“When lowering setup times is a waste of time”

Most people assume that reducing the setup time of any operation will equate to a reduction in the associated product cost. It is a natural law: time equals money. Unfortunately in production, this is often incorrect.

Increased Capacity/Labor

Lowering the setup time will certainly do one thing- raise the available capacity of that machine. If a two hour setup is lowered to one hour, there will be one extra hour of capacity available for each time the setup is performed. And the same holds true for the labor that was previously used in performing the setup. We will now have one more hour of capacity for whoever does the setup.

The Problem

Gaining extra capacity in the machine or gaining capacity for the setup people is only valuable if we are able to use that extra capacity. For example, if this machine is not a bottleneck, that extra capacity probably goes unused. The throughput of your shop is determined by the level of the customer orders, and the ability to process those orders. If you have excess capacity across the shop, building extra capacity will save you nothing. You will simply have more excess capacity. Likewise, if the throughput of your shop is limited by certain bottlenecks, then increasing the capacity on non-bottleneck operations will gain you nothing. It is the bottlenecks that are restricting your throughput, and gaining extra capacity in non-bottleneck operations will only gain more idle time. In fact, with the extra non-bottleneck capacity, your shop may be tempted to create extra WIP inventory by producing the parts early (and then wait for the bottlenecks to open).

The Secret

You will gain from the reduction in setup time, but only if you can productively use the excess time or capacity. If the machine will be idle an extra hour, but you can’t use that hour, you have saved nothing and not lowered your total cost picture. From an accounting perspective, it will appear that your allocated setup costs have gone down, but will only be countered by a corresponding rise in your overhead costs (where the idle costs are charged).

If the setup reduces the labor time (operator, maintenance staff, or whoever does the setups), it will only be a cost savings when that labor can be productively used elsewhere. If the time savings are not used productively, then you have gained nothing. The secret here is to cross train your people so that the new availability can be used elsewhere. Some companies do this so effectively, individuals can be utilized on several machines.

The Real Benefit

On bottleneck operations, the situation is quite the opposite. Since the bottleneck operation is holding back production across the entire shop (you can only produce as fast as your tightest bottleneck), shortening the setup time by one hour is like adding one hour capacity to your entire shop. An order that couldn’t be processed previously can now be processed. And each operation on the routing will now have an additional hour. For a routing with ten operations, you now gain ten hours of production that wasn’t available before.

Summary

Targeting improvements in product costs requires a deep knowledge of the flows of your shop. Your ERP system can map out the best course for setup time reductions in your shop. Improvements also require some creativity and planning of your human capital to maximize your productivity. A good human capital program along with an ERP planning system can help you to build the right skills and capabilities to match your current and future needs.