Downtime – The More Expensive Scrap

 

If you are a big manufacturer with a dominant place in the market – if you have hundreds of production lines – and if you have more capacity than you know what to do with, then this article isn’t for you.  You can afford to be wasteful and sloppy.  Improving margins might not be on your radar.

But if you are a small and scrappy manufacturer who’s looking for every edge you can get – keep reading…

When teaching the concepts of OEE, I like to challenge traditional thinking with this riddle:

What’s worse – 3 minutes of downtime or 300 ft of scrap?

For most roll forming companies, the knee-jerk reaction is “Scrap!”  It’s easy to understand why.  You can see the steel piling up on the scrap cart.  You can touch it and weigh it.  Your AP folks can tell you exactly how much they paid for every inch of material.

The problem with downtime is that no one can see the invisible minutes piling up around the machine.  Accounting might not have a modern ERP system that allows a clear breakdown of overhead, or gives you labor dollars-per-minute by production cell.  The company might not even have a computer-integrated manufacturing system for tracking runtime.  These realities make it very difficult to focus on downtime, especially when material scrap is sitting on the floor in a pile – staring at you.

What’s ±½” Between Friends?

Scrap vs Downtime Comparison

But is downtime really that bad compared to physical scrap?  Let’s use an example machine to examine the issue and compare.

Our Components Line has a roll former with a maximum speed of 250 fpm.  We know from Sales that the average price-per-foot of material, averaged across all the products we run on that line, is $1.25 per foot.  When the machine is running, the company is bringing in 250 fpm x $1.25 per foot = $312.50 per-runtime-minute (assuming the line runs at full speed).

Our products are commodity products and margins are tight in our industry.  Most of our costs are wrapped up in the material, which is why we focus so much on material scrap in the first place.  Let’s assume the cost of the raw material is $1.00 per foot.  Now, we can compare scrap to downtime.

The material cost is simple to calculate: 300 ft x $1.00 per foot = $300

Consider that most companies are able to sell their scrap back for close to the original cost of the raw material, but even if you can only get 40% back, this reduces the cost of 300 ft of scrap to 0.6 x $300 = $180.

Additionally, we must calculate the time cost of producing that scrap, because we must incur it a second time in order to replace the scrap with good footage.  At 250 fpm, the roll former can produce 300 ft of scrap in 300 ft / 250 fpm = 1.2 minutes

1.2 minutes of wasted run time = 1.2 minutes x $312.50 per minute = $375

Material scrap plus wasted runtime = $180 + $375 = $555

At this point, it should be apparent that more than half the cost of the material scrap is the time-element.

On the flip side, 3 minutes of lost production time on this machine costs us 3 minutes x $312.50 per minute = $937.50.  That’s almost a thousand dollars in opportunity cost for 3 minutes of downtime.  Worse, you can never get those minutes back.  You can’t run the machine faster.  We’re doing this math based on the machine’s maximum output already.  The only thing you can do is run overtime (adding cost and reducing margin) or worse, deliver the customer’s order late.

Downtime Reduces Capacity

In nearly every case, downtime is always worse than scrap.  This is especially true if your Sales group can sell all your existing capacity.  Often, they will avoid doing so because the plant has burned them in the past by promising increased output and failing to deliver on it.  Destroying credibility with customers is worse than not having a enough customers.  It wears on your reputation in the market.  This is the tragic disconnect between Sales and Production in many roll forming companies.

Tracking downtime and categorizing it into buckets allows the Plant Manager and Supervisors to better manage the floor.  What’s your leading cause of downtime?  Focus on that problem for 2 weeks.  See how it impacts that particular category.  Did you learn something about your equipment, or your process, or your people?  Can you now take what you learned and apply it elsewhere to correct other issues?

Can you now use these numbers to justify buying equipment to eliminate downtime and buy back capacity?  I’ve seen an Australian light-gauge steel manufacturer use this data to justify double-mandrel uncoilers on 10 lines.

I knew a Plant Manager who was frustrated because Corporate wouldn’t let him hire enough people.  When the VP of Operations called him out on downtime, he said his Operators were waiting for Material Handlers to come strap bundles of finished product so the lines could be cleared to run again.  My suggestion?  Add a downtime Reason Code to his system called “Waiting on Packers”.  After a month, we ran the numbers and it was clear the downtime justified the immediate hiring of 3 people for that position.

I personally took a multi-plant operation and helped double its output in 2 years by focusing on downtime.  This was a situation where everyone involved had convinced each other that “we just can’t get any more out of what we have.”  And to be fair, when they had tried to increase output to satisfy more Sales volume, the plants typically failed to make delivery dates.  Not always, but getting burned on a single big order with an important client once was enough for the Sales group. 

We used a computer-integrated manufacturing system to track OEE and we were able to justify expenditures, improve capacity, and even to predict output with a high degree of reliability.

If you need help getting your arms around these issues and eliminating downtime to buy back capacity in your plant, contact me today for a free consultation.  Every minute you wait is costing you money.

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