Showing posts with label 90s Recollection Part 5. Show all posts
Showing posts with label 90s Recollection Part 5. Show all posts

Tuesday, 15 January 2013

90's Recollection Part 5


From mid 1993 to mid 1997 I moved to western Canada, where I led the operations of two plants.  One was located in Kelowna, BC and the other in Medicine Hat, Alberta.

Entering into the Class A Trucks & Waste Disposal Equipment industry was a whole new experience for me.  Eighty percent of our business in the Kelowna plant was for low volume heavy-duty parts and components on Class A Trucks and the assembly of aluminum built sleeper cabs.  The remaining twenty percent of our business was custom fabrication.

The Medicine Hat plant had three main product lines;  Industrial Garbage Containers (as seen behind every business unit), Intermodel Containers (used to ship goods, from 20’ to 48’ in length), and Front & Rear Loader Garbage Trucks.  To be more specific, we would receive the chassis and build the body onto it.  These three product lines were low volume orders. (approximately 1500 garbage containers per year, 100 to 150 intermodels per year and 10 to 16 garbage trucks per year).

Until I moved out west, I thought I had seen it all.  Was I ever wrong!  The plants were in great need of improvement and I loved the challenge.  All I had to do was take my manufacturing know-how and implement this into the processes used at these two plants.  This was a great opportunity for my career.

I hired four people from eastern Canada to join our strong existing team in Kelowna. They were Paul, Tara, Murray and David.  The local team was Mike, Don, Dan, and Paul.  Together, we started implementing best practices and continuous improvements.  Initially, our new team had some hurdles to overcome since East and West had different approaches to manufacturing methods.  East coast having more experience in assembly plants with larger volume products and West coast being more familiar with fabricating one-off.

We invited a facilitator to assist our team.  His name was Joe Cyr.  (A talented man that I worked with in the past and respected tremendously). 

Our goal was to eliminate the internal East Coast/ West Coast competition and build one solid team.  We started with one product line at a time.  We asked our production manager to write out all steps involved in producing this product from the time   raw materials are received, to the time it’s shipped out as finished goods.  Showing detailed movement flow on the plant layout.    

I still recall hearing Don’s statement when he saw the documented steps on paper.  “I just wasted $20 on gas and the part hasn’t even been shipped to the customer”.

This project was very successful.  We received recognition from our customer for quality, delivery improvement and competitiveness.  This resulted in a significant increase of business as the new driver cab was stamped and partially assembled in our plant.

Thanks to our General Manager Tara’s great leadership skills, the plant achieved shareholder expectations and received recognition from Kenworth, Peterbuilt, Freighliner and Western Star.

The plant in Medicine Hat went through a total transformation in a short period of time.  Our objective was to expand the manufacturing and assembly of the garbage trucks.  We knew our intermodel line was getting more and more outsourced to the far east and we needed to react in order to replace this business.

As we started focusing on the front loaders, we obtained feedback from our customers.  Weight, quality and reliability were their main concerns.  We needed to take this into consideration moving forward. 

The first step we took was to design and engineer a front loader that could go from 32 to 38 feet in length.  All components needed to be modular for ease of assembly and we set an objective for our trucks to be 2000 lbs lighter than our competitor’s in each category.    

The second step was to build work cells for making different components with quick length modification and an assembly line that allowed us to start and finish the assembly of main components, hydraulics, electrical, surface preparation and painting.

From time to time, our Kelowna team pitched in to assist the Medicine Hat team. I hired Dr. Gabi Balan to lead this project and later promoted him to our plant manager.  I must say that I’m very proud of his accomplishments.  This project was very successful and exceeded everyone’s expectations.  In 1994 we used to build 15 trucks a year and by the end of the 90s, Wittke was building 1000 trucks per year.

I’m proud to still see trucks on North American roads today bearing the Wittke name.


With ingenuity and determination, both plants worked together as a team.  I cannot recall all the names of our key people, however, I can definitely say we were a success and extremely competitive.  We worked through our initial hurdles and became one outstanding and dedicated team. 

Thank-you for your dedication!  It’s been 15 years and there’s some names that still come to mind that I’ll probably never forget. Mike Hall, Don Siebert, Ed Samp, Andy Marlow, Rick Hogaboam, Al Dare, David Lurie, Dan Allison, Dan Willms, Paul Plocktis, Tara Sangster, Marnie, David Lurie, Murray Francom, Paul Cairney, Nic Mendoza and Gabi Balan.

While working for Northside Industries, David Lurie produced an amazing video that he presented to our Northside team during our 1996 Christmas party.  I’d like to share this video with you and will post it later this week so that you can see our wonderful team spirit. 

Wednesday, 19 December 2012

Unit Cost Comparison for 5, 6 or 7 Day Work Week




Costing is a big subject for discussion since every company has its own way for pricing out their products.  Whichever method you use is a matter of personal choice.  What’s important is that your end price leaves you profitable and competitive. 

I strongly feel that maximizing equipment utilization is key to competitiveness and being profitable.  If volume and product requirements permit, run 3 full shifts, including the weekends.  Spread the workforce evenly so that no individual works overtime.

If your equipment is utilized 6 to 7 days per week without incurring overtime costs, you WILL maintain global competitiveness and be profitable. 

