Maximizing Capacity Utilization 27 Jul12
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Sharing the presentation that I made at CII-Valcon Event ’Pathways to Growth for Indian SMEs’ on 27th July, 2012
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Maximizing Capacity Utilization 27 Jul12
- 1. Pathways to Growth for Indian SMEs CII – Valcon Session, Ludhiana 27th July, 2012 An Introduction to Valcon Management Consultants N. Krishnan CEO, Valcon India
- 2. Valcon overview Valcon globally Valcon India A leading operations and implementations Specializing in implementation consulting consultancy 22 highly experienced consultants – and About 180 consultants placed in Denmark, growing Sweden, Norway, India, China and Czech Based out of Chennai, Bangalore and Delhi Republic Practice areas We serve global customers – typically from Nordic based headquarters Supply management (manufacturing & operations excellence, procurement & supply chain) Demand management (sales excellence, growth, entry strategy, etc.) Strategic and market analysis (operations due diligence, growth and sales potential, market entry strategy) Customer References from: Caterpillar, Biocon, Hero Group, Uniparts, Murugappa group, Castrol, FLSmidth, Novozymes, Novonordisk, Saint Gobain, CAMS, etc. 2
- 3. Valcon is a team of highly experienced consultants, drawn from the best companies in India Our team Our consulting team is based out of Chennai, Bangalore and Delhi Valcon is a group of ‘expert consultants’ - minimum experience of our consultants is 6 years - having worked as either a consultant or a line manager All our consultants have hands-on experience of working in functional roles prior to consulting We are on “the shop floor” in close collaboration with the client organisation when solutions are implemented Our consultants are drawn from some of the leading companies of different industries Ford, Toyota, Maruti -Suzuki, Caterpillar, Saint Gobain, Escorts Hospital, Motorola, Bajaj, PwC, ECS, Wipro, McKinsey, ZS Associates, Volvo, ISRO, Dalmia group, Asian Paints, Castrol, Ashok Leyland, Coca Cola, Schlumberger 3
- 4. Our approach to consulting and focus on results deliver strong benefits for our clients • Our focus is on execution – how to change • We are hands-on • We ask questions & challenge thinking • We focus on important issues • We go for practical solutions Client Valcon Intervention Benefits Industry • We are on “the shop floor” - with the Auto Capacity release • 20% output increase clients – to implement the solutions Ancillary assessment potential identified Renewable New Product • Development time reduction • We act and create quick results Energy Development to less than 6 months Procurement • INR 65 cr savings over 12 EPC transformation months • Technically superior product Product evaluation Pharma selected for in-licensing • Risk eliminated Driving speed Railways • 16% energy cost reduction optimization • Increased up-time by 20%- 30% Auto Operational • In-process rejections Ancillary Excellence reduced from 2.4% to 0.06% of net sales 4
- 5. Our offerings address key themes and challenges in our clients’ business operations... Deployment and execution of corporate strategy Business Technology and Operational due diligence Strategy Execution Improving products and processes based on market knowledge Transparency in profitability for customers, products and markets Marketing and After sales Procurement Production Logistics sales service Cost savings Operations Inventory New customer Spare part Performance Excellence optimisation acquisition management measurement Cost reduction Inbound and Sales and price Customer Risk Quality outbound models relationship management improvement logistics Channel design management optimization and management Supplier Throughput and development capacity Sales Operations Optimising price enhancement planning and profit Sales processes, tools and competence 5
- 6. Pathways to Growth for Indian SMEs CII – Valcon Session, Ludhiana 27th July, 2012 Maximizing Capacity Utilization Anirban Mazumdar Associate Director, Valcon India
- 7. Do you face these situations? Demand is stable but often we are not able to complete orders Overtime & Extra Shift running are often used to ‘manage demand’ My Operators & Machines are idle some of the days but have to work extra time on other days There is so much Inventory but still we are not able to meet requirements & Do you think that adding machine/ plant is the only solution ? 7
