Observation #3
When we study processes, one of the first things we think about analytically is to break the process down into two components: volume and rate. These are the two main drivers of cost in any process. It’s very useful for helping identify what you need to focus on if you are trying to improve productivity.
Volume is simply the number of times you do something. We often find things are done more often than they need to be. To reduce the number of times you do something, we look at both the actual volume and the frequency. Common causes of unnecessary volume are basic over-production (e.g. building too many parts to optimize a machine run or producing too much food for a buffet), and rework usually caused by errors or inaccurate information upstream. In one large distribution company we worked for, most of the accounts payable work volumes and activities were correcting supplier invoice errors. For frequency, we challenge how often you really need to do something. We try to determine the degree of risk if you changed the frequency of an activity, for example, doing random quality checks rather than 100% audits of incoming parts.
“Rate” refers to the cost per unit. To reduce the required rate for a process, we focus on using less labor or material per unit. We try to achieve three basic objectives:
- Reduce the hours required by reengineering the steps or sequence of the process.
- Reduce the hours required by reducing the waste (or non-value added time).
- Reduce the material cost by using alternate suppliers or materials.
So to improve the productivity of any process, focus on volume and rate.
