Reducing Variation: Only Way To Reduce Cost

Hidden variation is what increases your costs. Permanently eliminating the causes of variation is the only way to truly reduce your costs.

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The goal of management is to achieve certain objectives. The way of smart managers is to intelligently manage risk. The means of intelligently managing risk is through reduction in variation in the processes in your control.

Variation increases your costs. Think about a chucker with a worker loading and unloading it. The greater the variation of time of the worker, the fewer parts will be produced at the end of the shift. The closer that the worker's 'cycle time' matches that of the machine, the greater number of parts at the end of the shift.

Variation affects more than just direct costs. Variation in yield can affect order patterns and thus scheduling. Variation in scheduling affects lead times, thus causing order quantities and frequencies to vary. Variability in quality, yield, scheduling and releases all cause more variability which causes risk to all parties to increase. Eliminating variability is the key to reducing risk and reducing the complexity of all the issues that we have to manage in our businesses. Here are 4 tips for reducing variability in your operations:

• Standardize materials and sourcing,
• Standardize work,
• Standardize gaging,
• Do not be seduced by 'Low cost' or 'Magic Solutions,'

Standardize materials and sourcing was the first lesson that I documented as a Quality Manager in the steel industry. Our VP of Purchasing was convinced that he could chase low prices to get profitability. However those low prices brought us non conforming material, huge in process rejections, and suspicion about the status of material that passed inspection. Not to mention short or late deliveries, or heroics to expedite replacement material, which increased costs. Failure to standardize sourcing exposes your processes to the full range of global variation. Lock in on a supplier and reduce your variation, risk, and costs.

Standardize work to reduce in process variation. I was involved in an investigation at an automotive supplier who blamed the steel for 'poor machinability.' This was truckload, round the clock, running on multiple machines business. And the fact that our steel ran above rate on five of the machines was conveniently ignored by the customer, who was fixated on the four machines that were running below plan. A quick look at control charts, tool replacement records and drill grinds on the four underperforming machines vs. the ones achieving plan showed major differences- variations that cost the customer a production shortfall on four machines times three shifts. It wasn't the Steel!

Standardize gaging. Actually this is a subset of standardize work. Let's go back to that chucker job. If there are multiple ways to gage the part on the bench- say an assortment of mikes and calipers- the decision over which to use could cost the operator a second or two with each part to be gaged. That means fewer parts per shift. Increasing cost per part.

Do not be seduced by 'Low cost' or 'Magic Solutions.' Remember consistency is the goal. How does throwing more variation into your operations improve consistency? Alternative materials, tools , or methods should be proven by testing before being adopted in the shop. Failure to control the self inflicted variability of 'New,' 'Cheaper,' or 'Magic' improvements have increased shops costs far more than the routine normal variability of your existing source. Careful experiments can be an important way to discover better processes, but reckless adoption of unproven inputs will assure increased variation, increased costs, and missed deliveries.

Variation is a synonym for risk, increased cost, missed deliveries, and loss of customer confidence. Variation can require you or your customer to increase order quantities, increase order frequencies, only to dramatically cause orders to be cancelled. How do you intelligently manage risk? By intelligently reducing variation.

P.S. You can buy the T-Shirt at Zazzle (Photo credit)

Editor's Note: CR4 would like to thank Milo for sharing this blog entry, which originally appeared here.