For example, let's say the original setup on one of your machines required four hours of a $20-per-hour employee, after which the machine took four hours to produce a batch of 400 pieces (before the next setup to produce a different piece). Thus, the setup cost per piece was 20 cents ($20 per hour x four hours equals $80, divided by 400 equals 20 cents).
Now, let's pretend you held a kaizen event to reduce this setup time from four hours to one hour. According to the logic above, you will have cut the setup cost from $80 to $20, and would have freed up the machine to produce three additional hours of product, or 700 total pieces, before the next setup for the next product. Thus, you reduced the setup cost per piece from 20 cents to 2.8 cents per piece (using the same math as above), a savings of 17.2 cents per piece right to the bottom line. Sounds great, right?
Not exactly.
The above is traditional thinking and it will get you into trouble. The flaw in the logic above is that you are producing more work-in-process (WIP) inventory -- more parts you probably don't have orders for yet. This is bad for seven reasons:
1. you have invested money in parts that you do not need yet (money that could be earning interest in a bank instead),
2. you have to store those parts somewhere (space costs money),
3. the parts could be damaged and turned into scrap,
4. they could become obsolete due to a product design change,
5. they could have all been made wrong in the first place (if the machine was setup slightly wrong, or if someone used the wrong material, or the die was damaged, you just produced 700 pieces of scrap), not to mention that,
6. the more WIP you make, the harder it is to find the WIP you need when you need it. Finally,
7. while your machine was pumping out 700 of one kind of part, the customer may have needed a different part and you were making him wait until you got around to making the part they needed. Many traditional manufacturing companies always have plenty of the parts the customer does not need, but none of the parts the customer wants right now.
All these problems will cost you much more than you thought you were saving by making larger batches of parts after a shorter setup time.
Because you want to increase profits, your real motivation behind reducing setup time must be to get closer to one-piece flow, which minimizes inventory, defects, and lead time -- while maximizing responsiveness.
As a rule of thumb, if you cut setup to one-quarter of what it was originally, you should cut your batch size to one-quarter of what it was originally, and do four times as many setups! By doing this, you are not reducing your setup cost per part at all, but you ARE reducing your WIP by three-quarters!
Reducing WIP will allow you to keep more money in the bank (or invest it in growing your business), use less space, reduce your scrap (less defective, damaged, or obsolete parts), spend less time searching for the WIP you made earlier, and produce what your customer wants when he wants it. Add up all those advantages and you will not only reduce unit costs, but you will also make your customers happier, which will bring in more revenue.
Successful lean manufacturers measure the number of setups they do, and actually brag about doing five or ten times as many setups as they did before their setup reduction efforts. More setups equal smaller batches, less WIP, and happier customers.
© 2001 Everest Consulting Group, Inc. (888)910-8326.
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