Cost Reduction is often focused on the reduction of the Price we pay for the Mission Critical Inputs we are responsible for acquiring. On average, 60% of activities in organizations do not add value and are wasteful, with only 10% adding value to customers and stakeholders. The cost of doing business this way is staggering and erodes profitability. 1. Learn how to unmask Non-Value-Added Waste in your Supply Chain 2. Learn how to quantify the impact of Process Waste to expose Cost Reduction Opportunities 3. Learn to leverage Cost Reduction Mechanisms to reduce the Total Cost of Ownership realize savings far beyond the price you pay for your raw materials and inputs 4. Learn the benefit of Collaborating and Partnering with Key Supply Chain Stakeholders to realize impactful Cost Reduction Read more: https://www.nextlevelpurchasing.com/news/purchasing-articles/total-cost-of-ownership

1. Looking beyond Price for Cost Reduction
Webinar
David Millington, M.Sc.QSM, NPDP, CL6σBB, SPP℠, SPSM3®, CM®
Director of Education

2. Scope of Webinar?
You Learn:
 Learn how to unmask Non-Value-Added Waste in your Supply Chain
 Learn how to quantify the impact of Process Waste to expose Cost
Reduction Opportunities
 Learn to leverage Cost Reduction Mechanisms to reduce the Total
Cost of Ownership realize savings far beyond the price you pay for your
raw materials and inputs
 Learn the benefit of Collaborating and Partnering with Key Supply
Chain Stakeholders to realize impactful Cost Reduction

3. Rules of Collaboration for Supply Chain Cost Reduction
 Be Respectful to the perspective of your colleagues
 Practice Effective Listening without interrupting, be approachable, be empathetic
 Ask Questions with the honest intent to understand the Interest and Position of
your Colleagues, Stakeholders, Supplies and Customers
 Commit to Collaboration and Continuous Improvement, never stop learning from
and improving Business and Supply Chain Dynamics
(Source) SPSM 4 Leadership for Supply Chain Success Course

4. Are our Supply Chains Set up to Create Value?

5. Targets for Cost Reduction
DOWNTIME understand and reduce it

6. Potentials for Cost Reduction
Suppliers
Inputs
Process
Outputs
Customers……The Muffin

7. Examine your Ordering Process!
Suppliers Inputs, Tools, Triggers X's
Step
Process X's-(high level)
Responsible
for Step
# of
minutes
Customers
Inventory staff, production staff
MRP systems, inventory count sheets,
re-order points, par levels, kanbans
1 Determining a Need
Michael, Cindy,
Jason 18
Whole sale accounts, Inventory
staff, production staff
BOM file, requisition sheets, kanban
cards, inventory management system,
purchase orders, email system, internet
connection
2 Communicating the need Cindy 10
Whole sale accounts, Inventory
staff, production staff
Prioritizing matrix, rush order system,
purchase order 3 Reviewing the need Michael 15
Procurement staff, vendors
Vendor categorization and selection
matrix, vendor scorecard, email system,
Goggle, internet connection 4 Finding potential suppliers Michael 65
Procurement staff, vendors
RFP, RFQ, Negotiation matrix.
5 Conducting bidding and/or negotiation Michael 60
Procurement staff, vendors
Supplier scorecard and selection matrix
6 Selecting a supplier Michael 45
Procurement staff, vendors
Contract management template, risk
management matrix, purchase orders,
email system 7 Formalizing the commitment Michael 45
Procurement staff, vendors
Contract management template,
document storage system, follow-up
checklist, email system, internet
connection 8 Following up Michael 15
Procurement Staff, Account
payable staff
Accounts payable platform, receiving
technology, MRP, email system 9 Closing out the transaction Janice 8
Output - Receipt of raw materials to produce
bread to be consumed by the public. Minutes 281
END Hours 4.7
SIPOC for Purchasing Department at XYZ Bakery
1. Manufacturing process
2. Warehouse operations
process 3. Wholesale
accounts 4. Public

