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SUBJECT: Production Systems -- Production Setup

ALPHANUMERIC IDENTIFIER:

BRIEF DESCRIPTION: Production setup activities support an operation’s need to manufacture a diversity of products on the same equipment. Since setups are non value added, firms should seek to minimize their impact on manufacturing capacity and flexibility. World class manufacturing calls for heavy focus on setup reduction activities to support inventory reduction, capacity debottlenecking, and manufacturing flexibility.

KEYWORDS: Setup, Changeover, Inventory, Flexibility, Lean

OVERVIEW:

The desire to limit capital expenditures in a manufacturing facility will drive its owners to seek maximum flexibility from the equipment used to build the product. Dedicated production equipment which also has idle capacity associated with it is not being used effectively, especially if other pieces of equipment are also sitting idle for the same reason. Shareholders, realizing that greater productivity and output can be garnered from the idle equipment, will demand that the owners of the business create flexibility in the equipment to support the manufacture multiple products. Once the firm achieves this manufacturing flexibility and eliminates surplus capital, the business will generate higher returns for its shareholders.

The mechanism that permits the execution of this strategy is the machine changeover, or production setup. Essentially a non-value-added process which consumes productive capacity, the production setup is nonetheless unavoidable, but something which every firm should seek to minimize in the course of their daily operations. Depending on the nature of the specific production process, the setup may be as simple as changing a drill bit, or as complicated as changing all tooling on an automobile assembly line. The time involved may range from seconds to weeks. Reasons for pursuing setup reduction activities include:

Inventory

The inventory benefits of being able to make very rapid setups are significant. Taking the argument to the extreme, if a firm could produce one unit at a time by instantly transforming its equipment to produce a different product, then, assuming adequate gross capacity, that firm would be able to exactly match its production schedule to its customer demand schedule. That is, following the traditional economic order quantity (EOQ) model, as setup cost approaches zero, so does the firm’s EOQ level.

Manufacturing Flexibility

The increasing use of just-in-time (JIT) supply practices as a vehicle to reduce inventories has real implications for firms’ manufacturing strategies. The need for quick response to demand patterns, often with little or no advance notice, motives firms to tune their production setup activities accordingly. Carrying forward the scenario of the firm with zero setup time, we can imagine how that firm can closely match its own production schedule with its customer’s demand pattern. The firm can now not only meet its customer’s JIT needs, but will also not need to hold large safety stocks to provide a buffer between the customer’s demand cycles and its own productive capabilities.

Capacity Debottlenecking

Industries or firms with high fixed costs, high costs of capital, or limited capital funds should seek to extract as much as possible from installed manufacturing capacity. For firms with high fixed costs relative to total costs (e.g. process industries) any freed-up capacity from existing equipment provides positive financial benefits since only insignificant variable costs (typically raw materials) are incurred for each new unit of capacity generated. For firms with high costs of capital, new capacity may be difficult to justify; setup reduction activities therefore may be the only viable source of free capacity.

Methods to achieve setup reduction include; (a) moving activities offline, so as to minimize equipment downtime, (b) insuring all necessary changeover equipment is ready before starting the production setup, (c) developing quick changeover fixtures and simple devices for attaching and aligning, (d) insuring proper sequencing of jobs according to process characteristics, and (e) dedicating equipment to products or product families to minimize the process differences between each job.

 REFERENCES: None

ACKNOWLEDGEMENT: This is a March 29, 1999 revision by Gene Goodson of an assignment for OM742 contributed by XXX Ktni.