Constraints are those factors, which prevent a system from meeting its required output. In other words the market demands more from the system than it can deliver. In the manufacturing process, it is widely believed that these constraints are limited in number (at least one), and rarely so many that an improvement cannot be addressed.

We consider there to be four main constraints:

1. Equipment Constraints: The manufacturing equipment in its current configuration and usage is unable to achieve the level of output required by the market
2. Supply Chain Constraints: These exist within the supply chain, prior to or after the manufacturing process. This can include a shortage of raw materials (i.e. Steel), constraints at suppliers manufacturing facilities, lack of suppliers in the market, key suppliers holding market to ransom, or potentially transport constraints
3. People Constraints: Shortage of skilled labour, restrictive labour practices and inflexible working attitude can play a significant role in the expansion of output.
4. Regulatory Constraints: Laws, labour agreements, internal policies and procedures as well as health and safety policies can contribute individually or conjointly to a capping on deliveries.

Constraints Management is a cost improvement activity, which seeks to identify and address these issues. There are five steps to breaking open these constraints:

1. Analysis: Identify the constraints within the value chain. This can often be obvious to the manufacturing and logistics team, however, they are often surprised when one constraint is solved and suddenly another (unknown) appears somewhere else
2. Action: Decide which action to take to address the constraint, and implement it through a controlled and communicated approach
3. Support: The rest of the system must be aligned with the changes. Additionally, the organization must understand the goal of addressing the constraint and support it
4. Elevate the constraint (make other major changes necessary to break the constraint)
5. Move rapidly on to the next constraint, without losing momentum

Constraints Management is a new area of specialty at Cost Improvement Consultants. If you wish to know more about Constraints Management or need support from our engineering and supply chain experts on a project, please do not hesitate to contact us.

Ninety-two percent of cost savings programs fail to achieve their targets.  Cost Improvement.com, a group of consultants stemming from the Automotive Industry believe it has the solution to this age-old problem.

“Most cost savings programs are shot from the hip or a knee jerk reaction to either business pressure or market conditions” – says Maurice Neligan, Partner at Cost-Improvement.Com – Businesses realize the need to take action – establish a corporate target and start running – with only some vague ideas on what to do.  Other companies do the absolute opposite – they navel-gaze and contemplate until it’s too late – with equally devastating results.

During the Finance Crisis most companies retrenched and began cutting costs – usually they hit the low hanging fruit – temporary workers – travel costs – short working week – free coffee etc. etc. This is okay for getting you over the hump, short-term – however, with the upswing in the market, all of these “savings” have evaporated.  Workers are back; travel is a must and so on. These savings did not impact the cost structure of the organization – the companies are not more productive or efficient then before – the inevitable was postponed.

They now face a problem – the market is back or coming back – profits look good, at least for a while, but the costs are increasing- employees who took pay cuts or pay freezes are now demanding their “rightful “ increases – after all they supported during the difficult times – now they should be entitled to their share in the rewards. More alarming than salary and wage costs are the costs of raw material – since this time last year the price of oil alone has risen by around 50% to over $110 per barrel. This means; logistics, plastics, travel, power and a whole range of other basic necessities, will begin to creep.

No problem to companies with captive markets, but most companies are not so protected and are exposed, through fixed contracts and competition to the rigors of the marketplace.

Neligan’s answer is to tackle the whole cost base, to establish a plan of attack – not just a generally defined budget – but a full project managed approach – setting long-term targets for improving the underlying cost structure, implementing step-by-step actions, which will bring the company to a sustainable position over a few years.

He believes that any manager with the stomach can introduce blunt cost cutting, but only strategically focused managers see the need to develop medium and long term cost improvement as an installed discipline within the organization.

Neligan knows what he’s talking about – having worked in the Automotive industry, he tells that some companies anticipated the economic downturn already in early 2006 and began the long-term activities, which allowed them to catapult out of the economic recession and deliver immediate results.

The LEAN philosophy believes that anything, which does not provide value to the customer is waste or a wasted resource, and should therefore be eliminated. An example observed by Toyota is while turning a bolt, only the last turn tightens the bolt, the previous turns were just movement – or waste!

Importantly, in addition to production, Lean can (or should) also be applied to all other aspects of the business, including administration.

So, the goal of LEAN is cost reduction through the elimination of waste.  This can be achieved in two ways.

LEAN (generic) believes that by reducing waste, quality improves, leading to reduced production time, scrap and reduced costs.  This waste reduction is achieved using a number of “tools” or concepts, such as:

• Value Stream Mapping
• Five S
• Kanban (pull systems)
• Poka yoke (fool proof process)

The tools are often implemented as solutions or cost saving measures.   These activities can be isolated and do not always bring the benefits of a system or plant-wide approach.

