Capacity utilization is the key cost driver.
The Client Change Rationale
The CEO wants to strengthen the production capabilities of his organization. The production efficiencies and effectiveness have never been in focus.
For example no targets have been set for production utilization founded on available production capacities and sales demands and the products are not sorted and grouped into logical production sequence to generate the highest production efficiencies and effectiveness. The grouping sequence enables the Sales and Operation Planner to setup a capacity utilization plan putting together the optimal production run sequences to minimize for example the product changeover time. There lacks to economical rule for each sales item founded on available production capacities, optimal production quantity run sizes and the most practical safety stock levels.
The CEO wants to transform production into best-in class practices operation.
Production is generally the second largest cost element of company’s total expenditures – after procurement costs. The cost of goods sold for a production company consists of raw materials, packages and production. These three elements joint-together transform into finished products and services – in which the company generates its core revenues from. Cost of goods sold is generally on the range between 35 and 60 percent of net sale revenues. Effective procurement and productions management is therefore one of the foundations for a company to focus on to drive competitive advantages.
Best practices incorporate effective procedures, standards and guidelines, training and coaching, continuous improvement programs and effective performance measurement system that tracks actual performances against targets and goals.
To establish OEE (overall equipment effectiveness) as a fundamental core to run the production operation the most efficiently and effectively. OEE measures how effectively and efficiently operation utilizes its assets and recourses compared against theoretical outcome standard. The variance between the theoretical outcome and actual outcome are losses which are considered opportunities for improvements.
Capacity utilization is the key cost driver and the objective must at all times be to maximize the actual production efficiencies – by reaching the targeted maximum theoretical efficiency standard. The theoretical production efficiency standard is the optimum reachable efficiency standard through the total time when production should be running – creating values.
This means highest efficiencies are reached if one can do it without applying dead time, stoppages, changeover time and breakdowns or failures to the theoretical efficiency standard. However, in reality there generally will be stoppages, adjustments, failures and breakdowns that will hold back the production efficiencies. The hold back reasons behind the theoretical production efficiency standard and that cannot be reached are made up of opportunities.
TPC-Consulting Core Modules and Content
- Quality assurance
- Asset and recourse utilization
- Monitoring material losses
- Workforce effectiveness
- Performance management
Production operates under the best-in-class operational practices methodologies. The continuous improvement culture in production has generated many substantial values to drive competitive advantages of sales, services, marketing, finance and operations.