty work Spare parts inventory Administrative costs Delayed revenue Lost reputation Lost sales

11 Cost of Quality Prevention: $ % Sales QA Administration $356,059 Product Assurance $984,770 Configuration Management $111,472 DL Training $440,925 Mfg Travel $201,464 Total Prevention: $2,094, % Appraisal: Internal Failure: External Failure: QA Engineering $696,804 Process Control $272,307 Test & Inspection Labor $937,036 SPC et al analysis by ME s $357,911 Test & Inspection FAX Depr $354,433 Calibration $ 64,000 Total Appraisal: $2,686, % Continuing Engineering $372,213 Failure Analysis by ME s $281,795 Scrap & Loss $472,769 Rework DL $299,630 Rework DL on WO s $ 74,464 Rework Material $ 39,793 Field Spares Write-Offs $ 58,950 Total Internal Failure: $1,599, % Actual Warranty Claims $700,816 Accommodation Material $119,502 Sales Credits $200,000 Cost to Chase Receivables $100,000 Cust Svc Wages & Supplies $923,954 Int l Field 70% $505,851 Total External Failure $2,450, % Total Cost of Quality $8,630,917 11% Harding & Associates 2003

12 Cp = Spec. Width Process Width Cpk k is the constant factor for noncentered distribution k= Design Center (D)-X Spec Width/

13 Statistical Conversions CP k PPM Quality Defect Yield , % , % , % % % 1.50 (6 sigma) % PPB World Class 2.00 Quality 2 PPB % Harding & Associates 2003

14 Process Cycle Time Reduction 1. Flow chart the process Assures a common definition of the process Formalizes the process Harding & Associates 2003

15 Process Cycle Time Reduction 2. Reduce product between operations to 15 minutes or two times the prior process. Measure inventory in terms of time (not dollars).

16 Process Cycle Time Reduction 3. As material is "squeezed" off the floor, assure that the space is not available to inventory. Space Exclusion.

17 Process Cycle Time Reduction 4. Establish the value-added time for each operation by the lowest common denominator or product measure. Harding & Associates 2003

18 Process Cycle Time Reduction 5. Move operations closer together (where paratical) to: facilitate communications, material movement reduce space/inventory/lot sizes Harding & Associates 2003

19 Process Cycle Time Reduction 6. Pace the flow of material or "pull" from the prior operation as needed.

20 Schedules Problems "U' Shaped Cell

21 Delivery to Point of Use Receiving Inspection Stockroom Information Kitting = Count & Transaction

22 Reducing WIP While Increasing Output Thousands $852 $ $ $183 $144 $186 $327 $ Consumer Goods Manufacturer 000 Units $000 of WIP

23 hrs. 140 Manufacturing Velocity Cartridge Loading Process - Cycle Time Goal Act Apr May Jun Jul Aug Sep Oct Nov Dec 1996 Chinese cunsumer goods manufacturer

24 The Results of the changes. Factory Average Inventory & Inventory Turns Normalized data '97 '98 '99 '00 '01 B02 Sep '02

25 Days Process Cycle Time Reduction Pharmaceutical Manufacturer days 10 0 September 1998 April days

26 EOQ Formula (circa 1914) EOQ = 2 X Annual Use X Set-up cost Unit Price X Cost to Carry (%) EOQ = Set-up Cost Cost to Carry Inventory

27 The New EOQ Formula Circa 1999 Q = d (Ol + LT) + z Where: (Ol + LT) - OH d(ol+ LT) = expected demand during an order interval plus one resupply lead time = safety stock for a desired service level and variability of demand OH = on hand inventory at the time of the review Ol = length of order interval LT = lead time to obtain resupply d = average demand per period = the standard deviation of the demand period z = the number of standard deviations, from a standard normal table, associated with the desired customer service level Harding & Associates 2003 APICS - The Performance Advantage, February 1999, p. 20.

28 Annual use = 20,000 & Unit price = $5.00 Set-up cost is $400 Carrying cost is 20% Set-up cost is $5.00 Carrying cost is 75% EOQ = 4000 vs. EOQ = 231 vs.

29 Every industry has its set-up and change-over opportunities Each is different and they are all the same

30 No Set-up in the World Requires More Than 15 Minutes

31 Current set-up times are the result of: Standards Hourly pay Past performance Expectations

32 U.S. carmakers still lag behind their Japanese rivals in changing over their factories to produce new models Honda Accord Toyota Camry 3 days 18 Days Ford Contour/Mercury Mystique Chevy Lumina 60 Days 87 Days

33 Set-up times are reduced by... and/or Video tape, critique, improve, repeat. Acknowledge and reward the right behavior. Multiple people per set-up. Put a value on time.

