What does doing more with less mean to you? If measured with a rigid denominator within a rate, we simply would answer that we must increase the numerator to improve. Then if the numerator was rigid, we have to decrease the denominator to see the rate increase. As companies are challenged to improve costs, requesting and providing more people to take on a gargantuan new project is becoming less frequent. We might hear to just figure it out. As leaders, we can remain committed to taking on these new projects under a prioritization lens and strive to get more done with less. As we are taxed, where can we find more labor hours to devote to more proactive causes without increasing costs? Are there tangible examples that can spread across the manufacturing sector to improve the yield of our team?
Throughout my career, I have embraced the challenge to free up labor hours to devote to more proactive causes. I have often referred to it as developing ways to improve our human yield. A business partner of mine once said, if I hear a process is perfect, I am immediately motivated to dive into the details and find its waste. This desire to streamline and reduce waste in our people's process steps pulls my attention. I am not alone in this and know many leaders whom I have adopted solutions to improve human yield.
Typically, I would routinely find a department stuck in old ways of doing things and overwhelmed with decades of hoarded process improvements. These process improvements were accessories placed onto the process features but subtly decreases the aerodynamics of the process over time. I typically find that this hoarding could be due to departmental insecurities on risk, previous regime customizations, or careless responses to solve problems.
I get it, we are all strung out, working endless hours, and organizations are not supporting nor not always participating in an optimized work/life balance. But I will contest that the arrhythmia caused by doubting more can be done with less can receive some needed electrical jolts from a few key initiatives. So let's find some defibrillator projects to improve your human yield.
Increase EOQ - If your company is in a favorable cash position and has the available space, consider bulk-buying your spare parts. I am not indicating that you should go buy the equivalent of a 10-pound bag of oranges for a college freshman's lifestyle, only to find that 8-pounds are found useless after a week. Instead, the challenge is to let some simple inventory algorithms determine your Economic Order Quantity (EOQ) to reduce the number of transactions required to get the spare on the shelf and ready to be withdrawn for use.
Equation 1 - Calculating Economic Order Quantity
For example, consider you have data to support that you create 12 individual purchase orders (POs) per year, for 10 spares per order, to keep a production line running. In this example, each of these 120 annually consumed units has a price an average price of $50. To keep it simple, assume that there is data to support that this pattern has happened in the previous year and will happen in the year to come.
The Economic Order Quantity is a set point designed to help companies minimize the cost of ordering and holding inventory. The cost of ordering inventory falls with the increase in ordering volume due to purchasing on economies of scale. However, as the size of the inventory grows, the cost of holding the inventory rises. EOQ is the exact point that minimizes both of these inversely related costs. - CorporateFinanceInstitute.com
To complete this example, we must make some additional assumptions about the Inventory Cost and the Ordering Cost. There are a variety of references to support the cost of inventoried spares depending on the industry. So just to keep it simple, we will use 3% as the Inventory Cost and use it in the equation as a percentage.
Taking into account embedded costs like salaries and wages, buildings, and utilities to manage the spare parts inventory, the total administrative exposure for carrying costs can add up to as much as 20 percent or more. And that cost is not just a once-and-done expense. - Wally Wilson, ReliabilityPlant
Then assume that the Ordering Cost of all the labor hours to process an order is $100. Just to name a few of the steps, this is a total cost of labor hours to process the purchase order through the approvals, back-and-forths on emails, and finally processing the invoice after receipt. If you explore more detailed math on all of the process steps of a single order, you might find it costs tremendously more than $100 per order. So what do we get?
Equation 2 - Example of calculating Economic Order Quantity
With the previous approach, you have transitioned from purchasing a year's worth of the spares from 12 individual POs to less than 1 while balancing the costs optimally. You just gave back 11 hours to your team to do more productive things by just changing an ordering quantity that makes financial sense. Imagine the number of hours you can free up by taking on your entire spare inventory with this approach. Additional insight into this approach can be found in a previous OpEmpathy blog.
PM Optimization - PM Optimization is a process of relating proactive maintenance activities to an optimized asset management strategy to achieve a desired balance of costs and reliability. I traditionally see that as organizations run time base proactive maintenance (PM) programs, the mean time between proactive maintenance naturally decays over time to become more frequent. It naturally decreases because a singular momentary failure occurs and someone emotionally decreases this mean time between repairs by changing the proactive maintenance’s frequency interval. Now imagine a large manufacturing facility with hundreds, if not thousands, of proactive initiatives. What ends up happening is that we are “over PM’ing” the assets.
PM optimization (PMO) is a structured, continuous improvement process with the objective of balancing maintenance costs and the risk of failure. PMO evaluates and refines existing PM activities to verify that they are truly adding value by identifying potential gaps in PM performance and frequency. - Mark Munion, ReliabilityWeb
When the PMO is completed, you could find that a monthly PM can become a quarterly PM. Your semi-annual PM which was adjusted 5 years ago from annual because of a failure mode that has zero to do with the PM itself, can go back to annual.
If you are doing these PMs more frequently than required, you are now most likely bringing on additional resources and costs to complete work orders as your team constantly demands more people. We have all heard there is more work than people. Take a moment to stop, optimize your PMs with a formal PMO exercise and free up the countless labor hours devoted towards PMs that create no value. Or even better, get more aggressive at transitioning to metered base proactive maintenance. Other insight in another OpEmpathy blog.
Approval processes - I have seen too many times that an approval process is created to glorify the organizational hierarchy and maintained just to keep everyone informed of a project. For example, I have seen purchase orders that are for $100k that go through more than 12 layers of approval to create a PO. And if you look at the history, everyone tends to get approved. So if we require all of the POs to go through all of the layers of approval with each one always getting approved, what if we just replace all of this with a single time of approval? What could we learn and apply from Pollice verso and empower the direction of thumb?
Routinely organizations insert these burdens to satisfy the quench of control, the selfish desire to demonstrate power, or to satisfy the I in the RACI. This is waste. Instead, establish processes, and underwrite the improvement with the evidence with historical PO approval rates. The organization can now alter the approval process to free up labor hours to do more proactive things. Improve the clarity and information of the purchase to expedite the approval.
A quick sidebar is that this would also decrease your lead time. Imagine having data to support that a standard purchase order takes on average 12 days to go through all of the approval steps. You put a process in place that gets it from 12 to 1 by empowering the Pollice verso. Now, think about how lead time impacts your reorder points in spare inventories. Bam! You just decreased your inventory value, improved your cash position, and improved the burdens of chasing POs through the approval process with a thumb.
Now go do it.
There are nuggets like this everywhere. Feel free to email us at opempathy@gmail.com if you have some yourself. Sometimes they require a little creativity and exploration. If you look at the labor hours to process output from clerical process steps, you might be able to prioritize these projects to free up hours to devote to other projects. You have the power to transform and improve your rates. Just go do it.
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