TOYOTA LEAN (TPS) focuses on smoothening and reducing inefficiencies in the entire production process, thereby identifying quality and process issues and reducing waste as a natural consequence.  TPS uses “Lean Tools” to identify areas for improvement, these include:

• Production Leveling
• Pull Production (Kanban)
• Heijunka Box

Once the issue or problem has been addressed, the tool can be removed.  Therefore, the tools are considered a means and not a solution.

Both methods above lead to the same conclusion.  Most experts tend to agree that LEAN needs to be implemented as a corporate-wide philosophy. That while individual activities bring results, an enterprise-wide approach (Lean Enterprise) brings enormous long-term benefits, as witnessed by Toyota’s rise to become, albeit with some recent bumps, the largest automaker in the world.

At Cost Improvement Consultants, we consider LEAN and TPS to be pillars in the long-term approach to continuous cost improvement.  We agree that it is a complicated and often misunderstood philosophy, where the real cost savings are not immediately evident.  Should you require additional information or support on the topic of Lean, please do not hesitate to contact us.

The overall project is undertaken using Demming’s PDCA framework.  This means PLAN the activities carefully, Do the implementation according to a detailed project plan and following the principles below, CHECK the results to ensure the implementation meets expectations and ACT on any points which fail to meet expectations with corrective action.

Principles of Systematic Process Management :

• Consistent with business strategy
• Planning is realistic
• Resources are specified and available
• Based on use of proven methods and tools
• Activities are regularly reviewed
• Reporting requirements are reasonable
• Decision making is timely and not bureaucratic

A sustainable outcome is best achieved when:

• A vague idea leads to a specific request to change a process
• A number of alternative options are presented
• Solution can be achieved with reasonable effort
• These solutions are rolled-out systematically
• The solutions are lived by the users
• An improvement can be demonstrated

Critical Success Factors

• Well defined goals and targets
• Specific criteria for measuring progress and status
• Clear open communication and awareness
• Open dialog and input from process users

The execution of the process optimization can be achieved using various methods and tools.  The choice of method depends on the functional area of the business and the degree of automation which can be used, as well as the focus on continuous improvement.  Among the methods and tools available for process improvement are Lean Manufacturing, Six Sigma, ISO 9000, TQM and CMMI.  Some of these can also lead to certification, which may be a customer or industry requirement.

Process Management is an important part of Cost Improvement. To save you the effort and expense of developing your own process management procedure, for a reasonable fee*, we will provide you with our standard detailed procedure, which can be easily adapted to your organization. Additionally, should you need additional support, we can also provide you with an expert to get your systematic process management up-and-running. Just let us know how we can help.

In other words:

• Are individual material / components sourced at the best possible price and have alternatives been considered?
• Is the design in line with market requirements, or does the product include redundant features, which drive cost?
• Can standard components be substituted for custom manufactured components?
• Are there still opportunities for improvement the manufacturing process?
• Is our sales concept cost effective and are the most cost effective logistics channels being used?

CVA is a continuous improvement activity and applies to both existing and planned products, although in the early development phase both design-to-cost and target costing are possibly more appropriate, whereas for significant post launch changes, a re-design-to-cost process should also be followed.

In the Automobile Industry, some leading companies use CVA very effectively in the area of sourcing. In this case a cost value analysis team operates together with the purchasing organization.
This has considerable benefits in the world of high-tech products, where the “buyers” do not always have the competence to judge the “real cost” of the components or sub-systems, which they are sourcing.

By integrating CVA into the purchasing process, in-house engineers analyse and estimate the real production cost of the component or sub-systems being offered, and provide the buyers with guidance on an acceptable pricing corridor for negotiation.

Cost Value Analysis is an important part of Cost Improvement. To save you the effort and expense of developing your own cost value analysis procedure, for a reasonable fee*, we will provide you with our standard detailed procedure, which can be easily adapted to your organization. Additionally, should you need additional support, we can also provide you with an expert to get your CVA process up-and-running. Just let us know how we can help.

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RMI is a cost reduction process, which applies to both sourcing and supplying organizations. It provides for “price adjustments” to be made in case of significant swings (up or down) in the price of the raw material over the course of the agreed sourcing period, normally one year. The RMI process must be defined as part of the sourcing agreement.
Depending on the type and use of the raw material, RMI can be critical cost factor to both parties, particularly where the raw material involved has a volatile market price, such as oil, aluminium, copper, & platinum, all of which are used extensively in manufacturing.