8. Root Cause Analysis
`
ProcessMeasurement
MachinesPeople
No Standard Best Practices
Spaghetti Flows
Lengthy Changeover
Limited ROI Understanding
Lack of Preventative Maintenance
Reactive Maintenance
No Pre-Op Checks on EquipmentRoperto Multitasking
ForSeveral years the Soup Production Process
has delivered product about 40%on time or 55%
below the expectation of its Internal Customer,
the Fill Process.In additional the communication
level from the Soup Production Process to the Fill
Process, has been only about 50% effective, or
50%below the expected level. The negative
FiscalImpact has been about $850,000,
Including several hours per day perperson in
unplanned man hours and downtime.
ProblemStatementLimited Process Benchmarking
Platform not designed for urgency
Limited Process Data and Study
Scheduling without Time Elements
High Failure Rate
Unbalanced Metrics
Environment
PoorWork Station Planning
Lack of Training
Spaghetti Flows
Non Scaling of Recipes
Over processing
Lack of Standardization
Machine abuse
Lack of accountability
PoorMachine design Orics
Humidity in Printers
Limited Visual Controls
Limited Cross Training
limited Line Balancing Between cells
Fearof Change
Limited Error Proofing
MAJOR CAUSE: Lackof Training for
LaborUtilization and Accountability
Lack of accountability
Materials
Lack of accountability Lack of Supplier Accountability
PoorQuality Produce
Missing Out of Stock
Lack of Procurement Accountability/ Planning
Lack of Early Warning of Out of Stock
Where to Look for Cost Reduction?
Systems Thinking

9. Quantify Cost of Systems Inefficiency: The Hidden Factory

10. Recommended 6 Big Losses Traditional 6 Big Losses #1 Mins Impact #2 Mins Impact Mins Impact Grand Total %
Availability Unplanned Stops Failure Rate (%) 7% 2.1 $20,676 1% 0.1 $2,814 1.1 $50,520 $74,010 2%
Planned stops Setup, CO and Adjustments (Mins.) 12 12 $209,664 12 12 $853,770 12 $853,770 $1,917,204 20%
Performance Small Stops Idling and Minor Stops (Mins.) 31.8 31.8 $500,049 39.3 39.3 $2,516,488 34.3 $2,196,324 $5,212,860 59%
Slow Cycles Reduced Speed (%) 35.7% 3.57 $56,138 4% 0.32 $20,490 0.32 $20,490 $97,119 2%
Quality Production Rejects Process Defects (%) 0.0% 0 $0.00 0.0% 0 $0.00 0 $0.0 $0 0%
Startup Rejects Reduced Yield (%) 1.25% 0.5 $7,862 1.4% 0.3 $19,210 0.3 $19,210 $46,282 1%
50 $794,389 52 $3,412,772 48 $3,140,314 $7,347,475
Run Time Run Time 10 Annual Run Time 8 Annual 12 Annual Grand Total
OEE Dashboard (1hour)
Machine #1 OEE Machine #2 OEE Machine #3 OEE
6 Big Losses in Business

11. New Changeover Process Pilot Test
• New Changeover Test results reveal that we were able to reduce CO
Time from 27.22 minutes to 8 minutes
We are targeting 6 minutes as the new standard
Old
Process
New
Process Reduction
QPM
Orics
Cost
per unit
# of Cos per
week(regular)
# of
operational
weeks per
year
Current
Uptime % Project ed Savings
27.22 8 19.22 28 $1.80 20 52 17% $171,264
Mins Mins Mins

