Investing in the future - Part 2:
Machinery  - Plant & Equipment

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In Part 1 we looked at the general framework for investment and included all of the things we invest in to run our companies. This section takes the specific area of machinery - the traditional investment area that we are all familiar with.

Machinery investment.

Investment in machinery should only be made in bottleneck areas - these are the areas that slow up production and restrict the total output of the factory. Bottleneck areas are relatively easy to find - look for the machines with work in progress (WIP) in front of them and you have probably found the bottleneck machine for that product. One problem is that the bottleneck machine or area moves as the product mix changes. The bottleneck area may be the gearing area when tilt and turns are being made but may be the welding area when complex casement windows are being made. Investment should be made in the most important bottleneck for your existing or proposed product mix.

Do not invest in non-bottleneck areas as these do not increase the output of the factory and do not increase your ability to make money.

New machinery.

Whenever new machines are installed there is initial decrease in productivity because of the learning and debugging curve, the length of this decrease depends on the complexity of the machine installed. Do not budget for an immediate increase in production output and deduct about 20% from the rated output of any machine to give a realistic expected output from the machine over a long period.

Small investment steps and small machines.

Machinery investment should give a close linearity between available capacity and demand. If you have a demand for 500 windows per week then investing in machines to produce 2000 windows a week does not make sense.

The traditional approach has been to invest in complex automatic ‘supermachines’ to improve efficiency and reduce labour costs. This view is that the technology can solve the problems by attacking the labour cost via increased investment. When the supermachines fail (as they must do at times) the whole line grinds rapidly to a halt and window production fails for the whole factory.

‘We can turn out windows in half the time with this new machine, but we have to because it's down the other half.’

An alternative view is that of investment in small machines and the use of work cells. When a small machine in a cell fails, flow can be switched to another simple machine or cell and the line or other cells keep on running. Production continues for the majority of the factory.

Small machines allow a closer linearity between capacity and sales and the capacity of the factory is increased in line with actual sales increases rather than with predicted sales increases. Supermachines invariably mean that capacity outstrips sales for some time. The major concern here is that in business the ‘costs are certain, but the sales never are’. If sales have been increasing over a period then the sales forecast will normally say that this will continue. The forecast then says that there will be sufficient volume requirements to keep a supermachine fully utilised. But sales are never certain, they sometimes tail off and the factory is left with overcapacity and a machine that never gets into it's stride.

Small machines spread the investment and can be timed as sales increase and finances allow. Close linearity between capacity and sales gives a well balanced factory capacity and is shown in the diagrams below.

Large ‘supermachines’ result in over-capacity immediately after purchase. If sales do not increase because of rising costs (which can sometimes be associated with the supermachine) then the over-capacity will become detrimental to the business. There is no linearity between capacity and sales.

Small machines are easier to fund, allow closer linearity between capacity and sales and investment and match the actual not the forecast needs of the business.

Small cheap machines also give other benefits:

The benefits of small machines show why some companies with relatively crude equipment outperform companies who have invested heavily in sophisticated equipment.

Flexible investment.

Investment in machinery should allow flexible production. Production demands will change with time and with the product mix. Investment in machinery should consider this at the planning stage. It is almost impossible to ‘future proof’ any investment but flexible production capability is essential in any factory, dedicated machines should only be considered if they are low cost and disposable.

Planned preventive maintenance.

Planned preventive maintenance is an investment to protect future production capability.

Look at your factory. Which pieces of equipment would stop the factory if they failed? How long would it take to get them fixed and how much would it cost? Don't just look at the production equipment but also at the support equipment. If you lost your compressor right now then what happens to your output, and when was the last time that you had the compressor serviced?

‘What's the noise I can hear in the background? Sounds like a sick compressor to me.’

When a component is required it must be produced - especially if there is little work in progress or inventory. This demands high reliability and fast repair possibilities for all machines. Operators must carry out routine preventive maintenance of machines in their care, this reduces machine breakdowns and increases operator involvement.

Investment in maintenance removes unscheduled stoppages and machines are available when required. Unscheduled stoppages cause problems by overloading bottleneck machines, increasing lead times, making production planning difficult and increasing scrap and re-work. Preventive maintenance should be planned into the schedule and planned machine utilisation should not exceed 80%.

Predictions can be made for breakdowns by history and performance measurements. Most machines suffer the same breakdowns repeatedly, a history helps diagnose the problem quickly and predict what is going to go wrong. Go for those repeated faults on bottleneck machines and provide tool kits and stocks of trouble prone items.

The Investment Series.

‘Investing for the future’ is designed to challenge your concepts and ideas on investment for the future. Various aspects of investment are considered and discussed. The series is:

Part 1: Introduction

Part 2: Machinery - Plant & Equipment (This section)

Part 3: Materials - Products

Part 4: Methods - Procedures and Processes

Part 5: Manpower - People

Part 6: Measures - Performance

Last edited: 11/03/10

Tangram Technology Ltd. 1998

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