Profit Equals Throughput Minus Costs

Profit Equals Throughput Minus Costs

Recently a friend sent me a link to a blog post from a software company.  In it, the relationship between throughput and profit was very logically presented.

The essential conclusion was expressed in the formula:

Who could disagree?  If it’s that simple, then why can’t we just improve throughput to make more money?

Investments in machinery are often the first choice.  If we can buy a machine that cuts more parts per minute, won’t that improve throughput?

A guy named Eli Goldratt wrote a book about that in 1984 called The Goal, where the goal was finally revealed to profit.  For those who haven’t read The Goal, it centered around a very costly CNC machine investment, which was not paying off.  In fact, although the machine could cut parts faster than the previous methods, overall factory throughput (complete, good quality products) went down!  The cost of the new machine was huge, and everyone focused on the ROI… for the machine, not overall production.

Good data reflecting production throughput was key to Goldratt’s protagonist solving his problem and making the plant profitable again.

How can a factory data collection and management system help improve throughput?  Such systems are called manufacturing execution systems (MES).  First let’s look at how an MES system collects and manages data, as well as what effect it can have on the shop floor.

What follows is a look at six key MES features that can enhance throughput.

1. Tracking

Provides feedback on the status of parts and products throughout the facility.  Tracking in and of itself, does not improve throughput but it provides status of the production process for a workorder and is therefore helpful for monitoring progress against goals.

2. Grouping

This feature allows workers at a machine like a CNC or panel saw to group parts based on the next operation, such as edgebanding or secondary machining.  Now, in addition to collecting statistics, we have a feature that guides workers to make faster and better decisions.

3. Automatic Sorting

Helps workers quickly organize parts or subassemblies by workorder and product.  Items can be sorted into fixed racks (single or double sided) or mobile carts.  This is an even more pro-active feature, guiding any worker to quickly organize parts for the next operation.  Even workers without product knowledge can do this job quickly and efficiently.

4. Synchronized Sorting

Coordinates between two or more sorting stations, so that components arrive together at assembly stations.  This feature helps assembly workers build the correct items in sequence, ensuring that the products will be completed such as case bodies with doors and drawers added as the come out of the case clamp.  Now we have software, not only assisting at one workcenter, but also coordinating between multiple areas for maximum throughput.

5. Staging

Using defined locations, this feature allows workers to put parts, subassemblies, products, or kits into temporary storage.  The software records these locations.  When workers need to find the staged items, they simply input which workorder they want.  The location(s) are then displayed so workers can quickly retrieve the needed items.  Staging eliminates dependency on workers’ memories.  Finding previously stored items is now fast and accurate, increasing throughput and cutting costs again.

6. Kitting/Palletization:

Allows workers to group items together for shipment.  This can include packages for loose parts, hardware items, etc., which can be packed into cartons or shrink-wrapped on pallets.  Each package can then have its own label, which shows the contents.  These packages can be shipped with a single scan and show up on the packing list as individual items, helping installers locate the items they need.  These functions address a common and costly problem; ensuring the correct items are shipped and accurately received.  This is the final element of throughput, since the product must be received by the customer if payment is expected.

Using combinations of the above features, MES system users are increasing throughput and controlling costs, resulting in higher profit.

Woodworking software technology for cabinets making  – WEB-CAB