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SMTA Toolbox: No Free Lunch, But Everyone Wins
December 31, 1969 |Estimated reading time: 4 minutes
By Ron Lasky
It’s a dream come true. You no longer have an unreasonable boss to harass you every day... you have bought your own business. Your small board assembly shop is located in a quaint New England town. The workers are reliable, and because all of your customers have high-mix, low-volume orders, there is little concern for competition from China. In addition, electronics is only about 10% of the value of your customers’ final product, so as long as you provide good service, they won’t look elsewhere. You’re also within 30 miles of 80% of your business. Also, according to the numbers, your business is good with sales at $11.1M and profits at $1.3M.
On your first day as owner, your secretary takes you around and introduces you to the 20 or so people on the payroll. Your morning is occupied with briefings from your procurement manager and salesperson. All of the news is good. Your lead engineer is at the SMTAI meeting in Chicago learning about the status of lead-free initiatives and how to perform cost estimating. It seems a little strange to you that an engineer would be interested in cost estimating. But, everyone tells you how terrific she is, having been educated at the prestigious Thayer School of Engineering at Dartmouth. You look forward to meeting her.
After lunch, an operator comes in to see you. He tells you that the other operators are excited about having a new owner. Always nice to hear, but it is clear that he has a request to make. The operators are currently working 10-hour days, six days a week. While they like the overtime pay, they miss having lunch together. He’s wondering if they could shut down the line over the lunch hour. You think about it briefly and agree. You are a tough businessperson, but you do have a considerate side. Besides, business is great. The operators can probably make up the time by working a little harder. As your happy employee leaves the office, you feel pleased. You head for home feeling satisfied. Being the boss sure is great.
The next morning, your secretary says that your lead engineer is back from Chicago. But you don’t have to invite her to see you because she is already standing right outside your office, fuming. “What do you think you are doing?” she asks. You invite her into your office, hoping that the crimson hue in her face lessens a little. You try to remain calm, but she still is still upset. You remember Steven Covey’s words of advice, “Seek first to understand, and then to be understood.”
Your engineer starts by asking you if you know that profits are $1.3M annually. You politely correct her, saying that the right number is actually $1.317M. She then hits you with a stunner. “Did you know that by letting the operators shut down the line for lunch, company profits will plunge to $194K?1” You practically fall out of your chair.
She then offers an explanation. It seems that she has cost modeled your company using cost estimating software. As with most companies, your line uptime was only 25%. When losing six more hours per week by shutting down for lunch, your uptime productivity takes a big hit. Your engineer has been studying your setup time and thinks you can save two hours per week if you add another operator instead. By adding one more operator, she was able to develop a “skeleton” crew scenario to keep the line running through lunch. Using this approach, the operators will only miss lunch with their friends once a week. Because the setup time is reduced by two hours per week, you can not only afford a new operator, but you can also give all the operators a 10% raise while still improving profits by $300,000. It’s hard to believe, so you ask for a demonstration.
Figure 1. ProfitPro output shows that profits collapse after shutting down for lunch. It is, however, better than the starting point, even when workers receive a 10% raise, if we meet the reduced setup time and use a skeleton crew for lunch.
According to the costing software, any increase in productivity results in an exponential increase in profits, because you make more products to sell. Also, all of the products will deliver a higher profit margin (Figure 1). You agree to the plan. Later, you hear that the operators are thrilled with the raise you’ve implemented to offset the one day each week they need to work on the lunchtime skeleton crew. Looks like everyone wins...including your bottom line. It’s no wonder you’ve always been impressed with engineers.
- Profitability numbers are actual calculations using a cost model of the business and the software ProfitPro. Small amounts of additional uptime can effect profits.
Ron Lasky, Ph.D., PE, an SMT Editorial Advisory Board member, is senior technologist at Indium Corp., as well as a visiting professor at Dartmouth College. Contact him at (508) 930-2242; e-mail: rlasky@indium.com.