07. Feb. 2017

Cost Reduction in Gemba (Part II of II)

by MASAAKI IMAI

In our previous post we read about six major cost-reduction activities that may be regarded as part of the process quality in a broader sense. Today we will read about each in detail.

IMPROVE QUALITY

Quality improvement actually initiates cost reduction. Quality here refers to the process quality of managers’ and employees’ work. Improving the work process quality results in fewer mistakes, fewer rejects and less rework, shorter Lead Time and reduced use of resources, therefore lowering the overall cost of operations. Quality improvement is synonymous with better yields as well.

Process quality includes the quality of work in developing, making, and selling products or services. In Gemba, the term specifically refers to the way products or services are made and delivered. It refers mainly to managing resources in gemba; more specifically, it refers to managing man (worker activity), machine, material, method, and measurement— known collectively as the five M’s.

IMPROVING PRODUCTIVITY TO LOWER COSTS

Productivity improves when less input produces the same output, or when output increases with the same input. Input here refers to such items as human resources, utilities, and material. Output means such items as products, services, yield, and added value. Reduce the number of people on the line; the fewer line employees, the better. This not only reduces cost, but more important, reduces quality problems, since fewer hands present fewer opportunities to make mistakes. (I hasten to add that I do not advocate firing employees. There are many ways to use former line employees. Management should consider employees freed up by KAIZEN™ activities as resources for other value-adding activities.) When productivity goes up, cost goes down.

REDUCE INVENTORY

Inventory occupies space, prolongs production Lead Time, creates transport and storage needs, and eats up financial assets. Products and work-in-process sitting on the factory floor or in

the warehouse do not yield any added value. On the contrary, they deteriorate in quality and may even become obsolete overnight when the market changes or competitors introduce a new product.

SHORTEN THE PRODUCTION LINE

In manufacturing, a longer production line requires more people, more work-in-process and a longer Lead Time. More people on the line also means more mistakes, which lead to quality problems. One company’s line was fifteen times longer than its competitor’s. The result—in terms of the number of people employed on the line, the quality level (more people producing more quality problems), the inventory (both work-in-process and finished products) and the much longer Lead Time—was an overall cost of operations much higher than it needed to be.

I once reviewed the layout of a production line that was to be introduced soon for manufacturing a new product. To my surprise, the new process was a carbon copy of the existing one, except that some of the existing machines were replaced with the latest models. The company had made no effort to shorten the line. Management had not included shortening the line as one of its targets, nor had the designers given it a thought.

 

In Japan, an engineer tasked with collecting catalogues from various machine makers and placing orders from among them to design a new layout is called a catalogue engineer—not a very prestigious title. Management should encourage such engineers to do a better production layout—to design ever-shorter assembly lines employing fewer and fewer people. Constantly

challenging employees to do a better job than last time should be an integral part of any kaizen-driven manager’s work. The situation is exactly the same in nonmanufacturing activities.

REDUCE MACHINE DOWNTIME

A machine that goes down interrupts production. Unreliable machinery necessitates batch production, extra work-in process, extra inventory, and extra repair efforts. Quality also suffers. All these factors increase the cost of operations. Such problems are similar in the service sector. Downtime in the computer or communication system causes undue delay, greatly increasing the cost of machine operations. When a newly hired employee is assigned to a workstation without proper training to handle the equipment, the consequent delay in operation may be just as costly as if the equipment were down.

REDUCE SPACE

As a rule, manufacturing companies use four times as much space, twice as many people, and ten times as much Lead Time as they really need. Typically, Gemba KAIZEN™ eliminates conveyor

lines, shortens production lines, incorporates separate work stations into the main line of production, reduces inventory, and decreases transportation needs. All of these improvements

reduce space requirements. Extra space freed up by Gemba KAIZEN™ may be used to add new lines or may be reserved for future expansion. A similar improvement can be introduced in a nonmanufacturing environment.

REDUCE Lead Time (THROUGHPUT TIME)

Lead Time begins when a company pays for raw materials and supplies and ends only when the company receives payment from its customer for products sold. Thus Lead Time represents

the turnover of money. A shorter Lead Time means better use and turnover of resources, more flexibility in meeting customer needs, and a lower cost of operations. The Lead Time is the true measure of management’s capability, and shortening this interval should be top management’s paramount concern. Muda in the area of Lead Time presents a golden opportunity for kaizen.

Ways to cut Lead Time include improving and speeding feedback of customer orders and communicating better with suppliers; this reduces the inventory of raw materials and supplies. Streamlining and increasing the flexibility of Gemba operations can also shorten production Lead Time. When everyone in an organization works toward this goal, there is a positive impact on cost effectiveness.

Acknowledgement: “Gemba Kaizen” book by Masaaki Imai

In case you missed it, my last post was Cost Reduction in Gemba (Part I of II)

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