Yield (or Scrap) Targets

To improve yield or reduce scrap is on the face of it a good thing. But what could be the consequences?

Corporate Policy

The corporation, a multi-billion corporation, requested their internal consultants to calculate what yield (or scrap) was costing the company. A 1 billion€ corporation with materials costs of 50% of turnover and a 85% materials yield could save 75m€ if 100% yield were achieved. Every %age point yield improvement would add 5m€ to the bottom line and increase return on sales  .5%. Not a bad result if profits are at about 10% of sales.

So, the corporation decides that all factories should improve their yield by 4 per cent in the next forecast period (next year).

Polymer Factory

The polymer factory of this corporation received the dictate from corporate and wondered how they would be able to meet the targets set by management. It turns out that the majority of polymer produced by this factory is one of 3 colours – white, black or natural. These 3 products already have very high yield or low scrap rates – not much was possible here. However a sizeable part of production was for polymer pigmented in many of the colours of the rainbow. Each of these colours was produced in small quantities and therefore had correspondingly low yields and high scrap rates. Maybe the solution lies here – improving the yield of all these small volume products would allow this factory to achieve their target. But how could it be done?

The machines of the factory are all sized for the three high volume products. These machines, while used to produce colours are not suited for that job. Set-up losses are simply too high. What the factory needed was small machines for small production runs. However because funds for investment were not available the factory could not invest in such machines.

Factory management was in a real bind – with the available equipment and given the product mix they had to produce yield improvements were impossible. At the same time not to achieve improvements was also not an option.

The Factory’s Solution

The factory’s purchasing people had already developed a series of suppliers; as a safety valve should demand exceed capability. The solution was therefore simple. Since these potential suppliers all had smaller equipment production of colours was outsourced to them. The yield targets were achieved, BUT… The added outsourcing cost outweighed the yield savings by about 1m€/year.

The factory could not reduce their operating expenses so their operators were standing idle more often – when colours would have been produced. The suppliers charged for their work – since a small machine takes as many operators as a large one, and since these suppliers want to make money the price for the outsourced production was high – therefore the negative impact.

What are the ugly policies at work here?

When I was young!!!

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