SMED vs EOQ - The Customer Makes The Difference

The way you have explained the things here, the same way it should be explained to customer, he will definately understand the problem. If the quantity is very less than you should ask for setup cost or it should be included in the starting during quotation.

While costing the qty plays a major role.

If still he is not agree then politely refuse the part.

Exactly, however fast you react, some customers will just use it as an excuse to slacken their procedures and expect you to react even quicker still.
Why should he bother to plan or hold stock when he can bamboozle you into taking the hit.
Customers eh?
Can't live with 'em, can't live without 'em.
Del

How much would it cost you to hold the extra 900 pcs in-stock until the customer ordered again? Do you have the space? Consider this, set-up reduction as a profit tool. Cost the set up fees in your quote or amortize thru the part cost. Then reduce the set-up time, there by reducing internal cost, and increasing your margin. Some customers would expect you to share these savings, some will not.

The question of SMED vs. EOQ is never an easy one. Here we often run into 'special requests' or 'service' parts that require a tear-down/set-up/tear-down cycle. We capture those set-up costs in the pc. price and recoup that way. However SMED is prevalent in this facility and has proven to be a very effective way of doing business.

How much would it cost you to hold the extra 900 pcs in-stock until the customer ordered again?

Well it costs me 9 times my cost of material over the cost of the material I actually have a committed order for, plus the cost of 9 times the labor and 9 times the overhead share, PLUS my cost of capital for each month the parts sit there... So making more parts to cost 9 times what i'm actually being paid for, with all the risk of damage, theft, engineering change,and potential obsolescence or customer bankruptcy and expense is a steep wager that will destroy my cash flow in very short order. I'd have better odds in Las Vegas,...

Remember, there is no obligation for the customer to take those parts ever if I make them on spec, just to lower my "unit cost", with no assurance that there will not be an engineering change making those parts obsolete.

I know shops that have done this, I have seen their assets liquidated at auction, including former customers trying to buy "their parts" on the cheap...

Milo

"Then reduce the set-up time, there by reducing internal cost, and increasing your margin."

I agree that one should always pursue savings, and any setup savings institutionalized will permanently accrue to the bottom line.

I said as much in my post.

However getting some overbearing purchasing a$$4073 to point out that we might save a bit on our setup, when it is their order quantity that is the real determinant of scale, machines chosen to produce the part, tooling selected, General purpose vs special purpose, etc., and setup time required is what my point is.

Asking us to send people to their officially sanctioned SMED training academies which cost more than potential profits of their newly flaccid order book is more insult than "service."

I am not against cost savings.

I am against a$$4073$ pointing out "the spec in my eye" of setup time, while they have a log in their own of failure to understand that their supplier has an EAQ Economic Acceptance Quantity that they fail to consider in their solitary fixation on reducing their direct costs, instead of looking at the supply chain cost reduction as a whole...

This is about purchasing agent's lack of courage, lack of committment, and the dumping of risk onto suppliers. Not really about costs. Costs are the sheeps clothing that this particular wolf chooses to wear.

thanks dcapps4140 and everyone else for the thoughtful comments

Milo

I what you have described in numbers is correct. How do you convince the customer to sit on an inventory of 900 hundred. If he only needs 100 now. The additional cost of the set up time doubles the cost of the part. Which he has to compensate for in the cost of his product.

With this slow economy were a customer will not be able to move the larger quantity as he had done before. He is faced to reduce cost and overhead. One is the inventory.

The setup time is 480% of the actual process time to make the parts. 480/100= 480%

Something's wrong with the math here. Wife's got dinner ready, I'll be back in a little while.

The math is correct.

please note the difference between set up time and operating time.

Setup time is 8 hours of 60 minuteseach or 480 minutes; operating time was 1 minute per part times 100 parts.

Milo

I think his math is right. It's the concept that the customer should order enough parts to make his cost work out that has me worried. For example, go to the store and be told that in order for the soda producer to make his financials you need to by 1200 cans of soda instead of the 12 you actually want. You won't do it! Will you?! Nope, you are going down to the next store and buy the 12 sodas that you really want.

When a customer has repeat orders, or can project a known quantity for a given period is when the pencils need to come out and figure out a blanket PO with specified releases.

For the typical machine shop though, this won't be an option. This is where set up reduction can save the day. This is why a lot of customers go to this type of cost savings first. A lot of time they will even pony up and share or cover the costs of better fixturing and tooling to make this happen.

Yeah but that's why we have distrubutors as well as manufacturers.
You don'tgo to the bottling plant for your soda, you don't even go to the distributor! You go to the stockist.
The price you pay for cutting out the middle men is buying a decent quantity.
Del

The setup time is 480% of the actual process time to make the parts. 480/100= 480%

Setup time= 580/480=Approx. 83%

Reducing the set up to 4 hours set up, its now 240 minutes set up time plus 100 minutes to produce total 340 minutes or 3.4 minutes time per part. The setup time is now just 240% of the actual process (Cutting) time.

Setup time=340/240= Approx 71%

Savings= Approx. 12%

Am I reading this wrong?

If your customer orders 1000 pieces and can only sell 100, there is no savings, in fact he will have to pay tax on the excess inventory.

We needed a standoff 3/8" od x 1" length, threaded for 1/4"-20, of aluminum stock.

A hardware supplier quoted us $6.00 ea at 50 qty down to $0.75 ea in 1000 qty. I can certainly see where Milo is coming from in his discussion. So it would cost me $750.00 to get stock to last us 2 or 3 years. PLUS the standoffs would need further machining in house before we could use them. We decided to make the part entirely "in house"... maybe not as elegant and as exact as the hardware supplier, and probably not as fast, but it works.

Bill