Cost Cutting through Root Cause Analysis

WICMA - Magazine Feb 2015

I want things cheaper so when I bought this pair of jeans from a retail outlet I was gushing at the discount I got compared to a branded one which I had bought earlier. It is a different thing that the fitting was not right and the material felt rough. But I sidetracked those concerns considering the savings. However, after few rounds of wash, the stitching started getting frayed and the material stretched unevenly. In the end I was pretty upset that my great bargain deal was such a flop. Well, it was bound to be for obvious reasons!

Everyone wants everything cheaper these days but the best of the quality. How much cheaper? Honestly, most people don’t know the answer to this question so anything lesser than the price currently being quoted is great. Why don’t people know how much cheaper? Because they don’t have the capability to figure out the method to calculate or are too lazy to do the legwork.

This is a constant demand in our packaging business too. Customers want cheaper cartons while insisting that we stick to their quality requirement. Most purchasers consider this to be the easiest way of saving costs. There are quite a few reasons; one of them being priority of payment. Packing material suppliers are the last ones to be considered while scheduling payment. There is too much competition in this segment and the work is not rocket science hence, every supplier can be replaced easily (well most of the time).

But the chief reason is lack of hard work and analysis. If one really wants to save costs, they need to fundamentally change the product and processes not the 1 or 2% of the packaging cost. There are ample scope for improvements and waste reduction if the basic product itself is analyzed and redesigned. But this requires serious involvement and hard work. It requires time and resolve to conduct root cause analysis. There is need for data collection, analysis, testing and rechecking. Most people are hence content with reducing the packing material cost which is least hard work and creates the illusion of saving and becoming cost competitive! It is when more international biggies come into the market will these companies realize what is competitive edge?

Businesses do not understand that there are other ways of properly reducing packaging costs. One good idea is to put some serious brains into design and drawing specifications. The designer quite often simply copies an existing template and changes dimensions. If you ask why they need BS of 20 and not 15, rarely will you get a clear answer. Often the specifications are more than what is truly required which jacks up the price. Everyone wants to play safe by adding unnecessary buffer and to cover for shortcomings.

Another way is to focus on advance planning. Now the larger buyers want “just-in-time” since they do not know what they want and when. If a corrugator is given proper forecast of requirement then they can build up inventory to meet the delivery dates instead of stocking up for anything anytime. Inventory turns will be more and the carrying cost will be less.

Let us take an example of Company A and B.

Company A has random requirements and n-number of carton sizes designed and developed by people over a period of time. They are not following any forecast method to identify which type of cartons will be required when. When the item is ready or nearing completion, the carton suppliers are asked to deliver the cartons. At the time of seeking payment, Company A delays at random without any reason. Often they feel humiliated if the suppliers follow up for payment or show a laid back approach towards releasing payment. The adage – customer is king is often taken too literally by many buyers. But they forget that the kingdom prospers due to its many subjects and not just the king.

Company B has created a standardized set of cartons to pack all their items in atleast one of them. (This is what today’s E-commerce companies are practicing). They have a clear system of tracking which items are being ordered, manufactured and are at what stage of completion. There is a visibility of status in the process. This company also has a data stating how much time is needed to make one item and ship. Based on this, whenever an item goes into production, all the relevant suppliers are intimated of the same. This gives every supplier time to plan their production and delivery schedules. Company B also believes in sharing historical data, future plans and planning schedules on a regular basis with their suppliers. Taking a step forward, they also communicate the material receipt and payment processing dates creating good levels of transparency and timely information delivery.

It is obvious that the supplier of Company B is not going to stock too much inventory and buy as required. They will also supply as per the time schedule and have a fair idea of the payment cycle. Continuous procurement will also help the supplier to plan production at their end. Payment and order cycle reliability automatically will impact cost of production and price of the item. Company B will surely demand good quality at lower rates and get it too.

The reliability of timely payment trumps all the other options. If a supplier is assured of timely payment and the commitment is honored regularly, the offered rates will be automatically cheaper. However, no one sticks to the payment cycle, everyone delays and hence, somewhere there is a compromise in quality or buffering in costs.

How is China so competitive in the manufacturing sector? Cost cutting as a means to remain competitive is a shallow approach. There are larger economic factors at play which pushes up the price. Fuel costs, taxes, cost of operating a business, lack of infrastructure, the labor market all contribute to the increasing costs. If these are contained, automatically our products can become cheaper in the global arena. We need some serious root cause analysis and structured approach to cutting costs as an organization and not squeeze the ever dispensable packaging material supplier.

Though it can also be argued that these suppliers lack organized approach towards pricing, quality and need to work in a framework of specified price band like many paper mills supplying Kraft paper. Is there a scope for improvement amongst us corrugators?  

