How Much Money is Stuck in Your Factory?

Written by: Mr. Anuj George, Industry Expert

In the book, The Goal, Alex and his team narrowed down on three basic measures they thought would tell them how their factory was performing.

• How much money is going in the factory?
• How much money is stuck in the factory?
• How much money is flowing out of the factory?

In technical terms, the money going in the factory is operational expense whereas the money flowing out is the sales. And the money stuck inside your factory, is nothing other than Work in Process (WIP).
Somehow everyone keeps a track of inflow and the outflow of money but rarely is the money stuck in the factory accounted. Even if it is accounted, very few managers are be able predict threatening situation due to it.

What is WIP and why is it important?

WIP is basically any inventory which has begun the manufacturing process but is not a completed product. If we wanted to represent WIP in form of a formula it would be:
Actual WIP = input – output
WIP inadvertently is a very good cloaking technique. A higher WIP helps everyone to keep busy without actually increasing the production. Understanding the drags of having a higher WIP is important here, few of which would be:

• Not realising the pain areas of the production line,
• Having a higher reaction time to quality problems and
• Having a higher throughput time for orders.

Whereas having a lower than required WIP will result in drying up your line, reducing your production output, lowering your efficiencies and increasing your operational expenses. This makes it quite unprofitable for any manufacturing setup.

Running a factory with optimum WIP levels across all the departments makes it quite literally a balancing act on a tight rope. One of the major reasons of higher WIP in the manufacturing process are the variations in the output of different processes or simply put an unbalanced manufacturing process.

Suppose there are two processes, Process A & Process B, each producing at a rate of 50 pcs/hour and 100 pcs/hour. If process A is preceding B in sequence then B will never be able to produce at its highest capacity and there will be no WIP in between these two processes. If process B precedes A in sequence then at the end of first hour there will be a WIP of 50 pcs and will keep increasing every hour.

Every factory management in the designing phase tries and balance the manufacturing setup based on standard assumptions. This balanced state is even though planned with best assumptions will never be able to predict day to day variations and will result in abnormal WIP levels with progression in factory operations.

This results in a disrupted flow of the material through the setup, resulting in money being stuck in the factory.

How much money is stuck in a factory?

For the sake of deriving a functional depiction, let us consider a factory producing 25,000 denims every day, working for 8 hours with 1,000 machines. If we were to put a number to money stuck in this factory based on standard WIP assumptions, then the total money amounts to $ 2.33 Mn*.

Looking at this money from a process centre perspective, would give us a below picture.

These figures have been calculated only on the value of material and does not calculate the value added at each process centre for ease of calculation.

Is it possible to reduce the money stuck in a factory?

The level of optimum WIP of factory would be decided based on the functioning environment of the factory. Thus rather than quoting a standard number for all the processes, it is consequential to understand the underlying equation in deciding the optimum WIP.

Optimum WIP* = Failure factor + Transit time
*calculated in unit time.
In order to reduce the WIP levels in your factory you need to reduce either failure factor or transit time.
Failure factor: Failure factor is the unit time by which the process has been delayed historically.
Transit time: The time required for transferring the material from the preceding process to the current process.

Let us review possibilities in each of the process centres.

Fabric store

Fabric sourcing is one of the most time taking processes in the entire garment lifecycle.

This is a critical factor for a country like Bangladesh, where majority of the fabric is imported. Thus, ideally sourcing locally or from nearby places would help you in reducing fabric storage and throughput time.

A track of delays in receipt of fabric and transit time would help in calculating the optimum WIP and also understand if any reduction is possible.

Let’s take an example to calculate the optimum WIP for fabric store:
Assume a shipment of fabric takes 12 days to reach your fabric store from the supplier. Now, over the last six months there was a delay of 3 days on an average in receiving this fabric.

Optimum WIP = Failure factor + Transit time
So the optimum WIP for fabric store would be= 3+12= 15 days
Now, let’s also assume that the capacity of succeeding process (cutting in this case) is 25000 pcs.
So, the optimum WIP in terms of no. of m = 15 x 25,000 x (1.5 m/pc) = 5,62,500 m

Therefore, in this case fabric for 5,62,500 m should be the optimum WIP in the fabric store.

Cutting processes

Cutting room processes include working on multiple pieces simultaneously and thus inherently having higher WIP at each workstation/process.

Any delay will directly result in loss of production capacity, thus a proper priority for execution of order needs to be ensured.

Sewing processes

In sewing room, the factors need to be looked at two different levels. First at the loading station and second at each of the workstations.

A proper tracking of time yielded unproductive due to machine breakdown, operator absence, trim/material unavailability will give you data point required to calculate optimum WIP for each workstation.

Calculating WIP for sewing department will be a tricky part but also the most important. Assume a 60 machine line for denims producing 1500 pcs per 8 hour shift. At the start of the line the loading station generally keeps some WIP to manage delays from cutting floor. Assume receipt of cut pcs were delayed to the loading station by 4 hours on an average. Also for ease of calculation consider the off standard time for each workstation to be 15 mins. So the optimum WIP for a sewing line will be as follows:

Delay at loading stations + sum total of off standard time for all workstations
4 hours + (0.25 hours per workstation X 60 workstations)

Thus there should be a WIP of 19 hours in a line, distributed across all workstations. This means at any point of time sewing line should have a WIP of 3,562 pcs to run smoothly.

Finishing department

In finishing department, a huge WIP is accumulated due to a simple reason:

This same can be negated very easily by tracking the size wise progression of order throughout the manufacturing cycle.

Measures you can take to counter these factors
Understanding and tracking each of these factors in your factory and taking concentrated efforts to reduce them will enable in optimising your WIP. Also this exercise needs to be repeated after a stipulated time period to ensure the WIP levels are catering to the current manufacturing environment in your factory.

There are a lot of RFID solutions which can help you in tracking your processes. There are also solutions by ThreadSol, like intelloTrace, which provide tracking benefits to help you in optimising your throughput time by tracking all these factors with least human intervention.

*All figures have been derived from calculations of a standard denim keeping following points in mind:
– Cost of per meter fabric is $2
– 1.5 m is the fabric consumption
 

Source:  ThreadSol