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Contact Mfg.

Matters, LLC for more information


dennis.hobbs@mfgmatters.com or 1-877-473-8254

Top Three Manufacturing Process Opportunities


Opportunities
1
2
3

Costs of Current State

Benefits if Improved

Adds 6 days to manufacturing lead time


causing market share loss.

Increase market share


with shorter lead time

10% X 200 units per day=20 units @ a rework


cost of $50 = $1000/ day

Rework reduced to
1%=$900 /day savings

Excess inventory = $25,000 Shop floor


expansion requirements = 5000 sq, ft.

Inventory reduction =
$20,000

Outside epoxy painting process


1st pass workmanship quality defects
excessive
Excess WIP inventories consume shop floor
square footage preventing product expansion

Top Three Supplier Management Opportunities


Opportunities
1
2
3

On time delivery performance of sole supplier


delivery @ 80 % on time
A key component of my product is subject to
wide swings in price from suppliers
Poor Quality on critical componenets

Costs of Current State

Benefits if Improved

1 hr. line shut down = $300 Last month


performance cost =10 hours

Downtime reduced by
50%

Commitments to customer product pricing


suffer causing profit loss

Profit improvement by
25%

Line shutdown and rework = $25,000/month

Line shutdown reduced


by 75%

Top Three Customer Satisfaction Opportunities


Opportunities
1

Improve Lead Time

Quality Improvement

Improve price competitiveness

Costs of Current State

Benefits if Improved

Lost sales and market share = $1,000,000


annually

$2,000,000 Recovered +
Increased market

Quality returns, rework + Loss of future


business = est.$250,000 annually

Greater Sales and Profit

Estimated loss of sales = $ 250,000 annually

Increase sales $250,000

Compelling Business Issues


Issues
1
2
3

The sales force take too many orders for non-standard product configuration causing an increase infactory expediting. Sales Bonus based on quantity with no reward system for sale of standard product.
Distribution channel requires consigned finished goods inventory to reside in showrooms causing working
capital to be invested too long.
Customer order administration and credit approval processes take longer time than the actual
manufacturing process.

Annual Sales Volume


Annual Revenue:
SKUs

$75, 000,000
250

Daily Rates

400/Day

Product Families

Seasonality

Shipping Volumes

100,000 Annually

May-June &
October-November

Production Lines

People
1

Direct Labor Headcount

Annual Compensation

2A Benefits %
3

Total Compensation

Union

% Overtime

150 Full-Time & 25 Temporary & 25 Seasonal


Average annual wage = $37,500 with 28.5% Benefit package
$8,995,000
No
10% = $1,349,250

Days Inventory
Current

FGI
10

WIP
21

After Lean High


Future Lean Low

5
5
1
3
Initial Reduction Target Ranges

From
To

16%
13%

35%
13%
Inventory Valuation

Current

$986,300

After Lean-High
Future Lean-Low
Cost to Carry

$493,150
$98,630
$11,836

Material COGS
Average Inventory

Before Lean
After Lean

$2,071,230

$493,150
$295,890
$35,507
Turn Rates
$5,760,000
$12,600,000

RAW
30

TOTAL
61

30
15

40
19

49%
75%

$2,958,900

$6,016,430

$2,958,900
$1,479,450
$177,534

$3,945,200
$1,873,970
$224,876

$17,640,000

$36,000,000

$986,300
$2,071,230
$2,958,900
Inventory Mix Target-- % of Total Inventory
16%
13%

35%
13%

$6,016,430

49%
75%

Lead Time-Days
Order Request to Ship

Current
20

After Lean
7

Benefit
13

Elements of Lead Time


Backlog

Administrative
Process
Inventory
Transportation

2
10
1
2

1
2
1
2

1
8
0
0

After Lean

% Reduction

Benefit

90,000 sq ft
18,000 sq ft.

10%
28%

Manufacturing Floor Space


Current
Total Plant
Target Area

100,000 sq. ft.