Work Method Study

Optimizing Processes, Identifying Hazards, Increasing Output

Value of Work Method Study

Sometime back I was watching a random episode of MasterChef Junior on TV. By the end of the episode, I was amazed at how good many of the children were in the kitchen and the variety they could get on the plate within the stipulated time. I followed the show for the rest of the season and gathered some very basic yet interesting application of work method optimization from the children. They knew how to prioritize the steps and work towards convergence of multiple related and unrelated work elements while moving around the kitchen. The girl who had won the show said that she learnt by watching her grandmother work in the kitchen and gathered intelligent tips from her not only about food but the processes too.

Though work method study is taught in management schools as part of operations management, many of us do not use its benefits to our advantage. There are studies on improving resource utilization, waste reduction and value creation but seldom do they touch upon the depths of work method study as a long – term sustainable source for saving costs. Many decisions of capacity planning, technology selection and improvements can be done effectively by first conducting a thorough work method study (WMS). In the current context where businesses operate with steadily rising costs of inputs, labor challenges, global competition with fast diminishing margins; small businesses must focus on WMS as a source of serious improvement.

Basically WMS is nothing but calculating the time taken by an average worker to perform a particular task under a reasonably normal work environment and available resources. WMS has two aspects – motion study and time measurement.

Once I was taken around a small scale garment manufacturing company which is into outsourced job of stitching pair of men’s and women’s trousers for a well known Indian brand. The manager explained that the entire layout has been changed thrice to identify the most effective flow of material and process. He said that the number of machines has been installed after conducting a detailed walk through of the process and time required at each workstation. This was further analyzed with historical orders, projected future orders, overheads, operational cost and working hours of workmen. The production in-charge further added that, “we also factored in the time difference required for men’s and women’s trousers as the designs and cut are different.” 

WMS has maximum relevance in the manufacturing process though its benefits can be extended to the service industry too. Fixed processes, repetitive tasks like automobile, pharmaceuticals, banking to a certain extent, even airport luggage clearance area, ticket counters, number of billing counters in large retail outlets or serving coffee in a coffee shop are work methods which can be improved using detailed data of motion and time. Tata Trent, the owners of Star Bazaar are said to have conducted detailed study of the flow at the billing area before arriving at the number of counters at inception.

The premise of WMS is increasing the productivity and output of machine and men. Cutting wasteful motion and processes help in the efficiency improvement. Often with slight change in existing technology gives proportionately higher returns. Another strategic benefit of WMS is identification of risks and hazards in the workplace and options to address them. OHSAS might not be mandatory for your business but while conducting WMS, you can prepare your business processes and systems for becoming compliant in the future. Thus, with smart application multiple goals can be achieved through this single exercise.

Conducting the Study

WMS is fairly easy but requires patience and good understanding of the business, processes, product, technology and the costs. For analyzing any system, first study the motion and then the time for each work element and human movement or action. The ultimate objective is to produce the same item with less resources performing lesser amount of work. 

Step 1 – The person conducting the study should walk through the entire process without trying to intervene. The only question should be to ask why a certain activity is being done. One can also record the process using a video camera and record the time taken. Also record the activity, number of people involved at each stage, seating arrangement, layout of machinery, tools and tackles etc.

tep 2 – Chart the entire process and motion using a process flow chart. What is the purpose of the activity? What is its cycle time? Mark the time spent for search, find, grasp, position, operation, wait, delay, check and move. There are statistical data available for average walking speed, stride length etc if you intend to go down to further details. Use multiple colors in the process flow chart to mark man, machine and material movement.

Step 3 – Document the process by dividing it into parts. Start recording the individual work element using a stopwatch. You can take multiple readings of different people to establish average time. This will help establish data on time wasted due to unnecessary motion or repetitive movements.

Step 4 – The objective of WMS should be to eliminate, combine or simplify activities. Implement basic 5S arrangement for faster access, better lighting systems and ventilation which affects human output. Suggest alternate processes by simplifying them or automating processes to reduce human error. Focus on the economics – savings of cost in the long run, availability and use of technology to implement the change, constraint of existing machines to bring about efficiency gains and the human aspect – reaction to the change and impact of normal working conditions.

How WMS helps Micro and Small Businesses

My production manager always says that I must understand three things while quoting rates of corrugated cartons to our clients – clients’ carton design, our machine capability and the time taken to manufacture the carton based on number of processes and movements that should be done. Today I appreciate his wisdom more than ever.  

·         WMS helps us plan factory layout, installation of safety equipments, inventory levels, production scheduling and the daily production plan. All these affect quality of the product and timeliness of delivery.

·         One can decide whether to add machines or people as it will affect the cost of production, margins and selling price. Or maybe decide to simply increase the shifts.

·         Output of each machine and man will help decide the incentive plan for workers and staff. You can balance man – machine utilization. Measure the performance and negotiate targets with worker (or union). WMS can be a great tool to bargain for competitive wages.

·         Long term advantage of WMS is rejuvenating the business processes. We sometimes go for the latest technology to improve. Maybe all we needed is to improve the skill level of the staff. Or tweak a few steps.

WMS gives lot of benefits to all sizes of businesses. There is ample scope for research on WMS for industries belonging to the small scale sector to plan capacities, machinery, workflow as well as labor to become competitive and more efficient without additional cost.

This cartoon says it all!