Having problems with message search?
(+)+(+)(+)+(+)(+)+(+)(+)+(+)(+)+(+)(+)+(+)(+)+(+)+(+)+(+)+(+)+(+)
(+)+(+)
(+)+(+) S.M.I.L.E(sm)
(+)+(+)
(+)+(+) Setup Minimization Improves Line Efficiency
(+)+(+)
(+)+(+) The Lean Changeover e-letter
(+)+(+)
(+)+(+) Published monthly by Changeover.com
(+)+(+)
(+)+(+) Written by John R Henry, CPP
(+)+(+)
(+)+(+)
(+)+(+)(+)+(+)(+)+(+)(+)+(+)(+)+(+)(+)+(+)(+)+(+)+(+)+(+)+(+)+(+)
(+)+(+)(+)+(+)(+)+(+)(+)+(+)(+)+(+)(+)+(+)(+)+(+)+(+)+(+)+(+)+(+)
###############################
###############################
###
### JANUARY 2006
###
###############################
###############################
============================================================
This newsletter is a free service of Changeover.com. Visit our website at
http://www.changeover.com or contact us at
john@...
Please feel free to forward this newsletter to anyone you think might be
interested
To subscribe send a blank e-mail to: quickchangeover-subscribe@yahoogroups.com
To unsubscribe send a blank e-mail to:
quickchangeover-unsubscribe@yahoogroups.com
Past issues are indexed and archived at www.changeover.com/newsletter.htm
=============================================================
Brrr....It’s almost February. Do you know where your toes are?
Here’s an excuse to get away on a junket in the sunny Caribbean. InterPhex will be taking place in San Juan PR on February 16 & 17. Best of all, I will be presenting a conference session titled “Make Changeover Lean AND Quick”. I hope to see some of you there.
Visit www.interphex.com/ for more info. Don’t worry about air fares, they are pretty cheap between mainland airports and San Juan.
For full information visit http://www.interphexpuertorico.com/
SOME THOUGHTS ON...
INVENTORY
One definition of inventory is “A surplus of materials held to cover up mistakes in planning and management”. Most manufacturing plants will be concerned with three major categories: Raw Material Inventory(RMI), Finished Goods Inventory(FGI) and Work In Process(WIP). WIP is typically thought of as materials that are staged or stored between processes. In a pharmaceutical packaging operation the vials may be filled and capped then need to wait for a quality release before final packaging. This is a classic example of WIP. There are other inventories such as pipeline inventory and MRO but these are the three that mainly concern people in manufacturing.
Inventory is very expensive to hold. For the typical consumer good producer, the annual carrying cost is around 30%. That is, carrying an average inventory of $1,000,000 will cost $300,000/yr. Some of these costs are obvious. Everyone can see the warehouse and know there is a cost of rental or construction. Others are more complex. There is an opportunity cost of the capital tied up in inventory. At the very least, that money could be earning 3-4% interest. More realistically, it could be used to finance expansion, equipment replacement or any of the myriad other capital needs a company has. It might replace money that otherwise needs to be borrowed at 10-15% interest rates.
Other costs include utilities such as heat, A/C, and light for the warehouse. Material handling equipment and labor is required to move the goods into and out of the warehouse. Transportation costs where a satellite warehouse is used must also be included. Deterioration will occur in storage. With most products there will also be some shrinkage due to pilferage or misplacement.
In addition to the more or less tangible costs mentioned above, inventory has high intangible costs.
Inventory will often mask other operational problems. When I taught Operations Management the text had a cartoon graphic of inventory. It showed a riverbed full of rocks and water. The rocks were labeled “problems” and the water was labeled “inventory”. The problems, hidden by the water, were out of sight and out of mind. An example of this might be an unreliable supplier. If sufficient inventory is carried, the unreliability may not seem critical yet it may have more subtle effects on things like quality and cost.
At the other end of the process, the water of inventory can hide poor performance by the forecasting and sales departments. Ideally the finished product should come off the end of the production line and ship to the customer without pausing. The closer a company can get to doing this, the less FG inventory will be required.
WIP inventory is terribly expensive although the costs may not be immediately visible. When a plant has too high a level of WIP, it tends to clog the process and can make things worse than if there was no WIP at all. An excellent book on this is “The Goal” by Elihu Goldratt which discusses the Theory of Constraints. Mark Garvey discussed this in the November 2005 Quick Changeover Newsletter. See www.changeover.com/newsletter.htm
In other words, all inventory has a high cost and needs to be reduced or eliminated to the maximum extent possible.
Changeover costs are fixed. That is, it costs the same to perform a line changeover regardless of whether the line is to run a single day before the next changeover or a month. One way to reduce overall changeover costs is to decrease the number of them by increasing lot size. From one point of view, this makes a lot of sense. What may not be considered is the impact of this strategy on inventory.
Assume that a plant makes 4 products (A, B, C & D) and sells 250,000 of each per month. Assume that it ships steadily throughout the month. One strategy would call for a lot size of 250,000 of A and run all week. Change over and then run B all the next week and so on. In this case, average inventory of each product will be 250,000/2 or 500,000 units total for all 4. If each unit is worth $2.00 average inventory will be $1,000,000.00 with an annual carrying cost of $300,000.00.
Consider a different alternative. Assume the plant still makes 250,000/month of each product only it does it in lot sizes of 62,500 units once each week. Average inventory for each product will now be 62,500/2 or 125,000 units total for all 4. Carrying cost is now $75,000.00
The smaller lot sizes in this example result in a reduction in average inventory levels and inventory carrying costs by a factor of 4.
CAVEAT: This example is somewhat simplified. In reality inventory is usually much more complex. This is intended to illustrate how, when lot size is reduced, inventory is reduced. It is also somewhat easier to see this graphically than textually. If you like, drop me a note at john@... and I’ll be happy to send you an illustration I use in my workshops.
The point is, reducing changeover times will allow reduction of lot sizes. Reduced lot sizes will have the tangible effect of reducing inventories. It will also have the benefit of improving responsiveness to swings in customer demand or other unforeseen circumstances.
TIP OF THE MONTH...
PACKAGING TECHNOLOGY
I have been teaching an Introduction to Packaging Technology at the Polytechnic University of PR. This is in their MS in Industrial Engineering program. I have been having a lot of fun teaching it. One of the things I have been doing for the students is posting copies of my PowerPoint lecture notes on the Changeover.com website. It occurs to me that some of the readers here might find these of interest. To download them, simply click on the links below. Note that I did not use PowerPoint for lecture 1 and there was no lecture 6 as it was exam night.
www.changeover.com/lecture2.ppt (Paper, boxes and cartons)
www.changeover.com/lecture3.ppt (Labeling and decorating)
www.changeover.com/lecture4.ppt (Plastics molding technologies)
www.changeover.com/lecture5.ppt (Film packaging)
www.changeover.com/lecture7.ppt (Tubes, cans and aerosols)
www.changeover.com/lecture8.ppt (Glass and glassmaking)
John R Henry CPP
Send Email