- 8. Contents Are You Utilizing Your Capacity Well? How Can You Improve Capacity Utilization? Case : Unearthing Hidden Capacity at Ancillary Unit 8
- 9. Focusing only on ‘servicing orders’ gradually leads to inappropriate capacity utilization Supplier Supplier Manufacturer Supplier Plant was designed to service a certain demand at optimum utilization • maximize output when demand is high • finish plan early when demand dips 9
- 10. Focusing only on ‘servicing orders’ gradually leads to inappropriate capacity utilization DEMAND Supplier Supplier Manufacturer Distribution Customer Supplier DELIVERY Plant was designed to service a certain Even with change in demand pattern & demand at optimum utilization fluctuations, working pattern doesn’t • maximize output when demand is change. high Focus shifts to ‘meeting daily & month plans’ & We stop asking – • finish plan early when demand dips “Could we have produced more” or “Did we take too much time to complete the plan” 10
- 11. Are we utilizing our Capacity well? ࢉ࢚࢛ࢇ ࡻ࢛࢚࢛࢚ Efficiency (%) ൌ ࡱࢌࢌࢋࢉ࢚࢜ࢋ ࢇࢇࢉ࢚࢟ ࢉ࢚࢛ࢇ ࡻ࢛࢚࢛࢚ Utilization (%) ൌ ࡰࢋ࢙ࢍ ࢇࢇࢉ࢚࢟ • Management Policies • Allowances • Accepted Scrap • Maintenance Time, etc. • Operational Losses • Process, Manpower, Asset Performance DESIGN EFFECTIVE ACTUAL CAPACITY CAPACITY OUTPUT 11
- 12. Are we utilizing our Capacity well? ࢉ࢚࢛ࢇ ࡻ࢛࢚࢛࢚ Efficiency (%) ൌ ࡱࢌࢌࢋࢉ࢚࢜ࢋ ࢇࢇࢉ࢚࢟ ࢉ࢚࢛ࢇ ࡻ࢛࢚࢛࢚ Utilization (%) ൌ ࡰࢋ࢙ࢍ ࢇࢇࢉ࢚࢟ • Management Policies • Allowances • Accepted Scrap • Maintenance Time, etc. • Operational Losses • Process, Mostly Medium & Manpower, Asset Small Firms Performance Mostly Large Sized Firms Medium & Small firms appear to be lagging in capacity utilization and need to take measures to improve DESIGN EFFECTIVE ACTUAL CAPACITY CAPACITY OUTPUT Source : 77th Business Outlook Survey, CII 12
- 13. So, How do we ‘lose Capacity’? 1 Policies & Standards 2 Bottleneck under-Utilization 3 Process under-Utilization 4 Capacity Imbalance 5 Capacity in-flexibility (Process, Operators & Plant) 13
- 14. Designed Policies & Standards often lead to capacity under- utilization which goes unnoticed Purchase & Spares Policy Inventory & Stores norms Manpower Policy Reward & Recognition Policy Accepted ‘standards’ of process loss, set up time, etc. ‘Unwritten rules’ of production, … 14
- 15. Designed Policies & Standards often lead to capacity under- utilization which goes unnoticed Availability & Quality of Spares is Purchase & Spares Policy impacted by Purchase policies No machines are run during lunch Inventory & Stores norms time Manpower Policy Checks on the machine can be done only by the maintainers Reward & Recognition Policy “Set up can’t be done in night shift” Accepted ‘standards’ of process loss, set up time, etc. “Production shouldn’t do any quality checks” ‘Unwritten rules’ of production, … … 15
- 16. Identification & utilization of bottleneck resource is one of the biggest challenges to capacity release Plant capacity can’t be more than the bottleneck’s capacity Estimated Capacity (pcs) 77624 35928 38880 30580 22162 20736 CNC Tempering Sand Pre-setting Inspection Painting Machining Blasting 16
- 17. Identification & utilization of bottleneck resource is one of the biggest challenges to capacity release Plant capacity can’t be more than Inability to identify the bottleneck the bottleneck’s capacity Inadequate maintenance of bottleneck – high downtimes Changing product mix leading to Estimated Capacity (pcs) shifting bottlenecks 77624 Management’s focus on the ‘costliest machine’ than the bottleneck 35928 38880 30580 Bottleneck machine treated in the 22162 20736 same way as any other machine Manual or non-production activities CNC Tempering Sand Pre-setting Inspection Painting Machining Blasting becoming bottlenecks … 17
- 18. Contents Are You Utilizing Your Capacity Well? How Can You Improve Capacity Utilization? Case : Unearthing Hidden Capacity at Ancillary Unit 18
- 19. Capacity “release” needs to be undertaken systematically & in a phased manner Achieving Effective Capacity • Operational Improvements • Shop floor initiatives & systems implementation • High involvement of local team members • Localized improvements aligned to bigger objectives • Challenging work practices Achieving Design Capacity • Management policies, designs, processes and standards changes • Initiatives & decisions driven by senior management DESIGN EFFECTIVE ACTUAL • Cross functional initiatives – broad CAPACITY CAPACITY OUTPUT based objectives • Challenging mindset 19
