EOQ = 0

When UE, my former company, revised it’s idea system to recognize “small” ideas, there were many entries from production employees suggesting part simplification.   Someone would note, for example, two screws differing in length by 1/64”.  The longer screw could be used everywhere the shorter was required.   Or two screws, one with a slotted head and one with a Philips head, were used on the same product.  These “small” ideas are obvious to the folks on the shop floor but hidden to everyone else. 

As the number of these idea submissions grew, engineers began to complain:  “Drawing changes are expensive and time consuming, and the parts only cost a penny anyway.”  Drawing changes are a topic for another post.  But the pertinent misunderstanding regarding the part was that low cost parts, so-called C-items, like fasteners did not merit attention.   Nevertheless, once the concept of part simplification was unleashed, ideas flowed in for nearly every commodity: labels, resistors, o-rings, switches and all manner of machined parts.   On the floor, this part simplification also simplified product assembly (fewer tools, fewer stockouts, fewer storage locations), but detractors pointed out the relatively nominal impact on inventory levels for these penny parts.  The problem with conventional cost accounting is that it focuses only on functional cost.   

In 1989 during a Shingo Prize site visit to my plant (the very first visit for the Prize), George Koenigsaeker dropped a recently published book in my lap entitled “Variety Reduction Process.”   I recall that he may have said something like,  “This is an idea whose time has not yet come, but it may be useful to you.”   He was right on both counts:  First the time for variety reduction process (VRP) has apparently still not come, twenty years after the publication date of the book.  In fact, I think the book is out of print, and there are few Internet references to the topic.  Second, while the text describing it was cryptic and incomplete, VRP was extremely useful because it placed the many part simplification ideas we were implementing into a systematic framework.

An adequate description of VRP would violate my 5 minute read rule, so I’ll provide a Reader’s Digest version.  According to VRP, there are two additional costs beyond functional cost that should be attributed to parts and processes.   The first, Variety Cost, describes the cost arising from multiple mousetraps, i.e., multiple similar versions of the same part or process that provide the same function.  The second, Control Cost, describes the overhead-related activity (things like drawings, inspection, ordering) to maintain excess variety.    Excess variety may arise from value engineering of a part. For example, four different machined parts with identical dimensions: one is made from stainless steel, another from aluminum, one from brass and yet another from brass that is then nickel-plated.  Each part may be designed to optimize the functional cost of the part, trading piece price against robustness.    Consider for a moment the number of machine set-ups and other supporting activities to build and stock these parts.  Yet cost accounting models ignore variety and control costs.    In fact there are many other causes of needless variety that are never questioned, because the accumulated costs of this condition are not measured.   

Within a given commodity, variety may expand unbridled without detection.  VRP systematically exposes the condition. For example, using the VRP process at my former company, we identified twenty-seven different O-rings used in our products.   Specific VRP techniques reduced the actual number needed to five.   In another example, the number of different lead-wire assemblies was reduced by more than half, just by changing the product specification from “12” lead-wire outside enclosure” to “at least 12” lead-wire outside enclosure.”   This variety reduction was transparent to the customer.  Functional costs for individual parts sometimes went up slightly, but sometimes were also reduced through true economies of scale.  However, the bottom-line for all product sales also magically rose.   I like to say that for the parts we eliminated we had “reduced the EOQ, economical order quantity, to zero. “ 

How many parts or processes in your workplace can you think of that could have an EOQ=0?   This thinking applies to processes and machines as well as parts.  And the administrative opportunity can be as great as in production.   Take a look around. 


This entry was posted in old lean dude, TPS, lean manufacturing, GBMP, Toast Kaizen, safety glasses, kaizen, hoshin kanri, TPM, 5S, true north, poka-yoke, optimization, toyota production system, inventory, made in america, Muri, shigeo shingo, made in the usa, value stream mapping on March 04 , 2011.

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