B. Existence of situations that demand improvements with recommended solutions
- The company is not profitable or is not as profitable as other companies in the same industry.
Reasons for an unprofitable or less than desired profitable company include a gross income that is insufficient to cover fixed costs as rent, interest expense, etc. Gross income that cannot pay fixed expenses may result from sales prices that are too low and manufacturing costs that are too high.
Sales prices need to be compared with those of competition and adjustments made if possible.
Excessive manufacturing costs may result from noncompetitive prices and terms, the use of material with specifications that exceed those required, the use of inferior materials that can result in excessive rejects and rework cost, excessive direct labor costs due to lack of proper supervision, trained and properly motivated employees, the lack of production labor standards that will determine standard direct labor costs and an evaluative tool to detect opportunities for improvement, the lack application of lean manufacturing technologies, excessive costs of quality due to a lack of quality standards, excessive packaging costs, excessive costs of workplace injuries and accidents, excessive inventory levels of raw materials and work-in-process, and the failure to evaluate all overhead costs for opportunities for improvement.
Each of these possible reasons must be evaluated to determine one or more potential solutions to include a timetable of implementation, the cost of implementing each possible solution, and the amount of cost reductions that will result from each potential solution to enable management to prioritize an implantation schedule based on the needs of the organization.
- Repeated late or early deliveries
The reasons for late or early delivery under control of the company include an incorrect bill of materials, inaccurate inventory levels, inaccurate information used for scheduling, a delayed receipt of a critical raw material, inaccurate production standards which include both a setup time in hours per set and run time in hours per unit, and waste percentage that deviates from the mean. Inaccurate bills of materials may result in the lack of required components or excessive inventory. Inaccurate inventory levels could result in production delays or excessive inventory levels. Inaccurate information used for scheduling could result from the lack of required components or excessive inventory levels. Inaccurate production standards will result in an imbalance in production, inaccurate costs of production, value of inventory, and allocation of overhead.
Both early and late shipments must be eliminated for several reasons since either can result in customer dissatisfaction and the potential loss of customers.
One cause of both is inaccurate direct labor standards that has several critical uses, one of which is the establishment of standard direct labor costs. Inaccurate standard direct labor costs can result in inaccurate costing and pricing structure, incorrect decisions concerning changes in a proposed manufacturing process, a vendor change, and other proposed changes.
An incorrect waste percentage will result if either too many units or an insufficient number of items being produced, an incorrect cost of material due to the waste factor that is added to the quantity required to manufacture the item, and an incorrect order quantity that could cause an excess or shortage of material. The cause of waste must be periodically studied to determine strategies for its reductions and eventual elimination.
Scheduling methodology uses the production and setup time from the production routing to determine to begin manufacturing the item as well as to purchase needed components based in current inventory levels and the amount of time needed to replenish the item from the current vendor. Thus if either the setup or run time schedules less time to produce a product than is actually required, then the result will be a late delivery. If the setup and production times in the routing file exceed the actual time needed to set up and produce the item, the result will be an output available for shipment earlier than required.
The solution involves the selection of a project team that will follow manufacturing orders through the manufacturing process from the beginning of the order until the order is shipped. A variety of orders should be followed to insure that all possibilities of causes will be included. The actual results must be compared to the standard times for each aspect of production to determine the variances and the amount of the variances. The percentage deviation from variance will determine the follow-up action that needs to occur.
There are only two reasons for the deviation: an incorrect standard or the time to produce the order, the setup time is excessive or too short, or the percentage of defects is incorrect. The reason for the deviation will dictate the corrective action to follow.
- a. A material waste percentage that deviates from the percent allowed in the bill of material will result in a positive material variance if the waste percentage exceeds the percentage in the bill of material and a negative variance if less than the percentage in the bill of material. A variance will affect the material costs, and the inventory balance. The actual waste percentage needs to continually monitored for improvement opportunities.
- b. Productivity levels that deviate from standard. A productivity percentage exceeding 100% will result in a negative direct labor variance and products completed earlier than scheduled. A negative direct labor variance means that the actual costs is less than standard. A productivity level less than 100% results in a negative direct labor variance, products that are completed later than scheduled which may cause late deliveries and actual costs that exceed standard. The result would result in a potential loss on that order.
Productivity studies must be made if the productivity deviates from 100%.
If the production standards allow more time than required, the results will be an imbalance in the production schedule, overvalued work-in-process inventory, excessive standard labor costs, the loss of potential sales and potential due to the higher standard labor costs and incorrect decisions when attempting process or vendor changes. See Chapters 3 and 4 for an explanation of the methods used to determine direct labor standards and the need for accuracy.
- A higher employee turnover rate than the industry average. This could result from improper supervision, below average wages and benefits, the perceived lack of advancement opportunities, and poor working conditions. As Richard Branson explained, “There is no magic formula for great company culture. The key is to treat your staff how you want to be treated.”
The proposed solution must begin with the human relations department and can include incentives for increased production, reduced scrap, and a reduction in the accident and incident rates. See additional topics for potential training and reasons for types of training that are available.
- Disorganization in the workplace
This can result in excessive movement of material and personnel to avoid the clutter, excessive defects due to the potential for damage that may occur as a result of the excessing movement. Disorganization in the workplace is an indication of inadequate supervision. One available tool of lean manufacturing that can be employed to address this problem is 5S, which represents Sort, Set in Order, Shine, Standardize, Sustain. The 5S program is a framework that is designed to stress the mindset and tools to continually improve efficiency and value. The method focuses on the reduction and elimination of all waste. See Reference 24 for assistance.
- Idle employees who should be working performing various tasks or employees who are not fully engaged in their assigned tasks.
This time, referred to by the author as unforced idle time, could be the result of an unbalanced assembly line or poor communication. Unforced idle time can result in reduced productivity, leading to higher direct labor costs, late shipments, and a decrease in employee morale.
If it occurs on an assembly line, the assembly line needs to be studied to determine which tasks can be reallocated to other operators to achieve a more balanced assignment of tasks to minimize unforced idle time.
If it occurs as a result of poor or misguided instructions, then more effort needs to be made by management to insure that all instructions are well understood and there is no opportunity for misunderstanding.
The author while employed in a union plant observed an employee sitting adjacent to his assigned work station and idle. When asked by the author why he was idle, the operator responded that the assistant plant manager gave him one task and his immediate supervisor within minutes provided him with a completely different task. He further stated that he would do nothing until someone gave him only one assignment. The situation was resolved minutes after the author discussed this opportunity for improvement with the plant manager.
- There are unsafe working conditions that can include unguarded or improperly guarded equipment, the lack of use of PPE, unmarked or obstructed aisles, the use of improper lifting techniques, the improper loading of fork lift trucks, improper storage of LP tanks, the improper storage and charging of batteries, and unkempt floors and aisles.
The presence of one or more of these conditions in an organization indicates a lack of commitment to the health and well-being of its employees. A culture of safety must be inculcated in this organization and supported by all levels of management. More than sufficient resources must be allocated to effect this change as soon as possible to prevent, or at the ...
