MCPD System: Basic Concept

 31/01/2019
By Dr. Alin Posteucă
The Basic Concept of the MCPD: Definition, Phases, Steps, Basic Principles and Effects

As I have presented in previous episodes, Productivity Business Model (PBM) is the framework in which the MCPD system develops. Therefore, continuous identification of the steady growth directions of manufacturing profit, based on productivity gains, by reducing manufacturing unit costs and by increasing the sales volumes achieved and sold, requires the continuous development and implementation of a company-wide productivity master plan to translate the managerial vision and mission of productivity in specific and ongoing activities and actions to improve the production flow productivity for each product family cost (PFC), based on the ongoing recovery of productivity policy deployment.

Current Conditions and Challenge:

Often manufacturing companies have methods, techniques, and tools to tackle productivity and quality (TPS, Lean, TPM, SixSigma, WCM, and so on), but real improvement, continuous targeting of improvements to profit, and financial quantification of results are often left to be expected. Annual and multiannual profit level planning requires targeted planning of successive productivity improvements based on current and future state of sales trends and necessary manufacturing capacities – market-driven trends (customers, suppliers and especially competitors) and by the current state of the manufacturing flow.

Our Approach:

From the perspective of MCPD, the annual and multiannual manufacturing targets profit through productivity represents a predetermined stake, a stake of the strategic reduction of Cost of Losses and Waste (CLW) and for Critical Cost of Losses and Waste (CCLW). Typically, CLW accounts for 30-40% (sometimes even around 50%) of the total cost of a manufacturing company and we seek to target productivity improvements as close to the ideal cost or zero cost of losses and waste (CLW) as possible for each PFC and for all company.

The MCPD definition:

The concept of Manufacturing Cost Policy Deployment (MCPD) is defined as the process of translating the strategic objective of reducing manufacturing costs in the long run towards the improvement of annual systematic activities and towards annual systemic improvement actions by setting targets and means to improve process costs of families of products, in order to:

  • annual MCI targets and means setting for all the main processes of all product family cost (PFC);

  • fulfill the annual manufacturing improvement budgets (AMIB; both existing products and new products), by continuous investigation of the relationships between costs, processes, and losses and waste;

  • achieve performance of annual manufacturing cash improvement budget (AMCIB);

  • direct and plan the systematic and systemic annual manufacturing improvements through continuous reconciliation between the need to reduce costs and process-level opportunities for MCI;

  • engage the workforce to meet annual MCI targets and means;

  • measure and analyze performance for MCI;

  • achieve cost targets at shop floor level.

The MCPD System: the 3 phases and the 7 steps

The MCPD system approach is a structured approach, following the same 3 phases and the 7 steps, both at the company level, at each PFC level, and at the level of each kaizen and kaikaku project for Manufacturing Cost Improvement (MCI) (see the figure below).

Basic Principles of MCPD System

Going forward, the core annual and multiannual challenge of manager teams is to set targets and means for Cost of Losses and Waste (CLW) and for Critical Cost of Losses and Waste (CCLW) to consistently perform MCI for each PFC amid the compliance with the core principles of the MCPD system.

In the figure below, the seven basic principles of the MCPD system are presented:

Expected impact

The tangible effects of applying the MCPD system can be found both at the level of each PFC process and at the profit and loss statement (P&L) level due to the development and use of annual manufacturing improvement budgets (AMIB) for existing and future products and at the level of cash flow statement due to the development and use of annual manufacturing cash improvement budget (AMCIB).

Continuous support for the perennial results of manufacturing companies at the level of turnover, operating profit, product number converging to market share, quality, delivery and safety and morale to support Company Productivity Vission (CPV) and Company Productivity Missions (CPM) requires the development of Productivity Master Plan (PMP) for each PFC and for the overall company, irrespective of whether scenarios hypostases are stressing the role of external manufacturing profit through maximizing outputs (E) or increasing the role of internal manufacturing profit through minimizing inputs (I) and whether sales are rising or declining in one period or another.

The main tangible effects of the MCPD system:

  • Effectiveness of current equipment (E);

  • Effectiveness of new equipment (E);

  • Development of new profitable products (E);

  • Maximizing variable cost efficiency (I);

  • Maximizing fixed cost efficiency (I);

  • Continuously improving manufacturing lead time (I);

  • Continuously aligning processes to market needs (I);

  • Continually improving inventory levels (I).

All these tangible effects are found at the level of the continuous reduction of the average product cost of manufacturing imposed by the market (market share and manufacturing target profit) and, implicitly, at the level of the CLW reduction for:

  1. Cost of Equipment Losses;

  2. Cost of New Equipment Losses;

  3. Cost of New Product Development Losses;

  4. Cost of Human Work Losses;

  5. Cost of Material/Auxiliary Materials Losses;

  6. Cost of Maintenance Material Losses;

  7. Cost of Energy Losses;

  8. Cost of Internal Logistic Losses (assimilated to Equipment Losses);

  9. Cost of Waste: WIP from Set-up (WIP S);

  10. Cost of Waste: WIP from Transfer (WIP T);

  11. Cost of Waste: Raw Material Inventory;

  12. Cost of Waste: Finished Products Inventory;

  13. Cost of Waste: Components Inventory and

  14. Cost of Waste: Packaging Inventory.

Over time, the intangible effects obtained by the continuous and consistent application of the MCPD system are found at the level of:

  1. increasing people’s trust in the company in the MCPD system;

  2. increasing satisfaction for scientific planning of productivity improvements by involving all people;

  3. improving teamwork;

  4. continuous improvement of people’s knowledge about the manufacturing flow of each PFC;

  5. continuous improvement of contextual managerial behavior (Management Branding), etc.

So, typically, CLW accounts for 30-40% (sometimes even around 50%) of the total cost of a manufacturing company and we seek to target productivity improvements as close to the ideal cost or zero cost of losses and waste (CLW) as possible for each PFC and for all company.

The MCPD system warranty is to reduce annual manufacturing costs by 6% for 5 consecutive years.
What Do You Think?

What elements are needed for business leaders to have a great MCPD System to support the continuous improvement cost and culture at the shop floor level?

Dr. Alin Posteucă is the founder and CEO of Exegens®, a global consulting firm specializing in operational excellence, cost improvement and business performance improvement. He helps his customers create and implement profitable strategies and cost improvement programs that ensure a unit cost improvement of at least 6% per year for each of the next 5 years by maximizing the efficiency and effectiveness of operations.

He is the author of the Manufacturing Cost Policy Deployment (MCPD) concept published in three books at Productivity Press - Routledge/CRC. The latest, Manufacturing Cost Policy Deployment (MCPD) Profitability Scenarios, centers on his core belief that annual and multiannual target profit can be achieved regardless of the evolution of sales volumes, increasing or decreasing.