Thursday, February 16, 2017

Manufacturing Cost Deployment - Introduction

Manufacturing Cost Deployment - Manufacturing Cost Reduction System

One of the focus areas of manufacturing management and manufacturing engineering is manufacturing cost reduction. Number of improvement techniques developed in Industrial Engineering (IE), TQM, TPM, JIT etc help in reducing costs. Yamashina and Kubo (Y-K) came out with a methodology of establishing a cost reduction program for a planning period that takes into account the potential benefits for various improvement techniques and the cost or investment required for implementing those techniques.

The basis for cost reduction in this model called manufacturing cost deployment is waste elimination or loss elimination at various production facilities or work stations in the plant. The losses at various facilities are identified in the model using the concepts developed in TPM literature.

The losses at the facilities are categorized as causal losses and resultant losses. Causal losses cause losses further down the line at other facilities. Eliminating causal losses eliminate resultant losses also. So one should not make efforts to eliminate resultant losses but has to focus on causal losses.
The other point of emphasis is that the losses in the facilities have to identified with components of manufacturing cost (cost factor). This will ensure that when the loss is eliminated, there is definite reduction in manufacturing cost.

In the paper published by them in International Journal of Production Research, Y-K gave formulas for calculating each type of loss and associating the loss with the cost factor.

For each loss identified at each facility, techniques that eliminate the loss are identified if they exist and the period it takes to implement them and cost or investment required in each period to implement them are estimated. At this stage, the cost associated with improvement activity and the benefit are available.

Y-K formulated the problem as an integer programming problem, but concluded that it can't be solved analytically. They proposed an heuristic that first calculates benefit-cost ratio for each loss type and based on this ratio selects the improvement techniques to be undertaken in each sub period (for example each month in an annual plan).

For a list of different types of losses - Manufacturing System Losses Idenfied in TPM Literature

The cost deployment aspect in WCM and TPM was discussed in a recent conference paper 2012

Cost Deployment Tool for Technological Innovation of World Class Manufacturing
Luan Carlos Santos Silva, João Luiz Kovaleski, Silvia Gaia, Manon Garcia, Pedro Paulo de Andrade Júnior

Department of Production Engineering and Technology Transfer Research Group, Federal University of Technology—Paraná (UTFPR), Ponta Grossa, Brazil
Journal of Transportation Technologies
Vol.3 No.1(2013)

The model of Fiat Group Automobiles Production System (FAPS) is a structured set of methodologies and tools whose application spread across the enterprise through the involvement of all employees. It is based on Yamashina's WCM approach. It promises  a radical improvement for the performance of the production system, optimizing all production processes and logistics with focus on the key factors: Quality, Productivity, Security and Upkeep of the equipment, and Delivery. The implementation support is done by a system of Audits and it is structured by goals whose achievement is measured by performance indicators

It has 10 pillars and two of them are directly related to cost reduction and productivity improvement. WCM advocates total industrial engineering which promises total productivity management and total cost management. Total industrial engineering involves the efforts of industrial engineers and operations managers, engineers, supervisors and operators and it also implies all methods of industrial engineering - product IE, process IE, IE optimization, IE Statistics, IE Economic Analysis, Human Effort IE, IE Measurements, Productivity Management.  Total productivity management focuses on productivity of all resources used in the production - logistics or production - distribution system. Total cost management focuses on rational planned cost for the total enterprise as well as each product giving optimum unit cost for all products produced and sold by a company.

The following two pillars are directly related to Total IE, Total PMgmt, and TCM.

2) Cost Deployment—aims to identify problems that increase costs; Approves projects to decrease costs.

3) Focused Improvement—aims to develop the know how to reduce costs by using appropriate methods; Proposes projects to reduce costs.

The concept of technological innovation can be understood as the expansion of production capacity (more machines) and the increase of new products. The company may  think about producing products which are being produced by other manufacturers or competitors. Innovation also includes creation of new products and improving products or processes that are currently in use to make more profits. Innovation is to produce and distribute products and services, which  the company did not deliver before. Innovation is  generally understood as expanding capacity installing more machines, and  to install more modern machines to produce more quantity of products. Many times innovation increase in  productivity and decrease in costs, which result in increase of the production and sale.
(A. Caron, “Technological Innovations in Small and Medium Industrial Enterprises in Times of Globalization: The Case of Paraná,” Thesis (Doctoral in Production Engineering), Curitiba, 2003.)

Cost Deployment allows defining improvement programs that have an impact in reducing losses, everything that can be classified as wastes or non-value added in a systematic way.

 This is accomplished through:

1) The study of relations between the cost factors, the processes that generate wastes and losses in its various ways

2) The evaluation of know-how to reduce waste and losses: Is it already available with the organization or it should be acquired;

3. Making an estimate of costs and benefits of cost reduction projects and establishing a priority of projects to reduce waste and losses.

4. Monitoring of progress and results of improvement projects.

Updated 19 February 2017,  20 April 2012

Original Knol - 3364

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