Reducing Job Shop Costs versus Increasing Job Shop Throughput

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Reducing Job Shop Costs

 

I was just reading an article on CNCReport.com titled “Never Enough Magnetic Mounts”.  The author was calculating how much money you’d save if you invested in some magnetic strips to make finding tools faster and easier.  Here’s an excerpt from the article:

Hourly Pay Rate = $15 ($0.25/minute)

Time spent looking for a tool = 5 minutes

Times per week looking for a tool = 3

With these numbers in place it costs nearly $200 a year in lost time and money simply searching for a tool ($0.25 x 5 mins x 3 times a week x 52 weeks = $195). The math doesn’t lie so lets get some part numbers:

McMaster-Carr:

Magnetic Mount – $20 – 6613A24

Allen Wrench Set – $15 – 5709A52

Good Scissors – $9 – 7091A16

Box Cutter – $5 – 4927A11

Screwdriver Set – $14 – 5791A51

Spending about $70 will save time and $200. Did we miss anything?

YES!  But I don’t disagree with the recommendation, only the justification.

To determine if an investment of $70 is worth it, I would NOT calculate the cost savings as done in this article.  Why?  Because the reality is that your going to pay your people their hourly rate regardless of how they spend their time. You won’t actually get a reduction in their hourly rate. Saving time is NOT …

reducing job shop costs.

Instead, I would estimate how much additional Throughput you’d generate due to being able to reduceTime-is-NOT-money or eliminate time wasted looking for tools.  For most job shops and machine shops Throughput is sales minus raw material, outside processes, freight, and sales commission (if any).  Throughput is similar to margin but without direct labor.

Increasing Job Shop Throughput

For example, if you could ship one more $500 job per week and the Throughput on that job is $375, then you would easily and quickly recover the $70 investment with first additional job shipped (and paid for).

BUT BE CAREFUL!

When you’re considering how much additional Throughput you’ll get from an investment you have to be REAL.  If you put these magnetic strips at a non-constraint, the additional Throughput will be ZERO or very low. However, if you speed up your constraint, you can and will be increasing job shop throughput!

Job Shop Scheduling

Making sure that you have all the tools you need is part of getting “full kit” in Velocity Scheduling System.  VSS is for highly custom job shops and machine shops.  It is a visual, manual scheduling system.  My experience is that it usually pays to have full kit before releasing a job.

Learn how — check out the “How to Get More Jobs Done Faster” webinar.  In 47 minutes I explain how and why full kit along with other things can help you increase your Throughput with the same people and resources.  This, of course, means that your profits will increase.  And isn’t THAT really The Goal?

Wishing you success!

By Dr Lisa Lang

This article is copyrighted by Science of Business, Inc. All rights reserved.

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{ 2 comments… read them below or add one }

John Mackness

Absolutely ‘spot-on’ mini-case from Dr. Lisa but it’s much harder to get people to think throughput rather than cost savings when evaluating investments. It’s in their blood!

Reply

Nabil

Very clear and well explained.

Reply

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