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Sorting the wood from the trees increases profits

Sorting the wood from the trees increases profits

Sorting the wood from the trees increases profits

I was Chief Designer of a middle size engineering company making mechanical power transmission devices (about 300 employees). We made dozens of products and literally thousands of different components. I headed the design office numbering about 15 people. One day the Production Engineering manager left the company unexpectedly. The boss asked me to take over his role in addition to my own.

I knew many of the production engineers as we often discussed production methods for various components. When I started my new additional role, I found I had inherited a department that was harassed and a little disillusioned, making little real progress in what I considered to be its primary role i.e. seeking greater efficiencies in the factory and reducing costs.

One annoying feature is that every morning when I went to my new office there would be a foreman from the factory, protesting about the standard costing time he had been allocated on a particular job. The last manager was a weakling who had allowed himself to be pushed around, and had the engineers out on the shop floor all the time reviewing timings at the foremen’s bidding. To me this seemed crazy. One particular job for a complex one off spare part that we hadn’t made for about 15 years highlighted the problem. The time on the paperwork was inadequate, but it would take an engineer several days to retime it and the job was only worth about £1000 in total value. No doubt we wouldn’t then have to make that component for another 15 years !

What I wanted was for my Production Engineers to concentrate all their efforts on designing efficient processes, jigs and fixtures for new designs, and improving the efficiency of making existing parts and here is how I set about doing it:-

To make sure that any particular component merited attention I asked the computer department to print me off a new sort of listing. This listing was to include all the components that we had made in the last three years and was to be put in descending order. The order was to be determined by the total time to make each component multiplied by the number of times we had made it. Thus I had a ‘hit list’. These were the components that the factory spent the most amount of time on, and thus were the most costly in terms of shop floor time to the business.

From that moment on, if a foreman arrived complaining that a time was inadequate, unless the component was within the top 200 on our sheets, he was sent packing. I divided up my team, some on new products and the rest concentrating on looking at the top components on the list. We looked at our production methods, reviewed the jigs and fixtures, looked at routings and looked at if we could move these components on to the newest machinery. The whole department began to motor along, and do what it was supposed to do – save time and money. In the first month savings began to flow in. Our recommendations for new machinery were based on many of our findings.

It later occurred to me that I could do the same analysis on the purchased parts – castings, materials, sub-contracted parts and bought in components. The computer guys made a new listing this was in order of the material cost multiplied by the number we had purchased. Soon the buying department had a list that showed exactly what we were spending the most money on. As the buyer didn’t work for me, I made sure the boss had a listing too. As a result, the first 100 items on the list were put out for new quotes from a variety of suppliers. The buyer wasn’t happy, but the boss was ecstatic.

After 6 months, on purchased materials alone we were achieving savings of some 8% of the company’s total turnover. The savings in time on the shop floor were adding another 4% at that time, and ultimately considerably more in both areas was added to the bottom line.

So, in a company where the business had grown too big for anyone to see the wood for the trees, we achieved a remarkable improvement in profitability, by prioritizing our cost improvement. You have to have good records of labour times and costs to perform this analysis, and I think many buinesses can profit from its application, so I offer it here as a very useful tip

The postscript to this story is that two years later, asset strippers purchased the company, flattened the factory and sold off the site for big bucks, and in that process I was fired ! Smarting from that, swearing never to work for anyone else ever again, I started my own business.

"Putting Automation into CAD ©"

RE: Sorting the wood from the trees increases profits

Bravo, oldluddite,

Thanks for sharing.  As a young guy, inexperienced in the business of manufacturing, I love learning from solid examples of the 'science of getting the job done.'

Thanks again

RE: Sorting the wood from the trees increases profits

This is an example of the so-called 80/20 rule in practice.

The 80/20 rule says that 80 % of your problems will be in 20 % of the items.  It also says that you will spend 80% of your money on 20 % of your stock-keeping units.

A lot of items fall into this sort of ratio. The exact ration may vary but the effect is that most of the effort/potential savings/profits etc will be in a small number of the processes/ items/people etc. It is one practical example of the law of diminishing returns.

Thus if you find the 20 % of the SKU’s with the 80% of the money volume and concentrate your efforts in finding the best deal in those, the remaining 80% of the SKU’s will yield a much lower amount of potential savings.

Its also an area where government purchasing departments fall down. They will come up with some tendering and purchasing rules that make sense for the large dollar volume items and apply them to small value purchases so that the cost of purchasing is often greater that the cost of the items being purchased.

Rick Kitson MBA P.Eng

Construction Project Management
From conception to completion

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