Cost Reduction Techniques Mark Parker Food NW Supply Chain Project Manager Director UK Supply Chain Associates Ltd
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Cost Reduction Techniques
Mark Parker Food NW Supply Chain Project Manager
Director
UK Supply Chain Associates Ltd
Background
Activity started Oct 2009
Worked with 20 companies
Dairy, Bakery, Red Meat
Delivered cost savings in individual companies
Improved information flow & product flow through the
supply chain
Why Run The Project?
Energy costs are rising
Raw Material costs are rising
Business cost are rising
Price down pressure from Retailers
Profit margins being squeezed
Project Objectives
Remove waste
Reduce costs
Increase profit
Free up capacity
Drive Sustainability
Demand Growth – Dairy Products
2009 - 2018 % growth forecast
EU 10.0%
United States 20.2%
China 25.0%
India 44.6%
Algeria, Egypt 30.5%
Brazil 26.4%
(Source: OECD)
www.dairyuk.org/component/option,com_docman/task.../Itemid,308/
Supply Growth – Dairy Products
“On the supply side dairy farming will present an opportunity for many regions around the world”
“Conceivable that there could be a rapid growth in production around the world in low cost countries”
“implementing changes in farm structure in any country is generally a slow process”
“Realistically it will be difficult for low cost countries to produce in line with forecast increases in demand”.
“Consensus opinion that demand will outstrip supply in the medium term.”
Source: Investment Prospects for British Farmers – September 2009
High Cost Base = Threat
.
Waste Definition
What types of waste
would you find
In a Food Manufacturer?
Waste Definition
Activity that adds cost
but does not add value
.
UK Supply Chain Associates Ltd
Method
Mapping : Select and Map a product line/process
Observe & analyse
Quantify waste
Identify opportunities for improvement
Agree improvement plan
Implementation:
Implement plan
Remove waste
Reduce cost
Free Up Capacity
Lean Manufacturing Techniques
Kaizan – Process improvement teams
5S – Sort, Set out, Shiny clean, Standardise, Sustain
5 Whys – Root cause analysis
7 Wastes
Fishbone – Cause & Effect
Kanban – Stock replenishment
Hijunka – Scheduling box
and there are many more....
UK Supply Chain Associates Ltd
Kaizen Definition
Kaizen (Japanese for "improvement")
A Japanese philosophy that focuses on continuous improvement
It is the key thrust to maintaining or achieving competitive advantage
through a dynamic change process
The Japanese process of continuous improvement using problem-
solving and analysis
Lean Manufacturing Techniques
5S programme to tidy the workplace
Current state versus the 7 Wastes
Total facility Layout (plan optimum layout)
Work flow, material flow
Visual flows (label areas)
Visual Storage (shadow boards, improve storage of tooling)
Schedule communicated to shop floor (Scheduling Box)
Reduce machine set up times (box-up tooling prior to job)
Dedicated areas (Walkways, paint floors, Goods In/Out)
UK Supply Chain Associates Ltd
Challenges
Gain buy-in at all levels
Drive from the top
Free up people to train
Fire fighting – break the routine
Clashes with short term priorities
Operator discipline – recording job times
Challenge the accuracy of data
Keep it simple
Sustaining the gain
UK Supply Chain Associates Ltd
Types of Waste
Scrap – cost of raw material
Rework – labour cost
Downtime – labour cost & lost opportunity
Giveaway – cost of raw material
Food miles – Logistics process
NW Bakery Scrap – Bakery Co.
the raw material cost of the scrap.
Actual Cost of Scrap per year = £235,000 (10%)
9%-11% product scrapped (measured & observed)
Breakaway on the cake base
Failures in middle section of pans coming out of oven
Caused failure a later stage on the line after
topping/filling applied.
.
NW Bakery
Scrap: the raw material cost of the scrap.
Actual Cost of Scrap per year = £444,600
(9,500 units – small cakes- scrapped per day)
Damaged by machine & manual procedures
Rejected manually on line
Rejected manually at packing point
Scrap sent for animal feed & to landfill
NW Bakery Actual Cost of Scrap per year = £24,700
(due to machine failures)
Plus packaging required to handle product from machine
failures
Actual Cost of Packaging used then
scrapped per year = £92,400
Downtime 20% = run Sat AM = £30,160
Total cost of scrap £147,260
NW Bakery Giveaway – Bakery Co.
the cost of raw material which has been given away for free.
Actual Cost of Giveaway per year = £819,500 (19%)
Overuse of ingredients 6% - 114%
Topping weight varied – overweight by 29%
Filling weight varied – Overweight by 76%
Hoppers filled manually – labour intensive
As the hopper weight reduces then variance in topping
occurs.
Product RFT = 8%
.
Other Wastes Identified
Waste streams on line not being segregated. Mixture of food, & packaging. This will contribute to land fill costs
Energy – Conveyors observed running through breaks & left running when not in use.
Quality – A number of unit cakes pass through the line at a substandard quality level without detection.
Floor waste – High value components being lost on the floor.
.
NW Dairy Company - Cost Savings Summary
• £190k - Saving by improving cheese yield - achieved by reducing the
amount of milk used to produce one tonne of cheese.
• £250k – Reduce downtime and improve Output per employee by 66.4t
• £93k – Reduce the amount of downgrading from 0.77% to 0.50%
• £500k – Reduce stock through the supply chain and reduce external
warehousing costs
• £122k – Avoid sending waste product to Landfill
NW Dairy Company - Cost Savings Summary
Total potential savings
= £4.4m
Any cost savings increase profits at this company
As it is a Farmers Cooperative
any increase in profits
goes back to the Farmers
Implementation Plan
Kaizen Intervention 1 - Not Right First Time
Reduce rejects, scrap, rework
Kaizen Intervention 2 - Setup Reduction
Reduce Downtime
Kaizen Intervention 3 - 5S in the workplace
Target the ingredient weighing area.
Kaizen Intervention 4 - Process Measurement and Data Capture
Need to improve data capture as this is fundamental to any Lean
implementation.
Outputs
2010
Opportunities Identified £21,000,000 (Cost Savings Signed Off £ 5,320,000
Additional Business Won £ 4,000,000
Total of 202 Jobs Saved)
2011
Opportunities Identified £ 14,000,000
TOTAL £35,000,000
Benefits of Lean
More productive labour utilisation Reduced Manufacturing Costs (lower unit cost)
Lower stock levels / reduced working capital Optimised space utilisation Fewer defects, less scrap & rework Improved Quality RFT Reduced changeover times Shorter cycle times
Improved machine utilisation Increased Facility Capacity.
UK Supply Chain Associates Ltd
Benefits of Lean
Improved delivery performance at lower cost
Increased customer satisfaction (QCD)
Improved data collection
More accurate data collected
Increased Management Controls
Empowered & more flexible work force
Pride in the work place
UK Supply Chain Associates Ltd
Thank you for your time
I will now take your questions
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