A factory efficiency of around 70%-80% is very good. However, if you have a factory efficiency lower than this, then continue reading to identify what the issue is and how you can resolve it.
There are several factors as to why your factory has low efficiency. Check the following:
1. Raw Materials Stockout
Consider increasing your raw materials inventory or improve your relationships with your suppliers.
Raw Materials Inventory is the number of weeks worth of raw materials you wish to keep on hand. A higher inventory will help to avoid lost capacity through raw material stock outs. This does come at a price however, as each unit of raw materials incurs a holding charge.
Supplier Relations are expenditure that could be directed at negotiating single source contracts, providing suppliers with demand forecasts and educating suppliers in Just-In-Time and Total Quality Management techniques. It may also extend to paying incentives to suppliers who provide quality products, consulting suppliers when designing new products and paying increased transport costs to enable more frequent deliveries.
The benefits of investing in supplier relations include reducing line stoppages due to reduced unavailability and/or inadequate quality of materials. Current relationships with suppliers are only about half as good as they could be. It will require a significant investment to improve supplier relations, but once improved it will require a lower level to maintain this improvement as the level of accumulated supplier relations deteriorates over time.
2. Setup Time
You may want to consider increasing your batch size or spend more on reducing setup times.
Setup Time Reduction Expenditure includes expenditure on analyzing set up procedures and developing and documenting new statements of procedure. It also includes expenditure on plant modifications to facilitate quick changeovers.
Investment in set up time reduction will reduce the amount of time spent setting machines up and hence increase effective capacity (provided batch size remains constant). Other factors affecting the capacity lost to setups are: batch size, number of products, and product complexity.
We assume that there is a standard setup time of about 4 hours per setup. By investing in setup time reduction we can reduce this. Over the last 5 years setup times have been reduced by 5%. With the present batch sizes and number of products, each firm is losing about 10% of theoretical factory capacity on setups.
3. Rework Time
You may want to consider increasing your expenditure in preventative maintenance.
5. Idle Time
Idle Time is an inefficient use of resources causing higher average manufacturing costs per bike. You need some idle time to cater if there is higher demand in your products than expected, however having too much Idle Time is costly. To reduce this, you may look at selling some of your excess factory capacity and/or firing some of your workers to reduce your factory capacity.
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