- 20. Causes for losing Effective Capacity could lie across many areas in operations No Plan Situation Not No Material Produced No Manpower Output Loss Asset Downtime Produced at Produced but Lower Rate lower output Rejected/ Reworked Flow Produced but Interruption couldn’t move out Wrong Production 20
- 21. Multiple initiatives may be required to improve Capacity Utilization – the right ones need to be identified & prioritized No Plan Poor Planning Situation Material Quality/ Delivery Failures No Material Poor Skill Levels Inadequate Maintenance No Manpower Low Manpower Utilization Output Loss Asset Cycle Time Downtime Variations Productivity Produced at Variations Lower Rate Low Equipment Capability Rejected/ Reworked Inadequate Layout Flow Interruption Flow Imbalance Wrong Production Line Imbalance 21
- 22. Multiple initiatives may be required to improve Capacity Utilization – the right ones need to be identified & prioritized No Plan SUPPLIER Poor Planning Situation DEVELOPMENT Material Quality/ Delivery Failures PLANNING Poor Skill Levels No Material IMPROVEMENT Inadequate Maintenance No PLANNED Manpower Low Manpower MAINTENANCE Utilization Output Loss Asset Cycle Time SKILL Variations Downtime DEVELOPMENT Productivity Produced at Variations QUALITY Lower Rate Low Equipment IMPROVEMENT Capability Rejected/ Reworked FLOW Inadequate Layout Flow IMPROVEMENT Interruption Flow Imbalance PRODUCTIVITY Wrong Production IMPROVEMENT Line Imbalance 22
- 23. Supplier Performance improvement focuses on working closely with them to improve reliability SUPPLIER • Equipment Capability • Process Stability DEVELOPMENT • Quality Systems Supplier • Quality Audits PLANNING Quality IMPROVEMENT PLANNED MAINTENANCE • Capacity Assessment Supplier Supplier • Planning & Scheduling SKILL Systems Performance DEVELOPMENT Delivery • Flexibility QUALITY IMPROVEMENT FLOW Procure to • Supporting Processes IMPROVEMENT Pay Adequacy Processes • Skill of People PRODUCTIVITY • Simplicity of Processes IMPROVEMENT 23
- 24. An ‘Integrated Planning’ model, customized for the company helps in ensuring uninterrupted production to plan SUPPLIER Rough Cut Capacity Planning DEVELOPMENT Raw Material Planning Domestic Orders PLANNING Sales Order Book for M1 RM ordering for Long IMPROVEMENT Export Lead Items for M2, M3 Orders PLANNED MAINTENANCE RCCP for RCCP for M1 (W1 - W4) M2/M3 RM Ordering for M1 (Low LT, Non ROP) SKILL Iterations DEVELOPMENT Every Week Next Week Fixed Plan RM Check for M1 QUALITY (Available + Ordered) IMPROVEMENT Production Scheduling Twice Every Week Prioritizing & Sequencing Confirmed RM FLOW Availability IMPROVEMENT In Store/ GIT (expected to Modific 3/4 Days Fixed Schedule ations reach in 2 days time) PRODUCTIVITY Execution & Schedule IMPROVEMENT Adherence 24
- 25. A Planned Maintenance program implements maintenance systems after equipment classification SUPPLIER Most Critical Critical Non-critical DEVELOPMENT Equipment Equipment Equipment Reliability PLANNING Proactive Centric Run to Fail Improvement maintenance (proactive) IMPROVEMENT Maintenance Maintenance PLANNED MAINTENANCE Predictive maintenance SKILL DEVELOPMENT Preventive maintenance QUALITY IMPROVEMENT Routine maintenance FLOW IMPROVEMENT Breakdown or Corrective maintenance PRODUCTIVITY IMPROVEMENT 25
- 26. Flow Improvement would look at extended value stream and eliminate interruptions CORRECTION Industrial Segment WAITING SUPPLIER • Many iterations in DEVELOPMENT customer requirement • Waiting periods for complete customer reqmt. PLANNING IMPROVEMENT CORRECTION WAITING • Mold Rework • High Inventory PLANNED • Waiting for complete mold information • Deco Rework MAINTENANCE • High Inventory between intermediate processes WAITING • Waiting for material INVENTORY SKILL OVERPRODUCTION CORRECTION from plant DEVELOPMENT • Over planning to address poor yields QUALITY IMPROVEMENT Job Worker • QA/ PDI rework • High material CONVEYANCE FLOW movement within w/h • Multiple handling losses • High Inventory IMPROVEMENT WAITING INVENTORY CORRECTION CORRECTION CONVEYANCE PRODUCTIVITY • Many iterations in resorting INVENTORY • High rework on resorting IMPROVEMENT • High inventory 26
