Introduction
Manufacturing sector in 2022 is facing a lot of challenges related to increasing costs of raw materials, supply chain issues impacting the availability of materials on time to the units, increasing global uncertainties resulting in reduced demand, manpower availability, and so on. It is very important for a manufacturing company to reduce costs to stay competitive in the market.
This article talks about how this cost reduction can be done within the organisation especially in the operations, through Lean Manufacturing which results in overall Productivity Improvement, Quality Improvement and also brings in cost reduction.
Focus Internally to Reduce Costs!
Many companies try to reduce costs by negotiating with the suppliers for lower rates, try to reduce energy costs, change the type of raw materials used, reduce marketing costs, reducing employee benefit costs, etc. However, there is one area where you can get maximum cost reduction and that is your shop floor. Focusing on your operations to reduce costs is a better way to reduce costs and Lean Manufacturing would help you in achieving the same.
What is Lean Manufacturing?
Lean manufacturing is a set of practices originated in Toyota Automobile company in the 60s and 70s and later these principles spread to all over the world in 2000s. Initially, it was widely adopted in the automotive sector, but nowadays all the industries have started following these principles.
Lean is focused on waste elimination. Many times, people think of wastes as product wastes. For e.g., in a garment company, the wastes they identify is cloth wastes that are generated in the operations. In a plastic products company, they think the wastes as lumps which gets created in the processes. These are only one type of wastes.
Wastes means Non-Value-Added activities (NVA). Before we discuss about NVA, we need to know what Value-Added Activity (VA) is. We can refer this VA as Work and NVA as Waste.
Difference between Work and Waste?
Work: Work happens when there is a physical or chemical CHANGE that happens to the product. The key word here is Change or Transformation. Only when there is a transformation in the product, it is called work; customer pays for this work. Each and every operation focuses on transforming the product. So, we are adding a value to the product. So, it can be called as Value Adding Activity (VA). For e.g., in a Drilling Operation, Work happens only when the Drill bit is in physical contact with the product (when the drilling actually takes place). This is called VA
Waste: When there is no physical or chemical change to the product, we can call them as wastes (NVA). There is no value addition to the product during this time. Whenever you see the product lying around without any transformation, it can be called as Wastes. E.g., The moment the Drill bit is not in contact with the product, there is no change in the product, so this time is NVA. During Machine setting, Waiting for Operators, waiting for the batch to complete, are some of the NVAs.
In most of the companies, around 95% of the time a product spends inside the factory is waste. Less than 5% would be the real value-added time. The moment you start identifying wastes in your operations, you’ll be able to reduce them.
Lean classifies the wastes into 7 types. These 7 wastes are present in all the manufacturing companies. We can easily remember them as TIMWOOD.
T - Transportation
I - Inventory
M - Motion
W - Wai ting
O - Over Production
O - Over Processing
D - Defects
1. Transportation – Transportation is any movement of materials from one place to another. This is considered as a waste since it does not change the product physically or chemically, meeting the customer requirement. Transportation cannot be completely eliminated, but “unnecessary” transportation can be eliminated. In general, transportation can be reduced.
How to identify it?
- Having multiple storage locations causing multiple material movement.
- Moving materials from production to assembly or to finished goods.
- High inventory levels using more storage space and hence increasing transportation of materials.
- Poor facility layout causing more material movement.
Solution – Transportation waste can be reduced by removing temporary storage locations that cause excessive transportation. Establishing Continuous Flow production where the downstream processes are close to each other also reduces transportation.
2. Inventory - Stock tied up in Raw Material, Work-In-Progress (WIP) or Finished Goods is called Inventory and while storage there is no value addition in the product, So Inventory is treated as a waste. Excess Inventory locks up the capital and space. It also requires efforts and time to retrieve and may cause damages during storage and transit. So, Inventory should be maintained in the optimum levels.
How to identify it?
- Materials build up between processes (WIP).
- FIFO (First-In-First-Out) not being followed.
- Batches of defective products being produced.
