▪90% decrease in lead time
▪75% reduction in setup time
▪50% more efficient use of floor space
A well-planned manufacturing installation can dramatically improve product quality, reduce scrap and rework, and increase the company’s flexibility to respond to the changes in production requirements and the marketplace. The goal of new technology should never be to eliminate labor but to increase the flow of product through a plant, improve the product quality, and be able to quickly respond to customer’s needs.
COMMON JUSTIFICATION PITFALLS
Technology has dramatically changed manufacturing cost behavior patterns. The direct labor and inventory costs are decreasing, while depreciation, engineering, and data processing costs are increasing. Traditional financial systems focus on labor and inventory, and do not consider the benefits of flexibility, product quality, and customer service.
Major Pitfalls
▪Using traditional cost accounting/performance measuring systems that rely on labor, and price per part
▪Setting high ROI (Return On Investment) hurdle rates and applying the same rate to new and strategic product lines
▪Little or no consideration of alternative methods of improving productivity and product quality
▪Resistance to identify the benefits of advanced technology properly
▪Failure to consider the effects that not introducing new technology may have on the company
▪Failure to understand that traditional ROI/DCF (discounted cash flow) justification methods do not consider the effect that advanced technology can have on the future of the company
The biggest problem is that the relationship between improved cost and improved market share is not fully understood or even considered.
A JUSTIFICATION STRATEGY
It must first be understood that traditional methods do not completely assess the impact of introducing advanced technology, be it machine tools, manufacturing processes, or tooling on the entire company. Justifying the benefits, tangible or intangible, of advanced technology is not impossible if the company has a well-defined plan. The following points should be considered:
▪What is the value of consistent and superior product quality?
▪What is the cost of scrap, rework, and large inventories?
▪What is the cost of missed delivery dates, lost contracts, and shrinking market share?
▪What is the value of greater flexibility and the ability to respond to market changes quickly?
▪What is the cost of not being able to hold existing markets or open new markets due to lack of competitive equipment or the capacity of the company?
▪What is the value of increased productivity and reduced lead-time?
▪What is the cost of product and prototype development, engineering changes, work-in-process, inventory, and inefficient use of equipment and facilities?
Only by identifying the real cost drivers can the benefits of advanced manufacturing technology be valued and justified.
JUSTIFYING NEW PROCESSES
New manufacturing processes usually involve adding of new equipment or tools; the key benefits are not always easy to identify. Rapid prototyping - a process that can involve the use of laser, photochemistry, optical scanning, and computer technology - is used to make a three-dimensional prototype (model) from a CAD file one layer at a time, Fig. 1-2-6.
Rapid Prototyping allows product designers and manufacturing engineers to see and hold a physical model of a new product in as little as a day after the prototyping begins. Any technology that can radically improve the ability of a company to compete more effectively is worth the effort it takes to prepare a solid proposal for its acquisition. Most of the guidelines shown in Fig. 1-2-7, even though they are directed to Rapid Prototyping, should apply when attempting to justify any advanced manufacturing technology.
1.The Executive Summary
▪A one-half- to one-page long document that describes the present manufacturing operation and why it is necessary for the company to consider the benefits of the new technology.
Fig. 1-2-6 Rapid Prototyping is used to create prototype models for new products. (Courtesy 3D Systems)
▪Identify the productivity-increase factor by the total expected savings over a five-year period divided by the cost and the support services.
2.The Wish List
▪Include the equipment that is necessary to install the new process. State the effect this addition would have on the company’s productivity and competitive position in the marketplace.
▪In a separate proposal, list the cost and effects of upgrades to existing equipment or processes.
3.Alternatives
A well-written proposal should detail the alternatives to buying a new process and if possible its disadvantages:
▪Upgrading existing equipment may not meet the increases foreseen in demand or product quality.
▪Using outside suppliers to provide the technology required.
•What did this service cost from outside suppliers over the past few years?
•Was the service always available when required and were delivery dates met?
•Would it be less expensive and more convenient to have the equipment in house?
4.Case Histories
In any request for a large capital outlay, it is important to have answers to the following:
▪What is the technology and what does it do? A videotape from the vendor of the technology could be useful in informing those not familiar with the technology.
▪How many competitors are using this advanced technology; document their published results? This information may be available from equipment manufacturers or suppliers.
Fig. 1-2-7 The factors that a justification plan should include to ensure success. (Courtesy Kelmar Associates)
When introducing advanced technology, keep in mind not only its immediate effect on a particular area of the manufacturing operation, but the potential ripple effect that improve efficiency of both upstream and downstream applications.
▪What is the technology’s effect on productivity, production flexibility, responsiveness to market changes, product quality and reliability, human resources, inventory levels, and customer satisfaction?
CASE HISTORIES:
TOOLS AND ACCESSORIES
Major improvements in productivity and product quality can be affected through the use of advanced technology in tools and accessories, manufacturing processes, and machine tools and manufacturing systems. The following examples of each category show the experiences of firms that implemented them.
Superabrasive Cutting Tools
The cost model shown in Table 1-2-1 is a comprehensive method of analyzing critical cost variables associated with a particular machining application. To illustrate how this model can be applied, annual production data from an automotive