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Internal Productivity = Hard Savings?

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  • #30695

    mand
    Member

    How do you related an increased in internal productivity to HARD savings if the workforce stays the same (ie: no one is being laid off) ?
     

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    #80337

    Mike Carnell
    Participant

    Sam,
    You honestly can’t see a savings unless you cut headcount? First if you use this or any other program to cut headcount you will be lucky to keep the program in place – that should be common sense.
    If you have 5 people on the line and they build 5 units per day and you are capacity constrained, every extra unit produced is saving (incremental income – you broke a bottleneck loose). If you are not capacity constrained and you build more you increase material velocity which increases inventory turns.
    What is your labor content? In most cases it is the little bar on the Pareto with this great big downside if you try to cut heads to save money.
    Good luck.

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    #80346

    Withheld
    Member

    Sam,
    By filling filling the increased capacity, extending some or all of the associated savings to the customer and winning greater market share.
    Many will disagree with me, but I believe that until such time as the above is accomplished the savings do not exist. The alternative, of course, is a RIF. On that issue I agree with Mike’s response relative to program failure.

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    #80350

    Aravena
    Participant

    Sam,
    Mike’s partly correct BUT it at all hinges on whether you can sell your extra capacity.  Building more (when not capacity constrained) adds to inventory.  It only helps turns if you can sell it.
    Internal productivity is soft savings.  But employee satisfaction through better retention and reduced turnover are hard savings.  Internal productivity is the right thing to do for so many reasons…but if you must force fit the category then most Finance folks will tell you it’s soft because the $ don’t immediately drop to the bottom line.  That’s the “accepted” view of hard vs. soft.  Not saying it’s right – it just it what it is.
     

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    #80352

    RT
    Member

    Internal hard savings do not just come from head count reductions and product thru-put.  Another angle is to look at raw material costs and external services requried to maintain a P&E.  Example if you have an outside contractor perform maintenance on your process what kind of dollars could you save if you controlled that process such as PM’s or performed the process with your own people.  Raw materials… work with raw material vendor’s to improve their efficiency in producing or delivering raw materials to your site.  I worked on a project that offered SS training to vendors in return for $$$ savings on product price.  Those vendors that did not want to jion in the fun got left out in the cold.

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    #80357

    billybob
    Participant

    Hello folks,
    How about when you are not at capacilty and increase output but you can’t produce more parts because your JIT doesn’t allow you to build more than you need because you can’t get the material in house.  We have this problem, then the production management can’t seem to keep the operators motivated to run at the new rate because the operators  will be reassigned to another operation once their build is done.  We see change over times expanding, breakdowns not so important to have fixed, you know how it is the controls go to hell.  But as a company we’re still productive to a budget made last year.
    Later,
    Billybob
     
     

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    #80364

    SOX
    Member

     
    Hi,
    At the end of the day it’s still bottom line that counts. You can have huge total savings by adding lots of soft savings but it’s only the hard savings that count.
     

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    #80369

    Mike Carnell
    Participant

    Pablo,
    You build more if you are capacity constrained – buy definition you can sell it or you are not capacity constrained. If you build it faster you do not necessarily need to build more. You buld something then you Change Over and build something else. I think most people on this site are beyond the concept of dumping into finished goods inventory.
    It is accounting that considers finished goods an asset.

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    #80370

    Mike Carnell
    Participant

    Billybob,
    It sounds like the productivity improvement you need is in your management. A potential GB project?

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    #80378

    Jeff Ayland
    Participant

    Nah,
    Internal productivity adds hard dollars to the bottom line all over the place :
    Premium rate labor immeadiately reduces (overtime)
    If capacity increases significantly the opportunity to reorganise the shift patterns presents itself, less shift premium costs and overheads
    You internal recruitment costs to fill previously vacant positions dissapears, moreover any temporary staff that you may have on your books can be released, because they are always cheap through agencies right .. 
    Furthermore, if you have spare labor you can possibly redeploy it to other business units, reducing thier premium rate labor costs, or reducing the time and money spent recruiting for labor that they may have needed
    If capacity increases the chances are leadtime reduces at the same time, this means cost of capital invested reduces, like you can buy stuff later and get paid for finished goods faster (OK so the interest rate is low at the moment)
    Moreover, depending on how you got the capacity increase depends on whether your hard scrap or rework rates has reduced, this is hard dollars …
    Off the top of my head, thats lots of bottom line opportunity …
    Jeff

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    #80379

    RonJ
    Member

    Increased productivity, reduced labor content, will reduce lead time; but as we are human, work will have a tendency to fill the time allotted to it. Unless you’re at full capacity, the savings will be less than calculated. So be careful stating cost savings based on labor savings when you are not at full capacity; it might be hard to prove and probably won’t be visible from a distance.

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    #80416

    mand
    Member

    Internal productivity which generates shorter product lead time, etc. is crucial in retaining sales with the present group of customers.
    According to the Sales/Marketing Dept. that’s important as competition is getting tougher out there.
    So, can we relate the HARD savings as in “sales generated if we don’t loose the current batch of customers”?
    Any comments?

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    #80422

    CT
    Participant

    Hi Sam,
    We will calculate this as a SOFT saving, as Revenue Enhancement.
    They way I see it, we are not currently incurring this ‘loss’; hence it will not generate any hard savings.  It also depends on how your Finance sees it.  They may consider the increase in sales and take a % of it as increase in operating profit, and count towards hard savings. 
    Get Finance involved, they may be able to help.
    CT

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    #80520

    Anna
    Participant

    So ??? are you concluding that the only way that Six Sigma can succed is by  whatever $$$$$  we show in the bottom line ???.. I am  having a very hard time , discarding potential projects that WILL impact the performace of the company ,  and not being able to   sell them based on Custumer satisfaction, or eventual bussines growth … how can we deal with subjective ..or not immedialty tangible savings ??  or should we conitune focussing on ” tangible ” cost reduction???
    how can I get creative ? or ??  on caputre soft savings impact ????
    helpppppppppppppppppppp

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    #80523

    Wally
    Member

    Hi Anna,
    If the Champion or the management do not see the importance of some projects without hard dollars savings, then they don’t deserve your service to run them!
    If the director decides that, yes, we need to put some resources to solve this problem that may not generate hard savings, the Champion should totally support that.  That way, everyone will view SS as a methodology to solve real problems, and not just a bunch of people obsessed with numbers.
    Hard savings are important, as SS deployment it is not cheap and we need to get some ROI.  But running projects that the management and staff feels are important will convince all on the effectiveness of SS, and that is success in my humble opinion.
     

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    #80529

    Johan
    Participant

    Internal productivity only can be transformed into hard savings if you succeed to use the increase in capacity for performing value added activities.
    Johan

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