- Additional material handling due to excess storage.
- Excess raw material procurement from supplier to avail discounts.
Solution – Inventory (WIP) hides many of the other inefficiencies in your systems – process defects, poor machine utilization, high setup time and poor purchasing processes. Reducing inventory brings all these inefficiencies to the surface, so that they can be solved.
Our suggestion is to concentrate on reducing the work-in-progress. Raw material purchase and finished goods stock generally depends on market fluctuations, seasonality in customer demand, availability of raw materials and commodity price movement and many other factors. So, focusing on reducing WIP is a good way to reduce a lot of wastes.
3. Motion - Any unnecessary movement of people that do not add value to the product is a waste. All of these wasteful motion costs time (money) and cause stress on your employees and machines.
How to identify it?
- Searching for tools and parts in the workplace.
- Excessive reaching or bending to retrieve a part.
- Walking to fetch a material that is far away.
- Placing things down and picking it up again for use.
- Poor plant layout causing excess employee movement.
Solution - Easy access to materials and an efficient work cell design can eliminate these unnecessary motions of operators. Follow 5S to improve the workplace (Set in Order).
4. Waiting - Imagine we have 3 resources for manufacturing; material, machine, and people. Waiting happens when one of these resources wait for the other 2 resources. While waiting there is no value addition to the product.
How to identify it?
- Difference in cycle times between the processes
- People watching the machines run
- Set-up change / Change-over time
- Breakdowns of machines
Solution – Line Balancing to make sure that all the operations have less variation in cycle times, Creating cells where 1 operator can work on more than 1 machine, Reducing the Change-over time through SMED and break-downs by following TPM.
5. Over Processing - Over processing is putting more efforts / processing into the product than the customer is paying for. All these activities costs money and time and hence it is an obvious waste to be avoided.
How to identify it?
- Cleaning and polishing beyond the level customer required.
- Multiple inspections, counting, etc., between the processing.
- Redundant approvals, extra copies and excess information being gathered and stored in the company.
Solution - In most cases, this waste occurs due to lack of correct customer requirements. The objective is to perform only the level of processing that is required to match what is useful and necessary to meet the customer requirements. Improving communication between the teams would also reduce this waste.
6. Overproduction - Producing more than the customer’s requirement is Over-Production. Customer here refers to Internal and External Customers. All the operations must produce only the quantity required in the downstream processes.
How to identify it?
- Large lot sizes or batch processing.
- Unreliable process or unstable schedules leading to excess production.
- Producing in anticipation of future demand (without accurate information).
- Unbalanced processes or departments.
Solution – Establishing Continuous Flow and eliminating Batch Processing is the key solution to reduce over-production. Using tools like SMED, TPM and Pull system, over production can be reduced.
7. Defects – Producing products that do not meet the customer requirement. It is an obvious waste leading to rework/scrap – costing you time, effort, and customer satisfaction.
How to identify it?
- Presence of defects.
- Employing extra manpower to inspect, rework and repair defective products.
- Frequent Customer Complaints.
Solution – Defects should be prevented from arising at the first place. If there are defects, take corrective and preventive action, so that the defects are not arising in the future. Poka Yoke / Mistake Proofing can be used to reduce defects.
Benefits of Reducing these wastes
- Overall Lead Time would be reduced
- Improvement in Productivity
- Improvement in Quality
- Reduction in Costs
- Better Working Capital management and Profitability
Conclusion
By following lean principles of waste reduction, an organization can typically improve its productivity by 25% (from our past experience) within a period of 1 year. So, we suggest the manufacturing companies to implement lean principles, reduce costs, become competitive and become a world-class organization.
About the Author
Ananth is the Managing Partner of Hash Management Services, a boutique Business Advisory company based in Chennai. Over the last 15 years, he had helped more than 100 companies to become more profitable and efficient in their operations through Lean Manufacturing initiatives. He has also authored the book “Level One” which helps companies to train their team and standardize their processes. You can reach him through email pananth@hashllp.com or through website www.hashllp.com