Calculating Changeovers High Cost
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Transcript of Calculating Changeovers High Cost
©2005 by John R
Henry, A
ll rights reserved
Calculating and Cutting Calculating and Cutting Changeover's High CostChangeover's High Cost
PackExpo2005 Las Vegas
John R Henry CPPChangeover.com
[email protected]/863-9134
©2005 by John R
Henry, A
ll rights reserved
Downtime definedDowntime defined
• Downtime – Any time the line should be running but is not, sometimes called“unplanned downtime”
-Primary causes of downtime-
• Changeover• Operational problems such as jams, breakdown, need for adjustment, high
reject levels • Maintenance (often does not cause enough downtime)• Lack of materials• Lack of trained personnel
©2005 by John R
Henry, A
ll rights reserved
Changeover definedChangeover defined
• Changeover - The total process of converting a line from running one productto another.
-The 3 Ups-
– Clean-up - The removal of all previous materials, components and product from the line.
– Set-up - The adjustment or changeout of the line in preparation for the succeeding product.
– Start-up - The period of time after the line has restarted but before it is running at normal speed and efficiency.
• Lean changeover - Changeover in which there is no wasted material, labor or time.
©2005 by John R
Henry, A
ll rights reserved
Changeover time definedChangeover time defined
• Changeover time - The total elapsed time from the last unit of good product at normal speed and efficiency to the first unit of goodproduct at normal speed and efficiency.
©2005 by John R
Henry, A
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The problem with changeover?The problem with changeover?
Its all about the Benjamins
©2005 by John R
Henry, A
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Types of changeover costsTypes of changeover costs
• Tangible costs - Costs for which a reasonably accurate dollar value may be calculated.
• Intangible costs - Costs which are difficult or impossible to quantify.
The fact that a cost cannot be dollarizeddoes not mean it is not expensive!
©2005 by John R
Henry, A
ll rights reserved
Tangible CostsTangible Costs
©2005 by John R
Henry, A
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Lost ProductionLost Production
The most visible cost of changeover is lost production.
Line speed = 250PPM
Contribution = $0.50/Package
Average changeover time = 60 minutes
Cost per changeover = 250 X 60 X .50 = $7,500 ($125/minute)
Annual cost = 240 X $7,500 = $1,800,000
©2005 by John R
Henry, A
ll rights reserved
Lost CapacityLost Capacity
Lengthy changeovers reduce the available plant capacity
Assume:Line speed = 250PPMOne shift operation (8 hours)1 hour/day of changeover
Theoretical capacity = 120,000PPDActual capacity = 105,000PPD
Annual capacity loss = 15,000 X 240 = 3,600,000 Pkgs.If contribution per package = $0.50, cost of lost capacity is $1,800,000Lost capacity is lost production from a different point of view
©2005 by John R
Henry, A
ll rights reserved
Direct labor costsDirect labor costs
Assume:
2 mechanics @ $25/hr3 operators @ $15/hr
Labor costs/changeover = (2 X 25) + (3 X 15) =$95/hr
Total annual labor cost = 240 X 85 = $22,800
There will also be inspection, material handling, supervision and other indirect labor costs.
©2005 by John R
Henry, A
ll rights reserved
Effect of lot size on inventoryEffect of lot size on inventory
Averageinventorylevels100M
500M
400M
300M
200M
M T FTW
250M
50M
LOTSIZE
DAYS
©2005 by John R
Henry, A
ll rights reserved
Impact on inventoryImpact on inventory
Assume value/unit = $4.00
Assume 30% carrying cost
Assume reduction in average inventory from 250,000 to 50,000
Annual inventory savings = 200,000 X 4.00 X .30 = $240,000
Additional savings may attain from reductions in raw materials inventories.
©2005 by John R
Henry, A
ll rights reserved
Rejected product and materialRejected product and material
• In setup– Packaging components and product are often used in setting up
machinery and need to be discarded.
• In startup– Startup is characterized by higher than normal reject levels. This
rejected product represents either a total loss if discarded or a partial loss if reworked.
– During startup product may be produced which is acceptable but not perfect. This variation may be perceived by the end customerwith negative effects.
©2005 by John R
Henry, A
ll rights reserved
Intangible CostsIntangible Costs
©2005 by John R
Henry, A
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Customer responseCustomer response
• Lengthy changeovers will reduce the plant’s ability to respond to customer demand in a timely manner.
• This is not usually an issue in normal operation when everything is going to schedule. Few plants have the luxury of “normal” operations.
• Improved customer response will be a significant competitive advantage when a customer has an unscheduled need.
• Contract packagers particularly need to make rapid customer response a core strategy
©2005 by John R
Henry, A
ll rights reserved
Reduced market shareReduced market share
• Reduced production output may result not only in reduced sales but also in reduced market share. This will have long term strategicimplications.
©2005 by John R
Henry, A
ll rights reserved
StressStress
• When changeover times are long, there will be increased pressure to get lines up and running again. This causes increased stress:
– On people-As people are pushed harder, they become more prone to error as well as cutting corners.
– On machines-Excessive changeover time will result in machines being run harder and longer with less time for proper repairs and, most importantly, for preventive maintenance.
©2005 by John R
Henry, A
ll rights reserved
InnovationInnovation
IBM Ad
©2005 by John R
Henry, A
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Importance of knowing costsImportance of knowing costs
• Justification of expenditure– Operating expenses for machine upgrades– Capital expenses for machine replacement– Direct and indirect expenses for training– Lost production while modifying machinery
• Comparing the time gained from changeover improvement to the expenses incurred is comparing apples to oranges.
• Costs and benefits must both be expressed in dollars for useful decision making
• Downtime from changeover is a significant cost that is often unrecognized
©2005 by John R
Henry, A
ll rights reserved
Accounting must be involvedAccounting must be involved
• Changeover costs must be determined by finance/accounting to develop and “official” number that will be accepted by management
• Cost data developed by engineering or production are not always believed
©2005 by John R
Henry, A
ll rights reserved
Real life examplesReal life examples
• OTC pharmaceutical tablet plant- @$25,000/hour
• Prescription pharmaceutical tablet plant @$16,500/hr
• Distilled spirits bottler @$22,000/hr
• Skin care products @$11,000/hr
©2005 by John R
Henry, A
ll rights reserved
Two paths to lean changeoverTwo paths to lean changeover
• Mechanical– Focuses on improvement to machinery to make it faster and easier
to change in a repeatable manner.
• Operational– Focuses on people, processes and procedures to eliminate wasted
efforts and time from changeover
Lean changeover requires total involvement!!
©2005 by John R
Henry, A
ll rights reserved
Three tasks of changeoverThree tasks of changeover
• Eliminate all unnecessary tasks.
• Externalize to the maximum extent possible any tasks that cannot be eliminate.
• Simplify whatever tasks remain
MEASURE, MEASURE, MEASURE!
©2005 by John R
Henry, A
ll rights reserved