There are several companies both in and outside of our industry who really understand costs. It is not some academic classroom “let someone teach me from the boardroom” but hands-on experience in knowing what their costs are in their operation. In the building industry, we think we have a good handle on material costs, up until they gyrate, much like we see now. But is your management team seasoned enough to really know where the hidden costs are in their area of responsibility? In other words, how do I improve beyond my company’s current norm, but also more than the competition?
To do this, you have to reduce those costs, and not just by improving the throughput rate of a given machine. You have to do some digging.
Over the past several years, my articles in this column have addressed a number of topics related to this. This has included the importance of selecting what to improve; that is, identifying all the areas of potential improvement, selecting the important few, and seeing those projects through to their completion. This is critical for achieving any real gains from your improvement initiatives. The what part and the discipline to follow through without diffusing your available resources are the prime differentiating characteristics of companies that really do improve. Without these characteristics, no amount of talent or management or procedural competence can drive effective improvement.
Sometimes the what part is pretty apparent; you may need to improve the capabilities of people or machines. But usually the what isn’t apparent at all, because many root causes are hidden and not terribly obvious in common business metrics. There are various hidden cost drivers. Some are inherent in almost any value-producing operation; others are most damaging in high-product-mix operations such as custom fabrication (the truss component industry). So let’s shed some light on the ones most pertinent to high-product-mix operations.
Information
The amount of information flying around in the LBM/Component and Modular industry still amazes me. Necessary information on what to build, when to build, what and when to order, changes in dates, quantities, revision levels, acceptable quality, and a host of other details can be overwhelming. And thanks to the advances we continue to make in machinery, the information continues to build.
A lot can go wrong. In fact, the odds of something going wrong increase with the amount of information and its variety, and if that information is communicated unclearly. The information issue drives a lot of different kinds of waste. It can be a monster. In a high-product-mix shop, the amount and variety of information are likely to change, and that’s something not really under your control. But you can improve by translating the incoming information to a standard output format that is understood and actionable to a very high degree of accuracy.
The goal is to have a mechanism that provides correct information to the actual processing activities, especially those on the shop floor. The information needs to be correct, unambiguous, timely, understandable by anyone in the activity, and identically actionable—that is, it causes the same action regardless of who does it.
Here’s a simple but common example: You just bought a new machine that can process parts 50% faster than the old one. That’s improvement, right? Well, not if you build to the wrong revision, or overbuild, or build the wrong thing at the wrong time. The throughput improvement will be eaten up by the costs incurred to make things right. And those costs will be buried. Although hidden, these costs are real, never-ending, and cumulative unless you do something about them.
Searching
Searching wastes are truly hidden because they almost look normal. We are very accustomed to seeing ourselves and others in the familiar activity of saying, “Let’s see … where can that be…” It’s perfectly normal, but also perfectly costly and completely avoidable. How many times have you gone out in the shop and searched for a cart of cut lumber, or looked for a lumber pack only to give up, rebuild, and then find it later?
The only good thing about search waste—a form of information waste and downtime waste—is that it is relatively easy to improve. Any sustained 5S/visual workplace initiative will cure 80% of it. It is one of the few improvements that in principle can be initiated easily. The only expertise required is in the sustaining plan and execution.
Excessive Material and People Movement
Here’s another simple one. It’s hidden because, like search waste, it’s hard to “see.” Moving material around a plant is perfectly normal. People moving around also is normal. But excessive movement of material and people has virtually the same effect as excessive searching. It’s another classic waste identified in lean principles. It is a bit harder to remove because it can involve plant and equipment layout changes, build quantity and scheduling discipline, and a focus on part flow. But like search waste, it is eminently improvable. It does take expertise to achieve an optimal solution. But improvements can be made bit by bit. Cells and virtual cells are good examples.
In general, when you actually “see” and measure the amount of cost linked to searching and excessively moving, you will be unpleasantly surprised. But understand those excessive searching and moving costs are only part of the total waste they contribute to in the overall operation.
Downtime
Everybody notices when the gantry or saw breaks down, but few really pay attention to the other times a machine may be down. That’s why machine downtime is a big hidden cost. It’s a significant time robber and just as costly as other wastes. It kills labor efficiency, average throughput, and often has everyone chasing the wrong thing. Search waste is a contributor, and so are excessive material movement and changeover times.
When you see inefficiencies in machine-related operations, start with finding the reasons for downtime on the machine. You may find a variety of causes: material movement, material availability, searching for tools, drawing clarifications, poor preventive maintenance, or unmeasured and unstandardized changeovers.
This is one of the most common and costly wastes at component operations. It reduces machine capacity, causing missed schedules and the resulting expedites, unnecessarily adding machines and people to replace the lost capacity—capacity you didn’t even know you had in the first place.
Schedule Disruptions
Great companies protect their schedule sequence like gold because the disruptions cause so much waste. But to do this in the real world, you must remove the reasons for the disruptions. The best way is to have fast cycle times. To do that you must eliminate the hidden waste costs and operate in a lean flow environment: WIP control, small-lot processing, efficient transfer means, single-point scheduling.
People Turnover
Most of the cost of hiring and training people is almost always hidden and significant. If you have high turnover, you have higher costs than you should. Great companies make it a very big issue to track the real reasons people leave, simply because they are aware of the replacement costs. Often people are fired for inefficiency, but you need to know what is causing the inefficiency. Is it really the person—or is it because of some of the factors described here?
Hidden costs abound in any operation, but the ones described here are the most common. Every one of them is solvable. Taken individually or in combination, these hidden costs greatly affect a company’s financial and competitive performance. If the team at 4Ward Solutions Group can be of assistance to you, please contact us; we would be honored to work with you towards your success!
Ben Hershey is CEO of 4Ward Solutions Group including Consulting, Labor, Offsite, Design, Software Development, and Back Office Solutions. When the industry needs an actual expert, they turn to the 4Ward team with more than 150 years of experience. 4Ward Consulting Group is the leading provider of Management and Manufacturing Solutions to the Structural Component and Lumber Industry. A Past President of SBCA, Ben has owned and managed several manufacturing and distribution companies and is Six Sigma Black Belt Certified. Ben has provided consulting to hundreds of Component Manufacturers, Lumber Dealers, and Millwork Operations in the past ten years. You can reach Ben at ben@4WardSolutionsGroup.com or 623-512-6770. © 2021 4Ward Consulting Group, LLC