Competitive Supremacy through Cost Improvement

 30/10/2019
By Dr. Alin Posteucă
Manufacturing Cost Policy Deployment (MCPD): True Productivity Reveals your Hidden Profitability

The major challenge of top managers is to find the way to consistently obtain annual and multiannual manufacturing target profit regardless of the evolution of sales volumes, increasing or decreasing.

Manufacturing profitability through productivity and costs reduction is, and will remain, an eternal challenge to ensure perpetual prosperity in a global market.

Even though different approaches are used to achieve cost reduction, these approaches do not guarantee a reduction of manufacturing unit costs.

That’s why I have developed the MCPD system over the past 20 years of careful observation of the challenges, principles, and phenomena of manufacturing companies and the profound discussions with the people in these companies at all levels.

MCPD is the systemic and systematic manufacturing cost improvement methodology, with the full support of productivity science, to increase profitability through productivity. The basic goal of MCPD system is to ensure a sustainable competitive supremacy through cost-competitiveness improvement to achieve real structural profit reform based on productivity reform.

MCPD system has been applied for the last 10 years in more than 20 multinational manufacturing companies operating in highly competitive markets, in order to address the consistent reduction of unit manufacturing costs by improving the Cost of Losses and Waste (CLW). The manufacturing regime of the companies where the MCPD system was applied partially or totally is both in the process industry area (food, pharmaceuticals, processing of ferrous and non-ferrous materials), and in the fabrication and assembly industry area (automotive, electronic products, household appliances, medical devices).

The main challenges prior to the application of the MCPD system in companies were:

  1. the reduction of sales volumes compared to the current potential capacity,
  2. the unsatisfactory level of manufacturing profit,
  3. the continuous increase of price competition level and
  4. the need to increase the efficiency of investments.

Often, managers are making the following statements:

"We have reduced our costs to the most in the previous years and costs can no longer be reduced."
Production Manager, Automotive Company

or:

"Show me the money earned from kaizen projects and real cost reduction at budget and balance sheet level."
Plant Manager, Electronics Company

Therefore, the reasons for joining MCPD system are mainly related to the need to move from a conventional cost and budget approach and from an improvement approach based mainly on time and quality, to improving the way of consistently reducing unit manufacturing costs and increasing the use of current and future production capacities to ensure annual and, above all, multiannual target manufacturing profit, irrespective of the evolution of sales.

For those companies, establishing the vision and mission of productivity, defining the scenarios of growing or decreasing volumes of each product, modifying conventional cost and budget approach, more precisely identifying the CLW and building budgets to present CLW in their structure at the level of each process and product, articulation of company’s KPIs with MCPD specific KPIs (KPIs of losses and waste) is the relatively simple part of the restructuring. Changing the attitudes of all people and achieving their commitment, reducing their resilience to presenting CLW and the correct, complete and timely implementation of profitable kaizen and kaikaku projects to achieve annual Manufacturing Cost Improvement (MCI) goal is much more difficult to achieve. However, without the involvement and trust of all employees in all departments and beyond, setting targets and means for CLW at the level of each Product Family Costs (PFC) process to achieving annual and especially multi-annual MCI targets and means is practically impossible to achieve.

What measures have managers taken to achieve real employee engagement in the new MCI approach system?

Manufacturing companies have succeeded in successfully implementing the MCPD system due to the fact that managers have gone over autocratic barriers and have replaced them with a system of total involvement of all the people in the company and beyond, and have emphasized this way on the manufacturing flow and on CLW.

Firstly, the plant managers fully supported the MCPD program.

Secondly, under the guidance of the MCPD consultant, interdepartmental teams are often formed to:

  • determine the annual MCI goal and targets for KPIs of losses and waste cascaded down to individual PFC, departments, process and every employee was familiar with them;
  • address consistently the bottleneck process analysis to determine the behaviour of losses and waste, associated CLW and Critical Costs of Losses and Waste (CCLW) at the level of process of PFC in order to direct the scientific setting of targets and means for MCI;
  • address the cost reduction at budget and balance-sheet levels by using multiannual and annual manufacturing improvement budgets;
  • present the way of monitoring and continuously improving the MCPD system using the information centre, etc.

Thirdly, managers immediately applied annual MCI means and set annual MCI targets for means to achieve annual MCI targets converging to annual MCI goals based on an effective catchball process.

Finally, all employees actively participated in the correct, complete and timely implementation of profitable kaizen and kaikaku projects to achieve annual MCI goal.

The last two elements, the real involvement of managers and the active participation of all employees in the company and of all entities and individuals beyond the company often convinced the staff that management has changed and that their suggestions for annual MCI means targets are of great importance.

In order to carry out the improvement projects for MCI, management aimed at: continually and scientifically identifying in the manufacturing cost structure of 30-50% associated CLW and annual improvement unit manufacturing cost of at least 6% per year for the next 5 years; continuously improving overall management indicators; involving the whole workforce in kaizen and kaikaku for MCI targeting zero CLW and developing the basic capabilities of the shop floor level for MCI and daily cost management. For example, to meet the annual MCI goal in an automotive electronics company, a kaizen project for MCI achieved profitability targets by reducing the set-up time by 70% and another by reducing breakdown by 35%.

But the real effects of the MCPD system became more evident after the first 3-5 years of sustained work to achieve the annual MCI goal, and some of the most important results could be:

  1. reducing unit cost of products by reducing conversion costs of PFC by 30-50% by reducing costs of losses and waste;
  2. reducing unit cost of products by reducing the costs of work in process inventory of PFC by 30-40%;
  3. increasing labour productivity by lowering man*hour/product by 50-60%;
  4. increasing the flexibility level by reducing the average set-up time for the equipment and assembly lines by 60-75%;
  5. the average increase in Overall Equipment Effectiveness (OEE) up to 85-90%.

The figure below shows an example of MCPD implementation in a machine industry company:

Often, MCPD implementation projects must take into account the following key success points: (1) top management commitment, (2) top down activities, (3) capturing market, (4) full time project teams, (5) top down steering organization, (6) qualified project team, (7) CLW for each PFC, (8) correct and complete improvements, (9) access to information and people in production, and (10) professional consultants.

For companies applying it, the MCPD system is a way of life and a cost-reduction ethos at all hierarchical levels.  

I invite you to see details about the successful implementation of MCPD 👉here.

Thank you for your time! Do not hesitate to contact us for details.

Dr. Alin Posteucă – CEO, Exegens

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Dr. Alin Posteucă is a consultant in productivity and profitability, CEO of Exegens® and the author of Manufacturing Cost Policy Deployment (MCPD) and Speed-Based Target Profit (SBTP) concepts. His major research areas include manufacturing policy deployment, manufacturing cost improvement and visible profitability of operational excellence by improving productivity. His recent research includes the impact of Industry 4.0 on planning and developing synchronous profitable operations and on information systems of cost and budget in order to substantially improve the operational unit costs.

He has been actively involved in various industrial consulting and training projects for more than 20 years, delivering training/ workshop programs in Productivity, Innovation, Business Transformation and Leadership for over 5,000 participants.

He has a Ph.D. in Industrial Engineering and a Ph.D. in Managerial Accounting. He has an MBA Degree and a BA Degree in Accounting and Computer Science and he is certified Public Accountant in Romania. He has published in various research journals and presented papers at numerous conferences and congresses regarding Productivity, Profitability and Industrial Engineering.

Dr. Alin Posteucă is the author of Manufacturing Cost Policy Deployment (MCPD) and Speed-Based Target Profit (SBTP) concepts, published in four books at Productivity Press – Routledge/ CRC, New York (USA).