Wednesday, March 7, 2012

Improving Your Process With A Process Cost Analysis

By Earl McMann, IKA – Strategic Account Manager

Over the past decade, process optimization has gone from an ideal to a necessity. Your customers need product faster, and they want it cheaper. The competition, both at home and abroad, is constantly looking for the opportunity to beat your turnaround time or price. If your operations are running at less then their full potential, you’re surrendering an advantage that can have a substantial effect on your long-term profitability.

When pursuing process improvement, one of the first considerations needs to be defining the desired outcome. The final objective is nearly always long-term maximization of profits, but companies often set short-term goals at odds with this mission. For instance, it’s common to encounter a situation where a team has been tasked with minimizing a specific cost, such as tool spend, without looking at the larger picture of overall profitability. In these cases, achieving the current goal can actually be detrimental to overall success.

As a not-entirely-hypothetical example, consider a shop that reduces its tooling cost per component by 25%, by switching to cutters that provide lower performance. On its face, this can look like a win, but there’s always a trade-off. Instead of producing 75 components per hour on a machine, output for the shop may drop to 65 components per hour. Such a loss in productivity can wreak havoc on profitability. Fixed costs, such as the machine, facility, etc., actually increase per component when efficiency suffers. The same goes for labor rates per component. Not to mention that the reduced productivity can introduce or worsen a bottleneck and limit overall capacity. In many instances, spending more on tooling, a machine or other equipment actually reduces total cost.

With the goal of total cost reduction in mind, a team or individual dedicated to process improvement must decide where to focus their efforts. If no problematic applications immediately emerge as obvious candidates, a basic analysis of workflow can help provide direction. Identifying machines or cells that are bottlenecks or consistently operating at or near full capacity will almost always offer up a good starting point.

Once an application has been targeted, the real work begins. Extensive information should be gathered and analyzed, both on the current process and on available alternatives. At this point, collaboration with your suppliers will often spell the difference between improvement and true optimization. No one will understand the machine, toolholding, cutters and other equipment in the process better than those companies that developed them. Involving representatives from these suppliers in your efforts will bring together a level of expertise that’s impossible to practically maintain in-house.

Following comprehensive analysis of options for improving a process, your team should test out the chosen solution and make sure it delivers the expected results. If it does, an implementation plan should be incorporated that includes training of your operators and other team members who will be affected by the change. This ensures your organization gets the most out of the hard work you’ve put in.

To offer assistance to our own customers’ process optimization efforts, Seco developed the PCA (Productivity and Cost Analysis). This program brings a formalized and proven approach to gathering and analyzing data, comparing and testing potential new solutions and then making a recommendation based on hard documented results.

If you have any questions pertaining to process optimization or would like additional information on Seco’s PCA, please feel free to contact me at

About the Author
Earl works closely with Seco’s larger customers to find ways to improve the productivity and cost-effectiveness of their operations. When not on the clock, he enjoys spending time with his wife and kids, as well as fishing, hunting and golfing.

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