Cost Reduction Techniques

Mark Parker
Food NW Supply Chain Project Manager
Director
UK Supply Chain Associates Ltd
 Background
 Activity started Oct 2009

 Worked with 20 companies

 Dairy, Bakery, Red Meat

 Delivered cost savings in individual companies

 Improved information flow & product flow through the

supply chain
 Why Run The Project?
 Energy costs are rising

 Raw Material costs are rising

 Business cost are rising

 Price down pressure from Retailers

 Profit margins being squeezed

 Project Objectives

 Remove waste

 Reduce costs

 Increase profit

 Free up capacity

Drive Sustainability
 Demand Growth – Dairy Products

2009 - 2018 % growth forecast

 EU 10.0%
 United States 20.2%
 China 25.0%
 India 44.6%
 Algeria, Egypt 30.5%
 Brazil 26.4%

(Source: OECD)
www.dairyuk.org/component/option,com_docman/task.../Itemid,308/
 Supply Growth – Dairy Products
 “On the supply side dairy farming will present an opportunity for many
regions around the world”

 “Conceivable that there could be a rapid growth in production around the

world in low cost countries”

 “implementing changes in farm structure in any country is generally a slow

process”

 “Realistically it will be difficult for low cost countries to produce in line with
forecast increases in demand”.

“Consensus opinion that demand will outstrip supply in the medium term.”

Source: Investment Prospects for British Farmers – September 2009

High Cost Base = Threat

.
 Waste Definition

What types of waste

would you find
In a Food Manufacturer?
 Waste Definition

Activity that adds cost

but does not add value
 .

UK Supply Chain Associates Ltd

 Method
Mapping :
 Select and Map a product line/process
 Observe & analyse
 Quantify waste
 Identify opportunities for improvement
 Agree improvement plan
Implementation:
 Implement plan
 Remove waste
 Reduce cost
 Free Up Capacity
Lean Manufacturing Techniques
 Kaizan – Process improvement teams
 5S – Sort, Set out, Shiny clean, Standardise,
Sustain
 5 Whys – Root cause analysis
 7 Wastes
 Fishbone – Cause & Effect
 Kanban – Stock replenishment
 Hijunka – Scheduling box

and there are many more....

UK Supply Chain Associates Ltd
 Kaizen Definition
Kaizen (Japanese for "improvement")

A Japanese philosophy that focuses on continuous improvement

It is the key thrust to maintaining or achieving competitive advantage

through a dynamic change process

The Japanese process of continuous improvement using problem-

solving and analysis
Lean Manufacturing Techniques
 5S programme to tidy the workplace
 Current state versus the 7 Wastes
 Total facility Layout (plan optimum layout)
 Work flow, material flow
 Visual flows (label areas)
 Visual Storage (shadow boards, improve storage of
tooling)
 Schedule communicated to shop floor (Scheduling
Box)
 Reduce machine set up times (box-up tooling prior
to job)
 Dedicated areas (Walkways, paint floors, Goods
In/Out)

UK Supply Chain Associates Ltd

Challenges
 Gain buy-in at all levels
 Drive from the top
 Free up people to train
 Fire fighting – break the routine
 Clashes with short term priorities
 Operator discipline – recording job times
 Challenge the accuracy of data
 Keep it simple
 Sustaining the gain
UK Supply Chain Associates Ltd
 Types of Waste

 Scrap – cost of raw material

 Rework – labour cost

 Downtime – labour cost & lost opportunity

 Giveaway – cost of raw material

 Food miles – Logistics process

 NW Bakery
Scrap – Bakery Co.
 the raw material cost of the scrap.
Actual Cost of Scrap per year = £235,000 (10%)

 9%-11% product scrapped (measured & observed)

 Breakaway on the cake base
 Failures in middle section of pans coming out of oven
 Caused failure a later stage on the line after
topping/filling applied.

.
 NW Bakery

 Scrap: the raw material cost of the scrap.

Actual Cost of Scrap per year = £444,600

(9,500 units – small cakes- scrapped per day)

Damaged by machine & manual procedures

Rejected manually on line
Rejected manually at packing point
Scrap sent for animal feed & to landfill
 NW Bakery
 Actual Cost of Scrap per year = £24,700
(due to machine failures)

Plus packaging required to handle product from machine

failures
 Actual Cost of Packaging used then
scrapped per year = £92,400

 Downtime 20% = run Sat AM = £30,160

Total cost of scrap £147,260
 NW Bakery
Giveaway – Bakery Co.
 the cost of raw material which has been given away for free.
Actual Cost of Giveaway per year = £819,500 (19%)

 Overuse of ingredients 6% - 114%

 Topping weight varied – overweight by 29%
 Filling weight varied – Overweight by 76%
 Hoppers filled manually – labour intensive
 As the hopper weight reduces then variance in topping
occurs.
 Product RFT = 8%

.
 Other Wastes Identified
 Waste streams on line not being segregated. Mixture
of food, & packaging. This will contribute to land fill
costs

 Energy – Conveyors observed running through breaks

& left running when not in use.

 Quality – A number of unit cakes pass through the line

at a substandard quality level without detection.

 Floor waste – High value components being lost on the

floor.

.
 NW Dairy Company - Cost Savings Summary

• £190k - Saving by improving cheese yield - achieved by reducing the

amount of milk used to produce one tonne of cheese.

• £250k – Reduce downtime and improve Output per employee by 66.4t

• £93k – Reduce the amount of downgrading from 0.77% to 0.50%

• £500k – Reduce stock through the supply chain and reduce external
warehousing costs

• £122k – Avoid sending waste product to Landfill

NW Dairy Company - Cost Savings Summary

Total potential savings

= £4.4m

Any cost savings increase profits at this company

As it is a Farmers Cooperative
any increase in profits
goes back to the Farmers
 Implementation Plan
Kaizen Intervention 1 - Not Right First Time
 Reduce rejects, scrap, rework

Kaizen Intervention 2 - Setup Reduction

 Reduce Downtime

Kaizen Intervention 3 - 5S in the workplace

 Target the ingredient weighing area.

Kaizen Intervention 4 - Process Measurement and Data Capture

 Need to improve data capture as this is fundamental to any Lean
implementation.
 Outputs

2010
Opportunities Identified £21,000,000
(Cost Savings Signed Off £ 5,320,000
Additional Business Won £ 4,000,000
Total of 202 Jobs Saved)

2011
Opportunities Identified £ 14,000,000

TOTAL £35,000,000
 Benefits of Lean

 More productive labour utilisation

 Reduced Manufacturing Costs (lower unit cost)
 Lower stock levels / reduced working capital
 Optimised space utilisation
 Fewer defects, less scrap & rework
 Improved Quality RFT
 Reduced changeover times
 Shorter cycle times
 Improved machine utilisation
 Increased Facility Capacity.
UK Supply Chain Associates Ltd
 Benefits of Lean

 Improved delivery performance at lower cost

 Increased customer satisfaction (QCD)

 Improved data collection

 More accurate data collected
 Increased Management Controls

 Empowered & more flexible work force

 Pride in the work place
UK Supply Chain Associates Ltd
Thank you for your time

I will now take your

questions