12. Root Cause Analysis Total Targeted Net Savings $198,649
Problem
Statement
Processes Why 1 ? Fill Process is not capable Why 2 ? Because waste is rampant
Why 3 ? Lots of Transportation, Waiting, Motion, Over-processing exist
Why 4 ? Because the Process is designed that way
Why 5 ? Proper Process Design is not part of our culture Root Cause
Why 1 ? Upstream Process is slow Why 2 ? One person is burdened with most of the Technical Work
Why 3 ? No one else can do the bulk of the Technical Work
Why 4 ? They are not trained to do the Technical Work
Why 5 ? No Training based on Process Needs has been done Root Cause
Why 1 ? Orics Changeover Process is slow Why 2 ? The process was not desinged for speed, accuracy, and safety
Why 3 ? We did not know how to design the CO Process for speed
Why 4 ? We were not trained in Process Design
Why 5 ? Proper Process Design is not part of our culture Root Cause
Machines (equipment) Why 1 ? Orics break down too often Why 2 ? Because breakdowns can not be prevented
Why 3 ? We are unable to anticipate breakdowns
Why 4 ? We do not have a method to predict failure
Why 5 ? Predictive Maintenance is not part of our Operational Strategy Root Cause
Why 1 ? All Machines not effectively utilized Why 2 ? Because Changeover is time consuming
Why 3 ? Too much waste in process
Why 4 ? The CO process was not designed for rapid CO
Why 5 ? Proper Process Design is not part of our culture Root Cause
Layout Why 1 ? The layout compromises uptime Why 2 ? Because a great amount of transportation, motion, and congestion exist
Why 3 ? Things are at a distance from the point of use
Why 4 ? The Filling Cells were designed that way
Why 5 ? Proper Process Design is not part of our culture Root Cause
For several years, the uptime on the Filling Machines has been about 60%, or 38% below where it is suppose to be. The negative
annual fiscal impact is around $429,891, including several hours per day per person in unplanned man hours and downtime.
Net Savings $161,384
Net Savings $40,000
Net Savings $4,862
Critical we must schedule Training

13. Spaghetti Analysis for “As is” Changeover Process
Orics Fill and Seal Machine
Cup
Storage
Grease
Packed
Goods
Empty
Racks
Stacking
Table
Hopper
Cup
Dispenser
Control
Panel
Label
Printer
Packed
Goods
Label
Printer
Refuse
Basket
Squeegee,
Shovel
Hand
Sink
Garbage
Can
Barrel
Cart
Barrel
Cart

14. Study Process for Waste
Current State Avg.Labor Rate
# Step
Inventory
Motion
Over
processing
Waiting
Inputs
Distance
Traveled
Action
Internal /
External
StepTotals
%ofTotal
Target
Labor
Cost
1 Open valve to clear line with water 0.05 Kettle 0 ? Internal 0.4 1.3% $0.11
2 Clear collector bin 0.34 Shovel 60 ? External 1.4 5.2% $0.43
3 Wash and sanitize hopper 0.07
Water
hose,
sanitizer 8 Reduce Internal 2.1 7.8% $0.64
4 Release barrels from control panel 0.2
Control
panel 28 Reduce Internal 0.5 1.8% $0.15
5 Remove barrels 0.05 Hands 2 Reduce Internal 0.3 1.1% $0.09
6 Wash barrels 0.07 0.38 Hose 4 Eliminate External 0.9 3.3% $0.27
7 Grease barrels 0.1
Grade
grease,
grease 60 Eliminate External 1.0 3.7% $0.30
8 Calibrate barrels from control panel 0.12
Control
panel 28 Reduce Internal 0.3 1.2% $0.10
9 Reassemble barrels 0.05 Nothing 2 Reduce Internal 1.6 6.0% $0.49
10 Wash hands, change gloves 0.2
Gloves.
Soap,
paper 40 Reduce Internal 2.2 8.1% $0.66
11 Send water and sanitizer at 180 degrees through line Kettle 0 Reduce Internal 5.0 18.4% $0.00
12 Wash the filler heads and tray 0.05 Hose 8 Reduce Internal 3.1 11.2% $0.92
13 Clean floor 0.13 Hose 20 Reduce External 6.3 23.0% $1.88
14 Restock cups 0.08 Cups 80 Reduce External 2.2 8% $0.65
Subtotals 0 1.51 0 0.38 340 $6.67
M inutes M inutes M inutes M inutes Feet
Grand Total
External elements can be performed w hile the process is running. Internal elements can only be performed w hile the process is stopped
Time Elements
Changeover Process for Orics
27.22
$1822-May
At time of CO event
Minutes
NVA- Waste

15. TPM Program Pilot Results after 3 weeks of deployment
85% Reduction
in Time lost to
Failure of our Fillers

16. Value Stream Mapping - Manufacturing
SystemsThinking
SystemsThinking

17. SystemsThinking
SystemsThinking
Value Stream Mapping - Healthcare

18. Soup Server Performance vs Takt Time Requirements, XYZ Cafe
The Store or Team Average is not meeting the Takt Requirement
Line Build ups are the consequence
Jack needs to make biggest improvement
Takt Time Opportunities for Cost Reduction
Bottlenecks

