CHANGEOVER COSTS …

How many of you reading this know what your changeover costs are?
 
A survey in an FMCG company shows that probably less than 20% or so know how much a minute of changeover, or any other kind of downtime is worth. When we say “know” we do not mean a number that is basically pulled “out of the air” or even a value calculated by manufacturing or engineering. No, to be useful in planning and cost justification, the cost must be established by the Finance or Accounting Departments. Only if it comes from them is it “official”. Only if it comes from them will management accept it. Too many times people are seen trying to justify dollars spent with minutes saved. This is apples and oranges. Costs may only be justified by comparing dollars spent with dollars.
 
The cost of downtime can be calculated in various ways depending on the company’s fiscal philosophies and operational situation. Some may count just the cost of labor. Others may count the impact on output or capacity. Still others will look at impact on inventory. Most will look at a combination of these three. In addition to these tangible or quantifiable costs, there will be other, intangible costs. The biggest among these is likely to be the ability to provide the service levels your customers demand.
 
No matter how it is calculated, changeover is expensive. It is typically thousands and tens of thousands of dollars. Of those companies in which I know the “official” cost, the lowest we have seen is still over $2,000/hr. Even when it is only hundreds of dollars, it can still add up. E.g. One company that typically did 3  1-hour changeovers daily assumed a cost of $1,000/hr and was amazed to find that they were spending $750,000/yr on changeover.
 
(Three quarters of a million dollar$ does tend to open people’s eyes!)
 
So how much is changeover reduction worth? We also looked at it this way in the spreadsheet. For every minute that could be cut from the average changeover time, this company saved $12,500/yr.
 
I think that there are 3 reasons that many companies do not get serious about changeover.
 
First, there are still too many people out there who think like that it is impossible to make a serious dent in changeover so they do not see the point of going to a lot of effort to accomplish relatively little.
 
Second, they think that the monetary benefits of changeover are not significant. Even companies that make less than one changeover a day and consider their costs in the hundreds rather than the thousands are still spending fairly significant amounts of money over the course of the year.
 
Finally, they are afraid that in order to reduce changeover they will need to spend huge amounts of money. We all know that this is false. Significant reductions in changeover time can be had for little of no out of pocket expense. A great deal of reduction can be had from operation issues. Eliminate the time waiting for materials from the warehouse by having it staged ahead of time. Small things like fixed gauges, multiple photo-eyes, tool elimination can be done using in-plant resources and a few dollars from the maintenance budget. Even where capital expenditures are necessary, such as for custom change part racks, the total amounts compared to the dollars saved are peanuts. It is typically found that reductions of anywhere from 25-50% can be had for little or no capital cost.
 
We have to know our costs. It is the only way we will be able to justify a changeover reduction program. It is the only way that you will able to motivate the people who need to be involved: everyone.