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If large amount of capital were available at low interest rates,

what would manufacturing industry spend it for?

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Likely candidates

Computer systems for sending shop floor data to planners and cost accountants

Process Automation CNC machines Bigger, faster models of current machines Robots

Automated storage and retrieval systems

Automated inspection equipment

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Assembly Plant Characteristics(Averages for plants in each region)

J/J J/NA US/NA

Europe

Productivity (hrs/veh) 16.8 21.2 25.1 36.2Quality (defects / 100 veh)

60.0 65.0 82.3 95.0

Space (sq ft / veh / yr) 5.7 9.1 7.8 7.8Repair Area (% of assly area)

4.1 4.9 12.9 14.4

Inventory (days) 0.2 1.6 2.9 2.0Job Rotation (0=none, 4=frequent)

3.0 2.7 0.9 1.9

Suggestions (# / employee)

61.6 1.4 0.4 0.4

# of Job Classes 11.9 8.7 67.1 14.8Training of new workers (hrs)

380 370 46 173

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Questions Raised

Whether automation is the secret? Does manufacturability of the product

make the difference? Is product variety and “under the skin”

complexity the reason? Are the more productive plants focussed on single / few standardised products?

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Automation v/s Productivity

0 5 10 15 20 25 30 35 40 45 500

10

20

30

40

50

60

70

80

J / J J / NA US / NA NIC EUROPE

Automation (% of automated assly steps)

Pro

du

ctiv

ity

(hrs

/ v

eh)

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Automation v/s Productivity

0 5 10 15 20 25 30 35 40 45 500

10

20

30

40

50

60

70

80

J / J J / NA US / NA NIC EUROPE

Automation (% of automated assly steps)

Pro

du

ctiv

ity

(hrs

/ v

eh)

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Automation v/s Productivity

The hi-tech plants End up adding many indirect technical and

service workers Have a hard time maintaining high yield

because breakdowns in complex machinery reduce the fraction of the total operating time that a plant actually produces vehicles

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Engine Plant

Chrysler Trenton

Plant Size (sq. ft.) 2,200,000

Employment 2,250

Throughput (per day) 3,200

Inventory (days) Avg. 4

Robots 6

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Comparison of Engine Plants

Chrysler Trenton

Toyota Kamigo # 9

Plant Size (sq. ft.) 2,200,000 310,000

Employment 2,250 180

Throughput (per day) 3,200 1,500

Inventory (days) Avg. 4 Avg. 0.25

Robots 6

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Toyota Kamigo # 9

Equipped with 20 year-old machines Retrofitted Preventive Maintenance 8 – 4 – 8 – 4 Set-ups in two mts. Work Stations close to each other

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IBM

HV LC – IBM

3178 logic unit

Models One

# of suppliers Small

Part count Small

WIP reduction 24 to 5 days

Space reduction Sixfold

Labour reduction Thirteenfold

Robots Several

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IBM / HP

HV LC – IBM LV LC – HP

3178 logic unit PC touch screen

Models One Mixed

# of suppliers Small 2,000 to 200

Part count Small 20,000 to 450

WIP reduction 24 to 5 days 21 to 3 days

Space reduction Sixfold Fourfold

Labour reduction Thirteenfold Fourfold

Robots Several

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General Principle

Do not put equipment simply to displace labour Equipment cannot think

or solve problems; humans can

Equipment can be a problem; labour can be an opportunity

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Economies of Scale

The economy-of-scale “law” is: Bigger store, bigger restaurant, bigger

factory, bigger machine yields lower cost per unit

The six-tenths rule, viz. one large capacity line is better than two or more small capacity lines in the ratio six : ten

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Economies of Scale

A firm has a smash product – sales are on a fast incline

The company is hiring; overtime, extra shifts and weekend work are becoming normal; and delivery lead times are stretching out

Looming on the horizon are lost sales

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Economies of Scale

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 20180

100

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Demand Capacity

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Economies of Scale

Marketing projects growth in demand

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Economies of Scale

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 20180

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Demand Proj. Demand Capacity

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Economies of Scale

Decision is made to add capacity Engineering searches OEM’s catalogs;

selects latest large machines / lines – enough capacity for five years of projected demand growth

Machines are installed and debugged, which takes several months owing to the large machines’ complexities and needs for special utility hookups

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Economies of Scale

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 20180

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Demand Proj. Demand Capacity New Capacity

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Economies of Scale

With the installation of new capacity, backlogs and lead times melt

So does the demand

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Economies of Scale

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 20180

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Demand Proj. Demand Capacity New Capacity Actual Demand

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Economies of Scale

The new capacity utilisation rate takes a nosedive

Everyone is nervous Marketing is under pressure

Launch advertising campaign Cut prices Design and sell something that will keep the

capacity busy The machine has become the master,

dictating policy

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Economies of Scale

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 20180

100

200

300

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500

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700

Demand Proj. Demand Capacity New Capacity Act Demand Decision

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General Principle

More than one team, cell, line or machine is better than one

Add fixed capacity in small increments as demand grows