The process allows for the evaluation of the average raw material cost during the period, according to a defined Index, such as the Dow Jones-UBS Commodity Index. If the average price increases or decreases by more than a defined (in sourcing agreement) percentage (i.e. 10%) during this period, then the parties to the contract meet and agree the level of “price adjustment”, normally in the form of a debit or credit to the supplier.

RMI is an important part of Cost Improvement. To save you the effort and expense of developing your own RMI procedure, we will provide you (for a reasonable fee*) with our standard detailed procedure, which can be easily adapted to your organization. Should you need additional support, we can also provide you with an expert to get your RMI process up-and-running. Just let us know how we can help.

It is a very strategic approach.  The management as part of its strategic planning and/or the planning process defines a cost improvement target.

On the basis of this target, a cost improvement program is established (once) in the company. This will act as the organizational umbrella under which all cost saving and productivity activities are managed and controlled.

Using a project management approach, sufficient measures are identified by the staff and management of the business to achieve or exceed the cost saving (reduction) target.  These measures are then implemented in 5 steps following the structured approach of the cost improvement program.

The cost improvement program guarantees consistency in the project, and allows management to follow the individual activities, from start-to-completion. The program includes all the software, templates, procedures and best practices, which are necessary to ensure a successful conclusion.

Once the individual measures are completed, they are validated for completion and particularly to ensure financial targets have been achieved.

At the end of the year, the overall cost improvement program is reviewed with management for successes, lessons learned and best practice sharing.  At this point a new target for the following year is set and the program begins again in a new cycle.

Implementing cost improvement programs is our business. To save you the effort, time loss and expense of developing your own cost improvement program, we can support you in your implementation with our turnkey approach.  Alternatively, we can provide you (for a reasonable fee) with the procedures, handbooks, templates, software and best practices, which you can easily adapt to your own organization. Just let us know how we can help. info@cost-improvement.com

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The Cost Improvement Manager, ensures that measure finding workshops are undertaken and that the measures are then assigned to an appropriate project manager or Measure Owner.  The main task is to ensure the implementation of the individual measures and therefore the overall program success.  With many existing programs running success rates under 60%, the value added of a strongly performing cost improvement manager can be significant.

The position of Cost Improvement Manager is an critical aspect of Cost Improvement. We are providing you with a sample job profile for your Cost Improvement Manager.  Should you need additional support, we can also provide you with either an interim or long term Cost Improvement Manager to get you up and running and ensure your programs success. Just let us know how we can help.

>> Download Cost Improvement Manager – Job Profile

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The premise is that suppliers understand a portion of your supply chain, as well as, or perhaps better than you do. The supplier suggestion program allows suppliers to make suggestions, which from their point of view, improve either material content (cost or function), product functionality, or improve a process step in manufacturing. This can equally apply to service industries.

A supplier suggestion program sounds easy, however, it is not. A structure must be put in place to gather the “ideas”. These ideas must be evaluated, feedback given to the supplier and when implemented, the supplier should be rewarded in some way.

Benchmark companies use supplier suggestion programs very effectively and increase the input or participation as the “suggestion relationship” is cemented. One of our clients found this approach so effective, that they invited key suppliers to join in the pre-development stage of customer projects. This proved to be very effective as valuable ideas were exchanged and the working relationship of the companies was strengthened. One should not confuse this with joint development projects. In the case of a supplier suggestion program, the participation is voluntary or customer service based, with the hope of building a stronger partnership.

Feedback and rewards are crucial to this best practice. Suppliers must see that their ideas are received, evaluated and a feedback is given, otherwise the motivation or interest to participate further is diminished. Likewise, when a suggestion is successfully implemented, the supplier must not be penalized with reduced pricing (or volume!), rather, they should be allowed to participate in the success. Some purchasing departments do not understand this concept, with the result that suppliers are reluctant to share productivity or improvement ideas with these customers. Here we must always look to the long term cost savings and recognize the participation of the supplier and the value to the company.

In practical terms, a supplier suggestion program can be established using an Internet based collaboration platform. The suppliers’ engineers have access to the platform and enter the ideas. In the customer organization, somebody, often an engineer is assigned to prioritize the ideas, and assign them for evaluation. This can generally be handled electronically, within the platform including the feedback to the supplier.

Supplier Suggestion Programs are an important part of Cost Improvement. To save you the effort and expense of developing your own supplier suggestion procedure, for a reasonable fee*, we will provide you with our standard detailed procedure, which can be easily adapted to your organization. Additionally, our QuantumLeap software application can be used for managing your suppliers’ suggestions. Should you need additional support, we can also provide you with an expert to get your Supplier Suggestion Program up-and-running. Just let us know how we can help.

*€120 (ca. US$150) + VAT where required. Please send your request to info@cost-improvement.com.

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