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
United States
China
India
Algeria, Egypt
Brazil

10.0%
20.2%
25.0%
44.6%
30.5%
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 problemsolving 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

(due to machine failures)

24,700

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

Total cost of scrap

30,160
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
(Cost Savings Signed Off
Additional Business Won
Total of 202 Jobs Saved)

21,000,000

5,320,000
4,000,000

2011
Opportunities Identified
TOTAL

14,000,000
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