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The cost deployment pillar is the ability to transform quantified physical losses (hours, kW, number of units …) into financial costs.

Introduction

The cost deployment pillar is the capacity to transform quantified physical losses (hours, kW, number of units …) into costs, in cooperation between the production departments and the financial service.1.

The method makes it possible to make the link between each individual element and the overall performances resulting from the application of the technical pillars of the WCM, and to measure with adapted KPIs.2.

It is thanks to this strategic pillar that we determine priorities and create action plans..

It should be noted that in the 7 steps presented below, the first 4 aim to prepare the ground, and steps 5 to 7 see the choice and implementation of actions..

From the financial logic of the WCM, we deduce the key indicator of the WCM :

Value added ratio

Total cost / Cost of value added

 

1 –  Make an inventory of the costs

The first step is to make an inventory of the different costs of the company. We take into account all the costs of the company. The following is an example in the case of a production company :

  1. Quantify the total costs of processes
  2. Establish cost reduction goals
  3. Control total costs per process

2 – Identify the losses

In this second step, the goal is to start identifying our losses. For that :

  1. Identify and quantify the different losses (see details and examples in the pillar Focused improvement).
  2. Identify the cost of historical losses if possible, otherwise measure them under current conditions.
  3. Use a color code to identify the level of loss :

  4. Use matrix A below to define the two elements above. It should be noted that Professor Yamashina has identified 18 types of losses that he proposes to study. We thus find :

Matrice A

Loss type

Location : Process

Work area A

Work area B

Work area C

Machine

Breakdown

Setting

Replacement of tools

Startup loss

Micro-Stop

Loss of pace

Quality defect

Load loss

Waiting for decision at startup

Work

Management

Movement

Logistics

Organization of the line

Control

Equipment

Loss of performance

Indirect loss

Template and mold

Energy

 

3 – Identify the causes of the losses

Third step, we separate the consequences of the causes. The matrix B of the system is used to correlate the identified losses with the type of loss. The challenge is to define cause-and-effect relationships.

For example, we have an identified recovery loss, but this loss is the consequence of fault producing production. For this, we rely on the study of EWO et des HERCA / TWTTP.

Matrix B

Total losses generated

Cause

Location

 

4 –  Valuing the causes

During this stage, we enter financial processes. The challenge is to translate the “physical” losses observed in the field into financial cost.

Matrix C

Total financial valuation

Cause

Location

The calculation is always on the same principle: we take into account the time taken by the problem that we multiply by the cost of staff in charge of restoring the situation.

For example, in the case of a repair :

Total cost = Repair time * Number of people repairing * Hourly cost per person + Total time stopped * Number of people waiting * Hourly cost per person

From this stage is through this matrix system, we are able to set up a loss map by representing the cost per location, the cost by type of cause…

5 – Identify methods

Step 5 aims to select the best method to eradicate the different losses. To do this, we build the matrix D which links the causes of the losses with the pillar or pillars that we must implement to eradicate them..

Then we will use the ICE method to identify a hierarchy in the actions. On a scale of 1 to 5, we consider :

  • : Impact economic loss. 5 being the biggest loss.
  • C : Cost necessary for implementing enhancement actions. 5 being the least important.
  • E : Simplicity  in the implementation of improvement actions. Simplicity takes into account the time needed and the resources needed. 5 being the simplest.

Matrix D 

Pillar to implement

Impact (I)

Cost (C)

Simplicity (E)

Result ICE

Priority class

Cause

AA > 70

A > 60

B > 40

C < 40

 

6 – Prioritize projects

After identifying and prioritizing the appropriate method to reduce significant losses, it is necessary to establish a financial balance sheet of the cost of implementing the improvement and the benefit provided (the previous step having only indicated a cost rank but not the actual cost). It should be noted that in the end, the ICE indicator only makes it possible to make a first state of prioritization with regard to the fact that we have several tens of losses. 

The results of matrix D are repeated. The causes with the most important ICE result are selected, then the projects are defined and the gain and costs are specified. This allows us to prioritize projects by identifying those with the highest cost / benefit ratio.

 

Matrix E

ICE

Expected gain

estimated cost

Ratio Gain / Cost

Cause

Location

Project

Etape 7 – Set up the schedule and follow the budgets

At this point, we have now defined the projects we will be conducting and the order in which we will deploy them. We build the matrix F of progress of the projects.

Matrix F

Leader

Actions

Start date

End date

progress

Project

DAs soon as this first action plan is closed, the process is repeated iteratively from step 5 taking into account the results of the matrix A. 

To follow this, some very advanced companies in the WCM, have set up a seventh matrix. This is the direct link between the various projects and the company’s budget.

Matrice G

Budget n-1

Savings via loss reduction projects

Budget n+1

Type of expenditure (salaries, materials…)

Type of losses (matrix A)

Process (Matrix A)

Source

1 – H. Yamashina (1999) – Manufacturing Cost Deployment

2 – L. Massone (2007) – Fiat Group Automobiles Production System: Manual do WCM, Wold Class Manufacturing: Towards Excellence Class Safety, Quality

L.C. Santos Silva, J.L. Kovaleski, S. Gaia, M. Garcia, P. P. De Andrade (2013) – Cost deployment tool for technological innovation of World Class Manufacturing

I. Tekin, S. Gozlu (2012) – Determination of costs resulting from manufacturing losses : An investigation in white durables industry

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