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Achieving Lean Changeover by John R. Henry

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19
Chapter 2
Changeover Costs
Knowing Your Costs Is Critical
Many plants do not seem to know their costs of downtime or changeover
time. This lack of knowledge makes it hard to justify the necessary expenses
of reducing changeover or evaluate the results after. This forces justifications
to be made in terms of “an investment of X dollars provides a return of Y
minutes.” Absent a conversion factor for minutes to dollars, it is very hard to
convince management to spend money.
A key first step in any changeover program is identifying the costs of
changeover downtime. In general, they will be similar to the costs of any
other downtime, with perhaps a few differences such as labor costs and
costs of product used during setup.
Example: A project proposes to reduce changeover time by 10 minutes
per day by purchasing an additional set of changeparts at a cost of $50,000.
This will allow externalization of parts cleaning. Management is likely to
look at this, think “It’s only 10 minutes,” and disallow the expenditure. They
would probably be quite right to do so on the evidence presented; 10 min-
utes does not seem very significant. If the cost of changeover downtime
has been established to management’s satisfaction as $12,000 per hour, this
means that the additional set of parts will produce a savings of $2,000 per
day or $500,000 per year (based on 250 days per year). Management will
likely be thrilled at the one-month payback.
20 ◾  Achieving Lean Changeover: Putting SMED to Work
The dollar cost must come from the finance or accounting departments.
Engineers, production managers, operations specialists, and others can
certainly make the calculations and they will generally be correct. This
does not prevent them from being viewed with suspicion. Unless the costs
are calculated by, or at least reviewed and approved by finance, they will
never be viewed as ofcial and it may be difficult to get them approved in
justifications.
If it is not possible to get a dollar figure from accounting, an alternative
is to express the time savings cumulatively. If an improvement will eliminate
10 minutes daily, this does not look like much. Express it in annual terms
and it becomes quite impressive. Ten lost minutes per day is more than 1
shiftweek of lost production per year (10 minutes × 250 days/60 minutes/
hour = 41.6 hours). Is gaining an additional week of production capacity
worth $50,000? This is an easier decision for management to make than
deciding whether 10 minutes is worth $50,000.
Changeover costs take two forms, tangible and intangible. Tangible costs
are those that are relatively easy to measure quantitatively. The cost of labor
involved in changeover is a tangible cost and is the product of the number
of teammates involved times their hourly costs. Intangible costs are costs
that are difcult or impossible to assign a dollar value. That does not mean
they are less important than tangible costs. In some cases they may be even
more important in terms of amount and impact on the business. Intangible
only means that they are more difcult to quantify.
Any discussion of costs in a book such as this will be of necessity
generic. Not all factors will apply to all plants. A plant that is running at 50%
capacity utilization will see little benefit from increased capacity. Their met-
rics might actually show a decline since the utilization would be on a larger
available base capacity. Other plants might have additional costs not covered
here. This discussion is presented for illustration of some of the more com-
mon costs of changeover.
WIIFM
A potential issue with lean changeover (LCO) programs is that the team-
mates, especially those on the floor, may see it as an additional imposition
on them. They can see the benefit to the company in the form of reduced
costs and increased profit. It is harder to see how it benefits them. LCO
project leaders always need to look at each team member and imagine the

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