For example;
We have a 3,000 ton stamping press or injection molding machine with all the auxiliary equipment next to the machine that is needed for it to produce.  Total cost $1.5M.  Assume we have enough orders to utilize this equipment for 5 days, 3 shifts at 90% efficiency.  This will give us the following:

5 days x 24 hours x 48 weeks @ 90% uptime = 5,184 hours per year
6 days x 24 hours x 48 weeks @ 90% uptime = 6,221 hours per year
7 days x 24 hours x 48 weeks @ 90% uptime = 7,258 hours per year

I will try to simplify how to calculate equipment cost for this exercise as much as possible.  The important element here is to show you the relevance of the number of hours and days the equipment is being used.

Equipment cost is $1.5M and the operating cost for this equipment is as follows:
Calculating Hourly Rates for 1 Machine
Add line 1 to (18 to 26) = 13.015K/year ÷ 20 Machines = 650.750K/year
5 Days
650.750 ÷5184 hours/year
= $125.50/hour
6 Days
650.750 ÷6220 hours/year
= $104.60/hour
7 Days
650.750 ÷7257 hours/year
= $  89.70/hour
        
The above shows a drop in machine cost when working 6 or 7 days versus 5 days.

Keep in mind the 4 weeks of holidays per year and an additional loss of 33 days.  (This number of days is based on the equipment being utilized at 90%).

The graph below demonstrates total yearly hours when working 5, 6 and 7 days per week at 90% utilization versus total hours available per year.



Conclusion:
·      5 days = 59.34% equipment utilization
·      6 days = 71.20% equipment utilization
·      7 days = 83.07% equipment utilization
Below is an example of the impact of other costs that are greater than direct labour.  In each business case, the ratio between equipment costs, direct labour, variables, overhead, SG&A (sales and general administration) will change. 

Injection Molding Plant
Product:  Front & Rear Fascia (Front & Rear Bumper in TPO)
                                                                                                                                              Cost/Year
1
100K square foot plant @ $8/square foot  

800K
2
20 injection molding machines @ 3000 tons  
1500 K each ($30M investment)


3
3 Shifts operation, 5 days


4
33 Machine operators @ $15/hour
Direct Labor
950K
5
3 Supervisors @ 40K/year
Indirect
150K
6
3 Quality Inspectors @ 45K/year
Indirect
     165K
7
6 Material Handlers @ 30K/year 
Indirect
210K
8
3 Set-Up Operators @ 40K/year
Indirect
150K
9
4 Shipper/Receivers @ 30K/year
Indirect
160K
10
1 Quality Manager @ 65K/year
Over Head
75K
11
1 Production Manager @ 65K/year
Over Head
75K
12
2 Mold Makers for Tool Repair & Maintenance
Indirect
140K
13
6 Maintenance Technicians for all Equipment  
Indirect
390K
14
1 Tool & Maintenance Manager
Over Head
75K
15
4 Engineers
Over Head
280K
16
12 Office Personnel  (HR, Finance, Logistics, Purchasing, Sales, etc.)                                       
Over Head
720K
17
1 General Manager
Over Head
120K
TOTAL
80 Employees  Rent, Direct & Indirect Labour Cost

4460K
18
Spare Parts for Maintenance & Tools

2000K
19
All other SG&A

1500K
20
Property Taxes, Business Taxes

600K
21
Interest on $20M @ 6%

1800K
22
Principal Repayment

3000K
23
Energy

2000K
24
Fringe Benefits Insurance

915K
25
Insurance – Commercial

200K
26
Legal and Accounting

200K
TOTAL
                                     Operating Cost

12215K
TOTAL
 Total Cost

16675K
                                   


Summary of Direct Labour, Indirect, Overhead and Other Operating Costs
1
Direct Labour = $15 x 33(operators) = 950
950K/year
2
Indirect Labour  (Add lines 5 to 9 above) = 835
1365K/year
3
3 Overhead (Add lines 10 to 17 above) = 1875
1345K/year
4
Other costs (Add line 1 + 18 to 26)
13015K/year

Total Operational Cost per year
16.675K/year
Calculating Hourly Rates for Above (Indirect & Overhead)

5 Days
Number 1 + 2 of the above = 3.387.5 ÷ 20 ÷ 5184 h/year
= $32.67/hour
6 Days
Number 1 + 2 of the above = 3.387.5 ÷ 20 ÷ 6220 h/year
= $27.23/hour
7 Days
Number 1 + 2 of the above = 3.387.5 ÷ 20 ÷ 7257 h/year
= $23.34/hour

Production Assumptions for Quoting Purposes
Raw Material TPO = $12/pc
Cycle Time = 3 minutes
Uptime = 90% or 21.6 hours/day
Efficiency = 90%
18pc / hour molded

Calculating Part Cost


5 Days
6 Days
7 Days
1
Raw Material $12/pc                        =
12                        55%
12                 58.9%
12                       62%
2
Machine Rate 125.5 ÷ 18                =
6.9722                32%
5.8111         28.5%
4.9833            25.8%
3
Direct Labour 18.75 ÷ 18                =
1.0466               4.8%
1.0466            5.1%
1.0466              5.4%
4
Scrap
0
0
0
5
Indirect & Overhead 32.67 ÷18=
1.8150               8.3%
1.5127            7.5%
1.2966              6.8%
TOTAL

$21.8338
$20.3704
-6.8%
$19.3265
-11.5%

It’s clear to see the pattern of allocating the total costs over a larger volume hence increasing unit margins when operating 6 or 7 days versus 5 days.  As shown above, direct labour is one of the lowest costs.  I will go into further detail regarding this matter in a later post, once I’ve completed my recollections, as it will better correlate with present competitiveness and continuous improvements.