25,000 sq ft.

New Product Intro


Plant Expansion

Top Four Suppliers by Volume


Typical LT
Longest LT
Target LT
Desired LT
On Time Delivery %
Quality
Issues

Aluminum Inc.
Los Angeles CA
60 days
75
30
10
80%
90%

Electronics Inc.
Austin TX
30 days
45
15
5
75%
90%

Motors R Us Inc.
Miami FL
30 days
60
20
10
80%
80%

Tube & Bar Co.


Pittsburg PA
20 days
30
10
2
95%
99%

Market price
dictates delivery

We are small
volume

Transportation

Specialty products

Three Most Difficult Suppliers


Typical LT
Longest LT
Target LT
Desired LT
On Time Delivery %
Quality
Issues

Motors R Us Inc.
Miami FL
30 Days
60
20
10
80%
80%

Lifetime Gear Inc.


Kansas City MO
60 Days
90
30
15
75%
95%

India Valve Ltd.


Delhi India
45 Days
75
30
10
90%
75%

Plant distance and


poor quality

Supply Chain
Logistics

Sole Supplier

Cost of Quality
First Pass Yield
INTERNAL COSTS
Rework
Workmanship
Process
Supplier Related
Scrap
Workmanship
Process
Infant Mortality
EXTERNAL COSTS

Current
85%

After Lean
99%

% Improvement
Benefit
16% @ 400/day Rework & Scrap

$40,000
$7,500
$15,000

$10,000
$3,750
$7,500

75%
50%
50%

$30,000
$3,750
$7,500

$10,000
$2,500
$12,500

$2,000
$1,250
$2,000

80%
50%
85%

$8,000
$1,250
$10,500

Warranty Costs
Brand Loyalty Loss

$12,500
$50,000

$2,000
$10,000

85%
80%

$10,500
$40,000

Key

Company Data
Data Developed from Survey

Document what you feel are the three


most important opportunities for improving
your manufacturing processes. These
opportunites usually have cost
asscociated with them. What are the
benefits you expect if you could improve
the process?

Document supplier issues that create


problems for the manufacturing
processes. Individual suppliers can be
listed or commodity product groups can
be listed. What do these supplier issues
cost your company? Where can supplier
cost and delivery performance be
improved?

Document competitive issues causing


customer dissatisfaction. What are
customer complaints? What customer
satisfaction issues could be resolved with
improved manufacturing processes? How
much could market share be increased
with improved customer satisfaction?

List business isssues that need to be


addressed to improve company
performance. These issues create
impediments to moving to the next level of
competitiveness. List those issues that
must be resolved in order to increase
sales, market share and profit.

Product Statistics defining the product


mix and volume and the current
distribution of product variety. Also the
family makeup and number of production
lines required to produce the desired
sales volume.

Product Statistics defining the product


mix and volume and the current
distribution of product variety. Also the
family makeup and number of production
lines required to produce the desired
sales volume.

Current headcount and the compensation


costs. This information is used to
determine the savings gained throught
productivity improvement. The
compensation is based on the average
annual wage/salary paid. Overtime
differential is average wage X 1.5%

Status of current inventory distribution by


category. After lean "Days Inventory" will
be determined by survey results based on
current manufacturing lead time. Greatest
reduction occurs in WIP &FGI. Raw
material inventory is usually uneffected
until a suppler partnership program is
implemented.

Total Sales (75,000,000) minus profit


before taxes (e.g. 20%) = cost of goods
sold = $60,000,000
X Average Material Cost = 60%
= Material cost of $36,000,000
Divided by 365 days per year =
Average daily cost of one of inventory.
Daily cost = Days Inventory X average
daily cost of inventory
Annual Cost to Carry Savings = 12%

Lead time will be impacted by


understanding the elements of lead time
and process time. Lead time can be
reduced by identifying the non-value
added times embedded in in the total time
and eliminating them from the process.
Lean manufacturing methods will be used
to eliminate non-value time.

