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In the past two decades most manufacturing improvement efforts have been mistakenly focused on direct labour costs. Typically these direct labour costs range between 5 and 15% of total manufacturing cost. At the same time, plant overhead costs range from 30-40% with materials making up the other 50-60% of cost. Yet, continually the efforts of the manufacturing and industrial engineers have been directed at reducing labour costs – or automating them out of existence. The larger targets of materials and overhead have not received the attention they warrant.
Hidden costs of inventory:
Handling damage
Material handling equipment and labour
Obsolescence
Time to detect errors
Hidden problems, equipment and quality
Long lead times increased the need for forecasting
All of these symptoms contribute to poor product quality, scrap and rework and add substantially to overhead costs. NONE adds value to the product.
Plant layout is the key to eliminating these problems. Continuous flow production will ensure that value is constantly being added to the product for the time the product is in the plant. The deal situation is one-piece flow at – and between – processes. The intent of a good plant layout is to increase the velocity of products and make the production cycle predictable.
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