Manufacturers are increasingly rethinking their business philosophies to make sure they prevent waste and financial loss within operations and contribute to maximizing profits of the company. These philosophies bring forth new, innovative strategies that improve the production process. One such prevailing philosophy is World Class Manufacturing (WCM).
Quite a bit of research has been done to determine the factors that contribute to the success of WCM. Some say success lies in finding the balance between people, rapid response and effective asset utilization. Some say success lies in improving visibility of the manufacturer’s performance.
In order to increase visibility, better cost management granularity must be obtained. To this end, cost deployment is utilized in order to better understand the costs attributed to various aspects of the manufacturing process.
What is Cost Deployment?
Manufacturers can effectively evaluate which areas of the manufacturing process require improvement by using cost deployment. By breaking up the manufacturing process into smaller and smaller pieces, specific causes to losses can be identified and eliminated in order to improve production. Each of these pieces is assigned specific costs based on financial data from the manufacturer.
The key to success in cost deployment is to precisely measure and attribute costs to losses and then transform them into gains.
How Cost Deployment Works
In the first step, total processing and transforming costs are quantified. Goals should be defined in order to reduce costs.
In the second step, qualitative losses and wastes are identified and quantified based on knowledge of previous measurements.
In the third step, causal losses need to be separated from resulting losses.
In a fourth step, the actual costs of wastes and losses can be calculated.
In a fifth step, methods can be identified to recover the wastes and losses that resulted from the production process.
During the sixth step, a calculation of the costs for reduction of the wastes and losses should be made. It should be noted that thinking out a reduction plan also brings certain costs.
In the seventh step, establish and implement an improvement plan. Once the cycle is complete, world class manufacturers repeat steps 4 through 7 indefinitely to continuously drive improvement.
With better granularity of cost understanding and management teams ready to tackle continuous improvement within operations, manufacturers both at home and abroad can be world class.
Jason Piatt is president of Praestar Technology Corp., a provider of consulting and training services to manufacturers in the Mid-Atlantic region specializing in lean, Six Sigma & strategy formation.