- 27. Contents Are You Utilizing Your Capacity Well? How Can You Improve Capacity Utilization? Case : Unearthing Hidden Capacity at Ancillary Unit 27
- 28. Situation : The ancillary unit was ‘losing sales’ every month though analysis indicated sufficient ‘effective capacity’ The Effective Capacity was identified to be 25500 pcs per day based on bottleneck capacity Effective Capacity (pcs/day) 77624 35928 38880 30580 25500 25920 CNC Tempering Sand Pre-setting Inspection Painting Machining Blasting 28
- 29. Situation : The ancillary unit was ‘losing sales’ every month though analysis indicated sufficient ‘effective capacity’ The Effective Capacity was identified to be 25500 pcs per day There was a steady demand of 20000 pcs per day from the OEM based on bottleneck capacity every month Effective Capacity (pcs/day) Effective Capacity & Demand (pcs/day) 77624 77624 35928 38880 38880 35928 30580 30580 25500 25920 25500 25920 20000 CNC Tempering Sand Pre-setting Inspection Painting CNC Tempering Sand Pre-setting Inspection Painting Machining Blasting Machining Blasting 29
- 30. Situation : The ancillary unit was ‘losing sales’ every month though analysis indicated sufficient ‘effective capacity’ The Effective Capacity was identified to be 25500 pcs per day There was a steady demand of 20000 pcs per day from the OEM based on bottleneck capacity every month Effective Capacity (pcs/day) Effective Capacity & Demand (pcs/day) 77624 77624 35928 38880 38880 35928 30580 30580 25500 25920 25500 25920 20000 CNC Tempering Sand Pre-setting Inspection Painting CNC Tempering Sand Pre-setting Inspection Painting Machining Blasting Machining Blasting The average daily output was however consistently below the effective capacity of the bottleneck Effective Capacity & Avg. Output (pcs/day) 77624 35928 38880 30580 25500 25920 16942 18051 16834 30
- 31. Situation : The ancillary unit was ‘losing sales’ every month though analysis indicated sufficient ‘effective capacity’ The Effective Capacity was identified to be 25500 pcs per day There was a steady demand of 20000 pcs per day from the OEM based on bottleneck capacity every month Effective Capacity (pcs/day) Effective Capacity & Demand (pcs/day) 77624 77624 35928 38880 38880 35928 30580 30580 25500 25920 25500 25920 20000 CNC Tempering Sand Pre-setting Inspection Painting CNC Tempering Sand Pre-setting Inspection Painting Machining Blasting Machining Blasting X Analysis of the bottleneck output indicated that they were The average daily output was however consistently below the utilized only to the extent of ~72% effective capacity of the bottleneck Utilization of Bottleneck 77624 Effective Capacity & Avg. Output (pcs/day) 77624 35928 38880 72% 30580 75% 35928 38880 25500 25920 30580 25500 25920 18360 19440 16942 18051 16834 CNC Tempering Sand Pre-setting Inspection Painting Machining Blasting 31
- 32. Analysis : Ineffective Maintenance systems and Inadequate focus on bottleneck were leading to high capacity losses 3 hours (14% time) was being lost in Sand Blasting repetitive breakdowns everyday ? Breakdown Maintenance being practised; checklists do not include ‘critical checks’ Incomplete loading of Sand Blasting unit 25500 Delays by operators between sand blasting cycles All Planning & Scheduling being done for CNC machine – NOT the bottleneck 17275 Management focused on maximizing output of CNC machine – the costliest investment For a simple process, a zig-zag layout used leading to multiple handling and stage inventories Potential for reducing the sand blasting cycle time by 11% identified Many Quality Circles working but none focused on improving sand blasting output 32
- 33. A roadmap was designed for ~25% increase in actual output & subsequently moving towards Design Capacity • Reduce & re-establish Sand Blasting cycle time • Simplify layout into a flow • Design Planning model around sand ? • Design & Implement a Planned blasting utilization Maintenance system • Plant goals’ alignment to utilization • Simple automations to reduce maximization Operator delays • Align team objectives to improve • Reduce Minor Stoppages by bottleneck output Autonomous Maintenance 25500 • Visual systems to improve loading of bottleneck • Reduce loading & unloading time by use of fixtures 17275 DESIGN EFFECTIVE ACTUAL CAPACITY CAPACITY OUTPUT 33
- 34. Thank You