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Bruce Hamilton

Lean

Profitless Part Proliferation

A false sense of profitability cloaks great waste

Published: Monday, July 11, 2016 - 12:50

I wrote a piece a little more than five years ago about a variety reduction program (VRP), an amazing but little-known product-design optimization tool. At the time I referred to VRP as an idea whose “time had not yet come.” Last week, as I gave a short presentation on VRP, I realized that five years later its time apparently still has not come. In the interest of creating more interest around this significant technique, the following column expands on my epistle from 2011 and provides a couple of tangible examples of that significance from my own experience.

First, I think the technique deserves a new, mnemonic, and alliterative moniker: profitless part proliferation (P3). I suggest this clarification because the word “variety” has an unfortunate positive connotation in the sense of greater customer selection, and therefore turns off sales and marketing folks before you can explain that VRP is not about product line trimming. That was my initial experience in my own company many years ago. “Just another anti-customer maneuver by operations,” I heard. In fact, VRP (or P3) is about trimming needless part variety and all of its associated costs (e.g., drawings, inspection, purchase orders, stocking locations).

Second, I would like to call attention to the false sense of profitability that is often created through the addition of new parts and assemblies. Minimizing the functional cost of material (the one that shows up on variance reports) for a single product looks good on paper, but almost always creates huge overhead costs arising from complexity. Engineers and cost accountants typically focus on the apparent profit from product X, but ignore the resulting system costs. They can’t see the forest for the trees, so to speak. The following two examples for common part commodities, one a purchased part and the other a subassembly, speak to this problem.

O-rings

A project was initiated to examine O-ring specifications and dimensions—things like durometer, chemical resistance, temperature range, ID, and OD. We first realized that there was no single repository for this information. Our computerized part master record contained dozens of fields to support ordering and costing, but most important design information was squished unintelligibly into a description field. After cataloging specs and dimensions for O-rings, we realized that 29 different O-rings were stocked.

We discovered our information system made it difficult for designers see what was already available when they were choosing parts. It was just faster and easier to go to a supplier catalog. An alarming amount of part variety arose simply from poor design tools.

Once we were able to view O-rings as a part type from a design standpoint, we realized there was considerable overlap in specs and dimensions. Of the 29 O-rings we cataloged, we determined that all production needs could be handled by only five O-rings.

Of these five remaining O-rings, one had metric dimensions because of unanticipated tolerances with mating parts. Rather than deal with correcting the mating parts, a unique O-ring was selected as a “bushing.” Incidentally, that particular new part required the addition of a new supplier.

The rub was that the most robust O-rings cost a few cents more than marginally acceptable specifications. Cost accountants argued that using the most robust O-rings would increase product cost, ignoring the additional costs of maintaining two dozen unneeded parts. In fact, as we were a low-volume, high-variety producer, we pretty much had to order months of supply for every one of the different O-rings anyway. Finally, engineers argued that the cost of an engineering change—particularly a drawing change—was too great. “We have better things to do,” I heard. Fact is, engineers are typically not rewarded for fixing up old parts; they are recognized for designing something new. Ultimately, however, some concessions were made in the interest of experimentation and the O-ring variety was reduced.

Lead wires

A more egregious example of P3 was the variety of lead-wire assemblies. As a manufacturer of electromechanical products, my company built thousands of different lead-wire assemblies to support perhaps three dozen product families. At one point we dedicated a full bay of ASRS storage to lead wires. Still, lead-wire assembly stock-outs represented a major cause of late customer deliveries. Lead wires were cut and terminated in large batches owing to the long setups on the machine.

While working on setup reduction of the lead-wire machine, a production team leader astutely wondered why many lead wires differed by insignificant lengths, as little as 1/32 in. During a project launched to catalog the variety in gauges, stranded or solid, terminations, insulation color, and material—and many other specs—we did, in fact, identify an important opportunity just in lead-wire length variety. This variety, we suddenly realized, stemmed from a single statement regarding the length of the connection leads outside the end-item enclosure. Sales and technical literature read something like this, “Lead-wire length: 12 in. outside enclosure.” In fact, our customers would have been happy with at least 12 in. outside enclosure, and 12 ½ in. would have been fine, as would 12 1/32 in., and so on. The authors of VRP advised us to be clearer regarding which dimensions should be fixed and which could be variable within a range. Once the product specification was changed to reflect “at least 12 in. outside,” the number and type of lead-wire assemblies plummeted! So did the stock-outs.

These are just two of many specific examples where parts proliferation was pointless and profitless. Now, before you say to yourself, “Oh, that would never happen in my factory,” I’d encourage you to choose a common commodity of a purchased or manufactured part, and investigate the variety. Please share a story for our readers about your discoveries. One lucky commenter will be selected to attend GBMP’s 12th annual Northeast L.E.A.N. Conference, Oct. 4–5, 2016, in Worcester, Massachusetts. I am delighted to reveal our four exceptional keynote presenters will be Art Byrne, John Shook, Steven Spear, and Eric Dickson, M.D., (not to mention the 40 other educational, informative, motivational, and fun breakout sessions).

Shigeo Shingo was quoted as saying, “The worst waste is the waste we cannot see.” Help us to see by sharing an example from your experience. I’d hate to think that I’ll be reflecting again in another five years on an idea whose time still has not yet come.

Discuss

About The Author

Bruce Hamilton’s picture

Bruce Hamilton

Bruce Hamilton, president of the Greater Boston Manufacturing Partnership (GBMP), brings hands-on experience as a manager, teacher, and change agent. Prior to GBMP, Hamilton led efforts to transform United Electric Controls Co.’s production from a traditional batch factory to a single-piece-flow environment that has become an international showcase. Hamilton has spoken internationally on lean manufacturing, employee involvement, continuous improvement, and implementing change. Also, he has contributed to numerous texts ranging from visual control to variety reduction. Hamilton’s blog, Old Lean Dude, is an ongoing reflection on lean philosophy and practices, with an emphasis on keeping good jobs close to home.

Comments

screws....

I had a very similar issue VERY early in my career.   the specfic was #10-32 screws, there were 20+ different part numbers and more than a dozen different "standard" costs and suppliers.   Interestingly enough, some of the different pricing actually came from the same supplier!!  while the total costs were greatly significant, the same screw from the same supplier cost up to 250% MORE depending on the part number.

I learned that variation can take many forms, including the variation in part numbers for the same or equivalent part!!