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The Road Map for Cost Reduction
Mart 4th, 2017Generaladmin 0 Comments

Cost reduction issue is one of the top priorities of all businesses subject of agenda items. Many businesses attribute their strategies to scale economy principle that is the principle of reduction of unit cost by increasing the scale. I wonder how true this strategy is.

Now, let me explain this with an example. Consider a business. Its wastage rate is 10% in production processes. This business is trying to increase production volumes within the scope of scale economy to reduce the costs. Well, what does the growth of scale mean?

  • More production! Yes,
  • More wastage! Again, yes.

While 10 products went to the wastage when producing 100 product in the past and now you produce 200 product and give 20 product to the wastage. Scale increases the production and losses also increase!

Then, before increasing the volume, something needs to be done about quality, I think. In order to better explain the quality issue, first it is necessary to make a definition of quality and poor quality. The best answer to this question, what is the quality is “Quality is coming back the customer, not the product (Siemens)”, I guess. So, there is no product return by both internal and external customers. Poor quality with the simple expression is that the resulting output cannot be obtained as at desired criteria at the end of the process. Cannot obtain desired output!!!

Well, what they may happen and output at desired criterias could not be obtained. Why one of product is wastage while 99 product is solid, or why wastage is more in night shift while less in day shift or why the same product cannot produced solidly in machine B while the process works really ideal machine A. Let refer the poor quality concept as problem and take a look at the factors that influenced the problem.

We are doing the definition of the problem as “deviation at standards” in lean transformation. So, if there is a difference between expected and actual, we perceive this situation as problem. For example, it takes about five hours between Istanbul and Ankara by car. You promised with a friend and notified that you’d be leaving from Istanbul at 08:00 am and arrived to Ankara approximately 02:00 pm. However, you did not still arrive to Ankara at 04:00 pm. Naturally, your friend thought that had a problem in the road. A lot of traffic in the road due to the weather conditions or it could be a flat tire, or something else. One thing is for sure that you came late than the expected time. In order to decide that you are late and there is a problem, your friend needs to know the normal expected travel time.

Therefore, in order to talk about the existence or type of the problem, it is necessary to have our standards as a priority. Neither problem can be defined nor talking about improvement activity in a non-standard place.

Now, let’s take a look at the factors that influence the problem. Technically, one or several of the factors which we called 6M influences the formation of problem. 6M factors are used quite often in fishbone analysis which is used problem solving processes.

  • Man:  Human is one of the root causes of all the problems in real. You substantially encounter with problems as a result of not doing what needs to done at that time or incompetently.  For example, maintenance activities do not carry out using ideal materials at ideal time intervals which is written in producer machine handbook at many times in some companies. Malfunction risk of machines is quite high because of the reasons such as not providing enough operating conditions, doing the maintenance activities by untrained person who are not competent and wrong usage. If the maintenance activities are done like plane maintenance and controls which is ideal and proper to producer instructions and procedures and done by competent operations, it is expected very few problems under normal conditions.

For example, it is a human failure with a single word that having a car crush as a result of not taking the car in for service by its user when the service maintenance time comes. Similarly, problems caused from all works that did not do correctly in time can be shown as example in production.

  • Machine: Equipments also wear away just like humans. Life-expired or equipment that has not been adequately maintained from time to time does not produce the desired outcome. An index which called Cp or Cpk (Process capability index) is used in industry to measure process safety of equipments. Technically, both values should be asked larger than 1. If this index value is under the 1, it means that you can probably experience problems cause from equipment.
  • Material: Correct and high-quality materials are required for a good meal. In production, the materials chosen in design phase are replaced with equivalent product later as a result of lack of proper material or cost reduction. However, the result is largely frustration.
  • Method: Same results sometimes cannot be obtained with same materials. The selection and use of appropriate method at this stage is extremely important. While preparing a chemical mixture, there is a huge gap between added all ingredients at the same time or intricately and identifying when and what order the materials will be involved to the process.
  • Mother Nature: We hear very often this reason in some processes. It is like that, in summer, there is more wastage, while production is good in winter or quality is varies on day shift and night shift. Some processes are affected from the external environment. Some parameters like relative humidity, temperature etc. can change the process parameters. For example, during the processes such as drying or chemical reaction, the environment must be conditioned (standard temperature, humidity) continuously.
  • Measurement: Maybe it is the one of the most affected but rarely noticed factor. In a process which sends prescription according to automation system via computer, you do not expect an error technically. You cannot think of a mistake because sending the chemicals in which order and what amount via automation system without human intervention. However, if your system is not calibrated and your sensors are measured incorrect, the result cannot be obtained as you desired.

As it is seen from here, we can show a process output as y= f {x1, x2…xn}. So, output takes place as a result of different combination of many inputs. We can classified these inputs in a different way like manpower, methodical business techniques, material quality, process parameters, environmental condition etc. In order to obtain same output continuously at the end of the process, variability of inputs needs to minimize. A set of rules, procedures and instructions should be specified in order to reduce the variability of inputs to zero. If these rules are identified and applied, process outputs will be continuously the same. In lean, we see human factor as major source of all problems. All problems out of the natural disasters such as earthquakes, floods are occurred as a result of several nonstandard factors that actually need to be done but not. In other words, what happened is a result that our actions and not.

At this stage, the standard has come into effect. Standard is continuously obtaining same results with same method, same alignment and coextensive at every turn independently of person, time and place. In other words, we can express as designed operation procedure in order to reaching the same results at every turn for each operation, activity or process. If standards in any process are well determined and specified standards are applied, the chance of encountering with problems is minimized.

It can be concluded that from here. The quality is completely relevant to be engraved in. Any improvement cannot be made without standards, quality cannot be improved. Volume increase cannot be done without quality improvement. The costs cannot be reduced without volume increase.

In that case, we may do the cost reduction roadmap as;

First standard, later quality and at the end volume increase. The output of this process naturally influences the cost reduction.

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