The Hidden Muda of Potential

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Manufacturing News, Source : The Manufacturer US
Zone : World class manufacturing
Published : 25 Jun 2007 20:01

Exclusive to The Manufacturer, by Stroud Consulting
From the balcony above the production floor, the General Manager looked out across the clean, bustling packaging factory. Spotting the Production Manager below, the General Manager quickly made her way to the production area.

“Why is the die-cutter idle?” asked the General Manager (GM).

“The signal for more inventory is not showing,” proudly replied the Production Manager (PM), “So the supervisor moved the operator to assist at the folding gluer.”

Machinery hummed as material flowed from the printing presses, to the die-cutters, to the folding gluers, converting large, blank sheets of paper into many printed cartons that would eventually line the country’s grocery store shelves.

“Come with me,” retorted the GM and walked angrily towards the production dashboard while the PM followed in confusion. “Come with me and explain why I turned away a new customer from national accounts last week because you are out of capacity.”

“We are out of capacity! The folding gluer is our bottleneck and it runs 24 hours a day, 7 days a week. What more do you want?”

Wrong question.

“What more do I want? I want to move off this plateau on which you have so comfortably settled! I want to blow past our competition and take the lead in this industry! I did not make you the PM to ask me what more I wanted!” The PM was speechless. He thought the GM’s visit today was to offer congratulations on a job well done. Eighteen months ago this facility clutched onto the concepts of Lean manufacturing and with its last dying breath pulled itself upright and into profitability. The PM was proud of their industry standing: right in the middle of the pack – a big jump from even six months ago. They finally had solid relationships with good customers and production was synchronized with takt time. Why then was his boss so agitated?

“Here! Right here is why I am so upset!” The GM was pointing to the production goals posted on the dashboard for the folding gluer. “You posted 225,000 as the average shift output for this machine over the past 2 months. I called our systems engineer and learned that the machine was built with a specification of 300,000 cartons per shift. Based on those figures, I saw extra capacity of 75,000 cartons per shift that could be turned into sales. You refused, stating the extra business would put the plant above 100% capacity—in my mind these statements did not add up. Then, last night something occurred to me, so I got on the first plane this morning to confirm what was happening.”

“What?” asked the PM.

“You are not reducing muda… at least not all areas of muda.”

“I don’t understand,” stuttered the PM, “We have regular kaizen teams on SMED, 5S in place throughout the facility, and the die-cutter you are asking about is idle because we have a kanban set up between it and the folding gluer.”

“I’m sorry,” offered the GM, “but you are missing something. The die-cutter is down because you ignored one major area of muda: potential.”

Muda & Potential

Traditionally, muda is every bit of time, material, and effort expended by a business that does not increase customer value. Value Stream Mapping (VSM) is a Lean tool used to highlight the muda. The idea is that by drawing a diagram of the process with easy to understand symbols, the areas of greatest muda can be identified by the people that perform that process, and subsequently reduced through kaizen events (rapid problem solving sessions).

The traditional VSM method is quite effective in businesses close to the “discrete manufacturing” model. In these businesses, the ratio of unit marginal cost to asset value is relatively high. For example, manufacturers of highly specialized machinery and electronics have costly inventories, and market share is not fluid on a short time scale. Customers typically engage in contracts well before delivery, and “last minute” orders for additional products (another 15 jet engines, please!) are rare. The VSM displays where capital--both human and financial--is needlessly tied up in costly materials and unnecessary human effort. Simply moving the material quickly through the process to the point of sale can make great gains by reducing lead times and working capital.

In the introductory example, however, a different aspect is present: available demand. The business in this case falls closer to the “continuous manufacturing” model. The ratio of unit marginal cost to asset value is relatively low. These facilities are highly capitalized, and market share is available to responsive, low-cost producers. The PM was offered the opportunity to increase sales and turned it away. This baffled the GM until she realized that the PM was ignoring another area of muda: potential. In other words, the PM was so focused on reducing the non-value added time that he lost focus on the very purpose of his company: to create value. Unless a manufacturing facility has no competitors and is satisfying 100% of demand, the traditional VSM and seven forms of muda are hiding the value that can be created by reducing the muda of unrealized potential. For a business with a low ratio of marginal cost to asset value, converting untapped potential into sales can represent a large opportunity to increase profit.

The Rest of the Story

“What do you mean by ‘potential’?” asked the PM.

“Potential represents the cartons you have not produced and sold to a customer because you accepted less than perfect operating conditions. When your best operator produced about 250,000 cartons under your best conditions, you set 100% plant capacity at that mark. You assumed the machine builder’s claim that the machine would produce 300,000 cartons did not take into account the variables unique to your process.”

“That is exactly right. Our best operator set up this job and…”

“Did you ever consider that your best is not the best?” interrupted the GM.

“Well… no… I, uh… I guess I just...” stammered the PM.

“That is exactly right! The cycle time of the folding gluer is your bottleneck – not demand. So, that extra 50,000 that you so easily dismissed is the ‘potential’ that could have increased our sales with a new customer last week or reduced your overtime this weekend. Why not have kaizen events focused on increasing throughput? Every day that you accept the status quo on output rates, you throw away the potential to produce--and sell--more parts.”

“You are right! The die-cutter being idle does not represent a successful kanban, but rather it shows that I ignored the potential for increased pull from the folding-gluer. I slowed down one process when I should have been speeding up another! What should I do next?” exclaimed the PM.

“I want you to update your VSM. But this time, include these steps:

• When collecting data for cycle times, include both the actual and theoretical (potential) cycle times.

• Quantify the financial impact of recovering lost potential: labor cost reduction or increased throughput.

• Compare the numbers to those identified in other sections of the VSM to set your priorities for kaizen events.

Conclusion

A Lean operating system seeks to eliminate muda, or waste, from a process by applying different improvement tools. For example, a SMED kaizen event may take a step out of a die exchange, or 5S may reduce the distance an operator travels to and from his tools. However, this approach of ‘elimination’ ignores the very real muda that comes in the form of wasted potential to satisfy customer demand. Every minute that produces 50 instead of the possible 60 parts has demonstrated lost potential. The value of this opportunity can be higher in businesses with relatively low ratios of unit marginal cost to asset value. So, dust off that old Value Stream Map and re-evaluate it according to the guidelines above. Chances are you will find yourself surrounded by potential. Plan a kaizen to decrease cycle times and hit the floor running! (Your sales team had better get busy, too).

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