The ways many businesses measure financial performance with standard cost accounting may be at odds with reliability improvement. Likewise, production-scheduling standards can also mute the importance of reliability improvement. As a top executive once explained to me, “Why improve it? We’ve built our standards around all those variables, and we’re looking really good. But we need to cut cost somewhere without changing our standards.”
That executive’s rationale was mind-boggling. It seemed as though the top-management team considered the “standards” sacred: They permeated the organization from budgeting to billing. As some team members pointed out, “After all, they [the standards] have endured the decades we’ve been in business.”
This discussion brought to mind the proverb, “A penny saved is a penny earned.” It seeks to convey the idea that what’s not spent today can be saved and eventually increase in value in the future. How does this relate to a reliable and profitable plant?
Improvements in equipment or process efficiency and effectiveness are often seen as “saving pennies” that can lead to lower costs per unit produced and/or increased capacity, and, ultimately, additional revenues. In many plants, however, there’s a tendency to chase dollars while overlooking “pennies” left on the floor.
When businesses waste lots of pennies, they can no longer afford to do what really must be accomplished. Yet, while lots of pennies turn into big dollars over the long term, countless operations ignore them.
Speaking of proverbs, consider “Waste not, want not.” It encourages the wise use of what we have, including time, money, and talent. Here, the term “want” doesn’t refer to a desire for something, but rather the lack of something needed to accomplish a goal. Let’s look at this in the context of production standards.
Production standards can be good for business or, if not closely watched, terrible. To be clear, a single standard can be easily monitored, updated, or eliminated when no longer relevant. But, in many manufacturing processes, there are several standards, with built-in allowances for machine production rates, quality and scrap, and planned and unplanned downtime.
Often created through well-intended industrial-engineering processes, production standards may, over time, become foundational, never changing, time-proven, legacy principles. To challenge their validity is akin to questioning if the sun rises in the east. The inertia of these past production standards can be nearly impossible to overcome.
Since a manufacturing process is made up of many different smaller processes, it’s relatively easy to overlook the many different production standards that could be getting out of whack with the reality of the day and needs of the business. Once the standards are written and approved, there’s no ownership, little oversight, and minimal improvement. Conversely, what if businesses constantly monitor their production standards, compare them to what’s actually happening, and then pursue ways to improve them? Aha: Continuous improvement in action!
CASE IN POINT
Let’s continue with an account of more discussions that I had with the top-management team I described in the opening paragraphs. To me, manufacturing is about FLOW. The more efficient and effective the FLOW the more profitable the business. What interrupts flow? Unplanned downtime of course. But what about changeover time? “Oh, we built that into our standards.” What about inaccurate work in process (WIP) inventory counts? “That’s not a problem. Our tracking system tells us exactly how much we need to finish an order and how much is in process at any point.” But are the counts accurate? “They better be!”
Our findings? Inventory counts of incoming raw materials and WIP were highly inaccurate in many of the plant’s product lines. An over-count led to waste (but that too was accounted for in their standards). An under-count led to interruptions throughout the production processes, which led to incomplete fulfillment of orders and/or late deliveries. But the problems didn’t end there.
Foreshortened production runs meant additional setups when the material became available. This caused numerous schedule break-ins (interruptions) daily throughout the plant as new WIP was produced. Every time these interruptions occurred, the production run required multiple setups/changeovers to complete. More setups meant more wasted material throughout the production process. The unintended consequences of inaccurate inventories further complicated scheduling overtime work, machine availability, and reduced scheduling windows for preventive maintenance. (You can imagine what happened with the unplanned downtime).
As the hidden cost per unit produced significantly increased, THIS plant leadership team was aggressively looking for a way to CUT costs.
KEY POINTS
All waste is not equal. When actual amounts aren’t reported, trended, or analyzed, how can waste be reduced? Simple: What gets measured gets done. What gets hidden is accepted as a standard.
In the end, the proverbs “a penny saved is a penny earned” and “waste not, want not” point to the need to pay attention to seemingly small percentages and simple production standards in meeting the bigger needs of customers and the bottom-line balance sheet of the business.TRR
ABOUT THE AUTHOR
Bob Williamson is a long-time contributor to the people-side of the world-class-maintenance and manufacturing body of knowledge across dozens of industry types. His background in maintenance, machine and tool design, and teaching has positioned his work with over 500 companies and plants, facilities, and equipment-oriented organizations. Contact him directly at 512-800-6031 or [email protected].
Tags: reliability, availability, maintenance, RAM, reliability improvements, production standards, equipment efficiency, process efficiency, equipment effectiveness, process effectiveness
