Cost Reduction Techniques

Mark Parker Food NW Supply Chain Project Manager

Director

UK Supply Chain Associates Ltd

Background

Activity started Oct 2009

Worked with 20 companies

Dairy, Bakery, Red Meat

Delivered cost savings in individual companies

Improved information flow & product flow through the

supply chain

Why Run The Project?

Energy costs are rising

Raw Material costs are rising

Business cost are rising

Price down pressure from Retailers

Profit margins being squeezed

Project Objectives

Remove waste

Reduce costs

Increase profit

Free up capacity

Drive Sustainability

Demand Growth – Dairy Products

2009 - 2018 % growth forecast

EU 10.0%

United States 20.2%

China 25.0%

India 44.6%

Algeria, Egypt 30.5%

Brazil 26.4%

(Source: OECD)

www.dairyuk.org/component/option,com_docman/task.../Itemid,308/

Supply Growth – Dairy Products

“On the supply side dairy farming will present an opportunity for many regions around the world”

“Conceivable that there could be a rapid growth in production around the world in low cost countries”

“implementing changes in farm structure in any country is generally a slow process”

“Realistically it will be difficult for low cost countries to produce in line with forecast increases in demand”.

“Consensus opinion that demand will outstrip supply in the medium term.”

Source: Investment Prospects for British Farmers – September 2009

High Cost Base = Threat

.

Waste Definition

What types of waste

would you find

In a Food Manufacturer?

Waste Definition

Activity that adds cost

but does not add value

.

UK Supply Chain Associates Ltd

Method

Mapping : Select and Map a product line/process

Observe & analyse

Quantify waste

Identify opportunities for improvement

Agree improvement plan

Implementation:

Implement plan

Remove waste

Reduce cost

Free Up Capacity

Lean Manufacturing Techniques

Kaizan – Process improvement teams

5S – Sort, Set out, Shiny clean, Standardise, Sustain

5 Whys – Root cause analysis

7 Wastes

Fishbone – Cause & Effect

Kanban – Stock replenishment

Hijunka – Scheduling box

and there are many more....

UK Supply Chain Associates Ltd

Kaizen Definition

Kaizen (Japanese for "improvement")

A Japanese philosophy that focuses on continuous improvement

It is the key thrust to maintaining or achieving competitive advantage

through a dynamic change process

The Japanese process of continuous improvement using problem-

solving and analysis

Lean Manufacturing Techniques

5S programme to tidy the workplace

Current state versus the 7 Wastes

Total facility Layout (plan optimum layout)

Work flow, material flow

Visual flows (label areas)

Visual Storage (shadow boards, improve storage of tooling)

Schedule communicated to shop floor (Scheduling Box)

Reduce machine set up times (box-up tooling prior to job)

Dedicated areas (Walkways, paint floors, Goods In/Out)

UK Supply Chain Associates Ltd

Challenges

Gain buy-in at all levels

Drive from the top

Free up people to train

Fire fighting – break the routine

Clashes with short term priorities

Operator discipline – recording job times

Challenge the accuracy of data

Keep it simple

Sustaining the gain

UK Supply Chain Associates Ltd

Types of Waste

Scrap – cost of raw material

Rework – labour cost

Downtime – labour cost & lost opportunity

Giveaway – cost of raw material

Food miles – Logistics process

NW Bakery Scrap – Bakery Co.

the raw material cost of the scrap.

Actual Cost of Scrap per year = £235,000 (10%)

9%-11% product scrapped (measured & observed)

Breakaway on the cake base

Failures in middle section of pans coming out of oven

Caused failure a later stage on the line after

topping/filling applied.

.

NW Bakery

Scrap: the raw material cost of the scrap.

Actual Cost of Scrap per year = £444,600

(9,500 units – small cakes- scrapped per day)

Damaged by machine & manual procedures

Rejected manually on line

Rejected manually at packing point

Scrap sent for animal feed & to landfill

NW Bakery Actual Cost of Scrap per year = £24,700

(due to machine failures)

Plus packaging required to handle product from machine

failures

Actual Cost of Packaging used then

scrapped per year = £92,400

Downtime 20% = run Sat AM = £30,160

Total cost of scrap £147,260

NW Bakery Giveaway – Bakery Co.

the cost of raw material which has been given away for free.

Actual Cost of Giveaway per year = £819,500 (19%)

Overuse of ingredients 6% - 114%

Topping weight varied – overweight by 29%

Filling weight varied – Overweight by 76%

Hoppers filled manually – labour intensive

As the hopper weight reduces then variance in topping

occurs.

Product RFT = 8%

.

Other Wastes Identified

Waste streams on line not being segregated. Mixture of food, & packaging. This will contribute to land fill costs

Energy – Conveyors observed running through breaks & left running when not in use.

Quality – A number of unit cakes pass through the line at a substandard quality level without detection.

Floor waste – High value components being lost on the floor.

.

NW Dairy Company - Cost Savings Summary

• £190k - Saving by improving cheese yield - achieved by reducing the

amount of milk used to produce one tonne of cheese.

• £250k – Reduce downtime and improve Output per employee by 66.4t

• £93k – Reduce the amount of downgrading from 0.77% to 0.50%

• £500k – Reduce stock through the supply chain and reduce external

warehousing costs

• £122k – Avoid sending waste product to Landfill

NW Dairy Company - Cost Savings Summary

Total potential savings

= £4.4m

Any cost savings increase profits at this company

As it is a Farmers Cooperative

any increase in profits

goes back to the Farmers

Implementation Plan

Kaizen Intervention 1 - Not Right First Time

Reduce rejects, scrap, rework

Kaizen Intervention 2 - Setup Reduction

Reduce Downtime

Kaizen Intervention 3 - 5S in the workplace

Target the ingredient weighing area.

Kaizen Intervention 4 - Process Measurement and Data Capture

Need to improve data capture as this is fundamental to any Lean

implementation.

Outputs

2010

Opportunities Identified £21,000,000 (Cost Savings Signed Off £ 5,320,000

Additional Business Won £ 4,000,000

Total of 202 Jobs Saved)

2011

Opportunities Identified £ 14,000,000

TOTAL £35,000,000

Benefits of Lean

More productive labour utilisation Reduced Manufacturing Costs (lower unit cost)

Lower stock levels / reduced working capital Optimised space utilisation Fewer defects, less scrap & rework Improved Quality RFT Reduced changeover times Shorter cycle times

Improved machine utilisation Increased Facility Capacity.

UK Supply Chain Associates Ltd

Benefits of Lean

Improved delivery performance at lower cost

Increased customer satisfaction (QCD)

Improved data collection

More accurate data collected

Increased Management Controls

Empowered & more flexible work force

Pride in the work place

UK Supply Chain Associates Ltd

Thank you for your time

I will now take your questions