Lead time will be impacted by


understanding the elements of lead time
and process time. Lead time can be
reduced by identifying the non-value
added times embedded in in the total time
and eliminating them from the process.
Lean manufacturing methods will be used
to eliminate non-value time.

When lines are balanced and linked


together, less floor space is required for
production and for the storage of WIP
materials. This floor space can be used to
introduce new product lines.

The suppliers with whom we buy the most


volume. Volime can be defined as # of
pieces or # of $. The 80/20 analysis can
be used to identify the largest volume
suppliers. Identify a realistic desired lead
time that reflects a minimum inventory
investment. List any supply issues with
these suppliers. These issues may
become the basis of a supplier
partnership program.

These suppliers may not be the top


volume suppliers, but may cause the most
problems for manufacturing consistency.
The suppliers may or may not be helpful
resolving identified issues. Dealing with
these suppliers increase costs by requiring
excess inventory balances be kept to
compensate for poor delivery or quality
performance.

A statement of the cost of poor quality.


Define the elements of poor quality by the
internal costs and the external costs.The
Lean methodologies most directly impact
costs caused by workmanship errors. A
supplier certification program can reduce
the supplier related quality costs.
Improvements in worlmanship quality
reduces rework and scrap.
1.)Infant Mortality defines product failure
during the first two weeks of service.
2.)Warranty costs identify costs to warrant
product.
3.)Brand Loyalty Change of customer
preference to cause loss of market share.

1.)Infant Mortality defines product failure


during the first two weeks of service.
2.)Warranty costs identify costs to warrant
product.
3.)Brand Loyalty Change of customer
preference to cause loss of market share.

Client Business Analysis

Top Three Manufacturing Process Opportunities


Opportunities

Costs of Current State

Benefits if Improved

1
2
3

Top Three Supplier Management Opportunities


Opportunities

Costs of Current State

Benefits if Improved

1
2
3

Top Three Customer Satisfaction Opportunities


Opportunities

Costs of Current State

1
2
3

Compelling Business Issues


Issues
1
2
3

Annual Sales Volume


Annual Revenue:
SKUs

Daily Rates

Product Families

Seasonality

Shipping Volumes

Production Lines

Benefits if Improved

Shipping Volumes

Client Business Analysis

Production Lines

People
1

Direct Labor Headcount

Annual Compensation

2A Benefits %
3

Total Compensation

Union

% Overtime

Days Inventory
FGI

WIP

RAW

Current
After Lean High
After Lean Low

TOTAL
0
0
0

Initial Reduction Target Ranges


From
To
Inventory Valuation
Current

After Lean-High
After Lean-Low
Cost to Carry

0
0
Turn Rates

Material COGS
Average Inventory
Inventory Mix Target-- % of Total Inventory
Before Lean
After Lean

Lead Time-Days
Current

After Lean

Benefit

% Reduction

Benefit

Order Request to Ship


Elements of Lead Time
Backlog
Administrative
Process
Inventory
Transportation

Manufacturing Floor Space


Current

After Lean

Client Business Analysis


Total Plant
Target Area

Top Four Suppliers by Volume


Supplier #1
Location

Supplier #2
Location

Supplier #3
Location

Supplier #4
Location

Typical LT
Longest LT
Target LT
Desired LT
On Time Delivery %
Quality
Issues

Three Most Difficult Suppliers


Supplier #1
Location

Supplier #2
Location

Supplier #3
Location

Typical LT
Longest LT
Target LT
Desired LT
On Time Delivery %
Quality
Issues

Cost of Quality
Current
First Pass Yield
INTERNAL COSTS
Rework
Workmanship
Process
Supplier Related
Scrap
Workmanship
Process
Infant Mortality
EXTERNAL COSTS
Warranty Costs
Brand Loyalty Loss

After Lean

% Improvement

Benefit