Lean Principles Applied – Creativity before Capital

In most manufacturing projects, Capital Funding (Corporate funding, usually independent of a plant’s budget) can be critical to its success. However, all too often, when an operation begins to tap into outside funding, it loses its ability to focus on internal improvement. It is widely known that at Toyota, the plant is expected to achieve the last 15% of their productivity as part of the plant function. Even though Toyota is seen as a benchmark in so many ways, this culture of plant expectation and expertise is still very uncommon through various manufacturing industries.

The key to success in a new launch is to FIRST do all that can be done internally BEFORE asking for additional funding. At DIG (Dynamic Improvement Group) when we are working on a project that requires additional funding, building a kaizen presentation with a positive benefit to cost ratio to show why the funding is necessary is critical to securing the funding…but it isn’t the only thing required for success. Before asking for the funding, we need to show that we have done everything possible to improve the process before asking for any additional funding. Only after all other avenues have been exhausted, do we then raise our proverbial hand and ask for help?

There are times where the work that has been done is enough to meet customer expectations, and the capital funding isn’t required unless there is an uptick in sales or another metric that will drive the need to increase production. This allows the plant to have a lever that they can utilize when the time is right…but there is one thing about Capital Funding that is often not discussed and needs to be remembered when considering asking as a Plant Manager or Project Launch Coordinator – Depreciation.

Typically, the plant budget is in the corporate spend structure and does not have any implications beyond spending within the limits provided. However, when you ask for Capital Funding, it can haunt a plant for decades. As an example, let’s say your robotic cell can produce 20 units per shift, but by adding 2 additional robots for a total of $500,000, you can increase production by 10%. On the surface, the uptick in sales and profit appears profitable because the $500K is coming from corporate so it will not impact the plant negatively…. but it is not so simple. If the corporate team sees a robot as a 10-year asset, that means the plant will likely be accrued $50,000 depreciation cost per year for this additional funding. Depending on the profitability of the product, it may or may not be a smart investment and must be accounted for when considering the improvement.

To be successful when it comes to funding, always account for depreciation and when asking for help, make sure your team has done all it can do within their own control before escalating.

 KEYNOTE: If you and your team are denied the funding, but then find an alternative solution to the problem, it could be seen as a lack of leadership and business acumen…never a good thing.

Key Questions for you to think about in your organization

Q1.  Can you get cycle time improvements in your processes without spending money on software upgrades?

Q2. How do you show your company that you have done all you can do for scrap reductions before you ask for capital money?