As consultants, one of the most common complaints we hear from production departments is that the CEO and CFO place too much emphasis on OEE: “Machines are expensive and therefore should always be running.” However, this is a mistaken idea because whether machines run or not has no influence on their already existing fixed costs.
Variable costs, on the other hand, can be influenced. In most modern production companies, the highest variable costs are material costs, and account for more than 70% of the overall manufacturing costs and over 50% of operating costs.
The Kaizen motto is:
In other words: only bottleneck resources should always be running, other resources should only be running when they are needed. This is the cheapest production method and the secret of the Toyota Production System, i.e. tact time production - the basis for process synchronization and just-in-time production.
In an orchestra there is one conductor who gives the tact for all musicians and ensures that the result (music) is harmonious. In a factory you have a similar situation, to ensure the harmonious flow of a synchronized production, there should only be one tact-giver (planner). Multiple planners would result in the disharmony of high inventories due to push production.
The planner (tact-giver) should maintain a bird’s-eye perspective to set the most efficient pace for production and decide the specifications for each resource: making sure that they produce only what is needed, when needed and in the amount needed.
In a sense, fixed- and variable costs are closely linked and depend on the prevailing production philosophy: either a tact-time production method (with a single tact-giver) or an OEE-focused push-production. There is a common misconception that tact-time production is only suitable for serial production. This is certainly not the case. Tact-time production is suitable for all types of manufacturing, including mechanical and plant engineering, aerospace, shipbuilding, etc. The external tact-giver is the delivery date, the internal tact-giver is the bottleneck process.
In our Kaizen consulting for just-in-time production to reduce operating costs, we follow the motto "only results count"!