19. Business Process Control Analysis
• The Target area is the Green Zone.
• Values in the Red Zone are Defects and must be Eliminated
• Values in the Yellow Zone must be Monitored and Corrected
Analyze the Causes Waste

20. Soup Serve Process Measurement, Analysis, and $$$, Time Wasted, XYZ Café
Quantify Process Wastes

21. Conduct Cost Benefit Analysis and ROI
Net Savings $1,110,810 $49,070 $1,159,880 $1,110,810
Cost Benefit Analysis Invested Reduced Gained
Net Savings Benefit = Inefficiency Reduction - Improvement Cost
(days)to deploy
Time
Improvement
Cost
Inefficiency
Reduction
Net Savings
BenefitIssues Potential Root Causes Solution CTQ Impact
Machines Fail to work and
stop the line
No Preventative nor Predictive
Maintenance Methodology.
Abuse of Machines
TPM Program is in place starting on
Monday 7/24/2015. The goal is to leverage
TPM to improve our OEE Scorecard.
High 1 $100 $65,000 $64,900
Machines - Bent Kettle Agitator
1. Loading unthawed ingredients
such as ground beef into kettle.
The agitator bladed becomes
bent. 2. Ingredients not
replenished in time to be thawed
before use
Fixing Bent Kettle Agitators. Starting with
Kettle 102..Assuming 10% of Kettles have
impacted residue on kettle walls, and
spend 11 extra minutes to scrub clean
High 14 $15,000 $43,876 $28,876
Process - Soup Changeover
take long time to be execute
1. Not Following Best Practices
2. Spaghetti 3.Platform not
designed for urgency
Reduce Changeover Time impact by
deploying a External Source Continuous
feed of 190 degree water to clean Kettles
High TBD $5,000 $398,073 $393,073

22. $49,070 $1,159,880 $1,110,810
Invested Reduced Gained
Net Savings Benefit = Inefficiency Reduction - Improvement Cost (days)to deploy
Time
Improvement
Cost
Inefficiency
Reduction
Net Savings
BenefitIssues Potential Root Causes Solution CTQ Impact
Machines - Settings Switch on
Kettles not working properly.
On 7/6/2017 Kettle # 203
Agitator does not respond to
"Medium Setting". On 201 the
medium setting is very slow
. 1. Lack of Preventative
Maintenance 2. Reactive
Maintenance
Fixing Kettle Agitator Speed Controls on
#201 and 203
High 14 $1,000 $0 -$1,000
People - Upstream process is
not as quick as it could be
No Training based on process
needs has been done
Reducing Multitasking on Roberto. Hiring
and training an Assistant for him. Cross
High 30 $3,000 $0 -$3,000
People - Only 12.7% Labor
Utilization Ratio
Lack of Training for Labor
Utilization and Accountability
Create, Equip, and Train Two Tactical
Teams to Execute Changeovers in Parallel
from Lane to Lane. Improve the Labor
Utilization Ratio. Train and Direct for Line
Balancing
Critical 10 $2,000 $645,701 $643,701
Layout - High Spaghetti Flows
1. Poor Workstation Planning, 2.
Lack of Training, 3. Leadership
Re-Designing our current Layout to
increase safety and speed in operations.
Medium 30 $1,500 $4,500 $3,000
Measurement - Lost Product
Yields, Lost Production Time
1. Lack of effective measurement
2. Non Scaling of Recipes
Scaling of recipes methodology High 30 $1,000 $0 -$1,000
Measurement - Loss of Time
(sometimes up to 10 minutes
per day) due to QC having to
Check the Temperature on fill
Machine #1
1. Poor Design of the Orics
Machine 2. Poor Requirements
Planning
Deploy a Thermometer on Orics High 1 $470 $2,730 $2,260
Other Fees High $20,000 -$20,000
Totals 130 $49,070 $1,159,880 $1,110,810
(days)to deploy
Time
Improvement
Cost
Inefficiency
Reduction
Net Savings
Benefit
ROI = $24 : $1