One of the primary goals of Lean in manufacturing is to arrive at the most efficient degree of equipment utilization. In simple terms, that means achieving optimal use of the people, facilities, machinery, and processes used in a manufacturing business.
Getting there begins with evaluating and optimizing capacity and utilization. What do these terms mean?
Capacity is typically defined as “the amount that can be produced.” In a discrete manufacturing environment, capacity is the “maximum number of parts that can be manufactured.” Therefore, capacity is fundamentally a part-based metric used to calculate, plan and execute on the volume of components that go into the finished product.
Utilization is defined as “how much something is used.” A discrete manufacturer would thus describe utilization as the “proportion of time that specific pieces of equipment are used.” Utilization is fundamentally a percentage-based metric used to determine how close to capacity a factory or shop floor is based on the use of equipment and the amount of time it is occupied or at full capacity.
How does Lean add value?
One of the functions of an ERP system running on Lean principles is to capture scheduling data so it can be analyzed. With this information available to executives and shop floor managers it becomes possible to determine the effectiveness of this. By determining how effectively resources are utilized, it’s possible to arrive at a baseline for measuring manufacturing productivity.
By collecting relevant data which affects and helps improve scheduling, the stakeholders and managers involved can identify capacities and resource availability with tremendous accuracy in real-time. The type of data collected typically encompasses all information, which defines and details the run time, set-up time, and stock time for each resource involved in the manufacturing process.
Having a dashboard view of every scheduling component within the supply chain empowers operations personnel (or the planner/scheduler function) to organize the manufacturing load in the optimal way to accommodate more efficient use of available resources. The result is less waste, greater efficiency and the highest level of productivity possible.
In short, Lean can make organizations much more efficient and able to produce the right volume of products as needed and with a higher degree of quality.
The magic of operational efficiency and industry-leading productivity
Our capitalist system rewards efficiency and productivity in several ways. When consumers choose one product over another, sales go up and the higher volume usually results in better margins for the manufacturer. As profits increase, the company becomes more valuable, which is reflected in the amount a private entity could sell for, or an increase in stock price and the market cap of a public corporation. Within this larger context, it becomes obvious why all manufacturers strive tirelessly to achieve increased operational efficiencies and an ever-higher degree of productivity.
By providing a ‘bird’s eye’ view of the totality of a manufacturing organization, an ERP using Lean principles delivers a competitive advantage compared to businesses not doing so.
In many organizations, information is ‘siloed’ or captured and stored in files or servers not shared with others within the company. This paradigm creates islands of data which are not available in a macro sense with other decision-makers.
For example, when the operations personnel charged with producing product are focused on getting product available for customer orders (or stock), they are subject to blind spots. By not having a macro view of data in the form of inventory, scheduling, sales orders, personnel availability, and other factors involved in production, they are unable to make informed decisions or take action due to changing circumstances.
In a global sense, this is what has happened as a result of the COVID-19 pandemic. Due to a slowdown in manufacturing and economic activity, suppliers such as chipset producers and component manufacturers cut back on production to reduce unsold inventory. Even as consumer demand slowly returned to normal, the global shipping industry, which had essentially ground to a standstill, was unable to offload containers and return their fleets to normal delivery capacity quickly enough to meet the renewed demand from manufacturers.
To this day, almost a year after the pandemic has mostly abated, inventory levels of passenger vehicles remain so tight that car and truck dealerships are still charging a “premium” of $2,000 to $4,000 per auto. While a global pandemic is admittedly the very definition of unforeseen circumstance or ‘force majeure’, it does illustrate the point that too many unknowns in a manufacturing environment can cause havoc and result in dire consequences.
Making Lean central to your business is a choice
As we’ve discussed in the previous installment of our Lean blogs and emails, there are several reasons all organizations should adopt Lean practices, whether they’re just a managerial imperative or formalized in an ERP solution such as Attivo All-In-One, powered by SAP Business One. At the very least, having a culture of continuous improvement all by itself can pay enormous dividends, both operationally and in efficient manufacturing output. Reducing waste and eliminating inefficiencies can favorably impact margins and profitability by keeping overhead low and material costs to a minimum.
Attivo is ready to help you take the next step
In this ongoing Lean management series we’ll dive into more detail about how to apply the Lean principles and the many ways we use them to support the processes, modules, and functionality of our Attivo-All-In-One solutions.
Attivo All-In-One, powered by SAP Business One has the most powerful and fully integrated analytic and reporting tools in the ERP software sector for small to mid-sized businesses. This makes it easier and more efficient to design and implement customized quality control processes and methods across your organization.