EFFECTIVE COST CUTTING Time Equals Money
If you want to cut costs cut cycle times
Cost cutting is a requirement for a lot of companies not just those hit by the downturn in oil and gas. Automotive part suppliers often have an annual 3% price reduction built into the contract. The challenge for companies is how to cut costs without negatively affecting performance or shifting the cost from one part of the business to another. Cutting cycle times is one of the most effective ways to cut costs without degrading service or incurring unanticipated costs. And we don’t mean throwing additional resources at the process we mean working more productively.
Cost and cycle time are related, the longer a company takes to do a process the more that process costs the company. Reducing the cycle time for any activity and the cost of the process will be reduced and the company’s capacity will increase.
• Setting up and decommissioning a drilling rig. The longer the rig is on site and not drilling the more overheads you are being charged from equipment rentals, direct labor and supervisory cost and then the cost of the rig not be available elsewhere (if you had the need for it). The rig is only maximising ‘earning’ when it is drilling at full speed. Whenever the rig is drilling slower than specification, not drilling, being packed up or moved it is collecting costs. The opportunity for cost reduction is in reducing total cycle time.
• Responding to a quote request from potential customer. Quoting for work is an essential activity for any businesses. It is rarely an activity that customers pay for (they absorb the cost via overheads) in fact engineers, technical staff and others involved are often pulled away from value add, customer paying work they could be working on. Therefore the more man-hours a company spends responding to something such as a quote request the less man-hours it has available for customer paying work.
An effective method is therefore needed to be reduce cycle times and reduce costs without diminishing quality or requiring additional resources. A typical process to follow is to establish a baseline for the current process and ask how is it done now what are the best practices the company uses? Then ask; who does it quicker, what do they do and how do they do it?
1. Map the process; define what is done at each step. Capture how long it takes, what is the fastest it can be done safely, to specification with normal resources
2. Evaluate the process asking the following questions:
A. How much of this step is what the customer really wants us to do? (Value add versus Non-Value add)
B. How much unnecessary repetition, rework, movement and waiting happens? (Where is the waste)
C. What is the difference in time between the fasted we can do it and how long it normally takes to do and what are the causes (What is the best possible?)
D. What can be taken out of the process and done pre, post or off line? (internal versus external elements?)
1. Design the new process.
2. Test the new process, evaluate if it met requirements and redesign as required (Check)
3. Document new process, communicate changes, standardize for adoption (Act)
An Oil and Gas engineering company looked at how long and how many steps it took to provide a quote to a client and found it was taking minimum of 4 days except for rush jobs which could be done same day. Working through a similar process to above they were able to guarantee next day quoting and reduced the design engineer’s time required by 40% with no increase in time required by business development lead.