34 Set-up reduction Where the TIME is Preparation 30% Trial & Adjustment 50% Centering & Checking 15% Installation & Removal 5%

35 Relevance Lost The Rise and Fall of Management Accounting Conventional wisdom in U.S. business schools and industrial engineering departments held that inventory could be optimized, a philosophy not unlike searching for the optimal percentage of defects to minimize total costs. Inventory is a form of waste and admission of failure. H. Thomas Johnson & Robert Kaplan

36 To reduce inventory, you must reduce cycle time. Inventory Cycle Time To reduce cycle time, you must reduce inventory.

37 The longer the collective lead times, the greater the investment in inventory Collective Lead Times

38 Inventory's Narcotic Effect Inventory is addictive... more is never enough The price increases to support the habit It dulls the senses to the "real world" Soon the cure becomes a larger problem than the one it was intended to relieve

39 The Problem With Inventory When the market or technology changes, all you have is worthless inventory. (Nobody wants to write it down.) It is expensive to hold on to - stock accuracy, cycle counting, physical inventories, record accuracy, space consumer, obsolescence, shelf life problems. Requires support resources of people, systems, equipment, transactions. Difficult to work around in terms of tracing quality problems, implementing ECOs. It is not worth what you paid for it. It can be a coping mechanism and hides the real problems.

40 The Cost of Carrying Inventory Visible Costs Approx. % per year Interest rate of money / alternative use 10% Taxes 5% Insurance 3% Space, occupancy & utilities 4% Equipment (movement & storage) 3% Scrap & obsolescence 5% (to 20%) Subtotal 30% Additional, Less Visible Costs Personnel (planners, analysts, warehousers) 15% Transactions: counting, moving, retrieving, issuing, reconciling 10% Inspection, reinspection, return of defective material 10% Rework, handling damage 10% Grand Total 75% Ref: (1) Stanley, Ph.D., L.L. editor, Purchasing Performance Evaluation, The Purchasing Handbook, 6th ed. McGraw-Hill, sponsored by the National Association of Purchasing Harding & Associates 2003 Management, Tempe, AZ 2000, p (2) M. Harding & M.L. Harding, Purchasing, Baron s, 2001, 2nd. ed. P (3) Moody, P.E., Profitable Purchasing, Leading Manufacturing Excellence, John Wiley & Sons, New York, 1997, p. 276.

41 The Hidden Cost of Inventory

42 The High Cost of Carrying Inventories At British Petroleum Capital Costs 8.11% Property Tax 1.45% Inbound Logistics 11.54% Invoice Processing 5.98% Adm/Supervision 5.64% Purchasing 14.06% Receive/Issue 8.88% Delivery 1.78% Obsolescence 3.20% Storage/Surplus 22.40% Bench Stock 1.22% EMR 1.22% * Total 73% * Total adds to 85.48% but BP elects to use 73% Catherine Williams, Business Analyst BP Exploration (Alaska) Inc. NAPM International Conference May 1995

43 Supplier Managed Inventories OR Supplier Managed Deliveries?

44 Supplier - Managed Deliveries Indirect and predictable direct materials Identify demand Produce and deliver to that demand Deliver to point of use Monitor and adjust to usage Harding & Associates 2003

45 Your company is the great shock absorber between you customers and your suppliers Your Customer Your Company Your Suppliers "I need it tomorrow" "8 weeks delivery"

46 You must have suppliers that can match your cycle times Your supplier Your shipments Geographical location of suppliers is critical. MRP is for planning and forecasting, not execution. Suppliers shipments = your demand. Quoted lead times are for their other customers.

47 From Whom Would You Buy? Supplier Price Able Corp. $12.25 Baker Ltd. $12.65 Couch Inc. $13.10 Purchase quantity = 5000 Standard Cost = $12.30

48 From Whom Would You Buy? Supplier Price Lead Time Able Corp. $ weeks Baker Ltd. $ weeks Couch Inc. $ weeks Purchase quantity = 5000 Standard Cost = $12.30

49 ... When the Cost To Carry Inventory Is 1.50%/wk? Supplier Price X 1.5% X L/T = New Price Able Corp (.015 X 10) $14.09 Baker Ltd (.015 X 7) $13.98 Couch Inc (.015 X 2) $13.49 Purchase quantity = 5000 Standard Cost = $12.30

50 Days Lead Time Reduced Supplier Lead Times Consumer Goods Manufacturer Start 60 Days Chemicals Plastics Metals Pack. General

51 Reduced Supplier Lead Times Consumer Goods Manufacturer Start 90 days Days Lead Time Polyst. Pack. PVC Tucks Cards Alum. Env. Disp. Disp. Paper

52 New Rules Speed replaces inventories. Only the end customer s lead times have meaning. Quality must offer a competitive advantage.