Cost Deployment (CD) is a highly effective analytical method designed to pinpoint, quantify, and eradicate the most significant sources of operational waste and inefficiency in manufacturing plants.
It is also an advanced communication tool that aligns all organisational efforts, ensuring everyone clearly understands the improvement priorities, their contributions to the business, and why these improvements are crucial.
This systematic approach not only helps in identifying areas for improvement but also aligns organisational efforts towards continuous improvement and substantial cost savings.
History and Origin of (CD)
Cost Deployment has its roots in the principles of Lean Manufacturing and Total Productive Maintenance (TPM). Developed in Japan in the mid-20th century, these methodologies aimed to enhance productivity and efficiency by systematically eliminating waste.
Cost Deployment evolved from these foundational practices, incorporating advanced financial analysis to quantify inefficiencies and align them with continuous improvement initiatives.
This approach integrates the strategic objectives of financial and operational teams, making it a powerful tool for modern manufacturing environments.
Benefits of Cost Deployments
Organisations typically set their annual cost reduction target, through Cost Deployment, to be in the region of 6-10% of “Conversion Cost”. Nonetheless, 14-20% cost reduction year-on-year has been achieved by clients when complemented with a broader Continuous Improvement Programme.
Example Calculation:
- Actual Cost of Goods Sold (COGS): £30m
- Estimated Conversion Cost: £17m
- Estimated Cost Reduction: £1.0m to £1.7m
Cost Deployment provides leaders with a breakdown of their plants’ losses. It helps them identify where they are losing money in the plant and focus their resources on the most significant benefits.
After its implementation, finance leaders own the Cost Deployment, enabling them to have a much more accurate “true to life” representation of improvements in the budget.
Example | Cost Deployment through Effective Maintenance
In discussing cost deployment, it is essential to explore practical applications and real-world success stories that illustrate the concept’s effectiveness.
This video from GKN Aerospace offers a compelling example of how targeted maintenance strategies can lead to significant cost savings and operational efficiencies.
Advantages of the Cost Deployment Method
The benefits of the Cost Deployment approach over traditional methods for reducing costs are:
1. Holistic
Cost Deployment provides a complete picture of all opportunities to improve conversion cost efficiency – where they are and the cause of the inefficiency.
2. Financially Comprehensive
The Finance and Operations teams work closely together to quantify the total and actual cost of each specific type of inefficiency, ensuring that the “hidden” losses are not overlooked.
3. Justifies Continuous Improvement (CI)
A direct relationship between each improvement activity and its cost reduction benefit allows for an ROI-based approach as justification for CI activity – a fundamental factor in gaining support for a CI programme and ensuring its sustainability.
4. Long-Term Roadmap
A continual cycle of improving efficiency by executing multiple prioritised projects in parallel enables cost reduction to be driven at pace. Allocation of specific projects and associated tools provides the clarity and confidence to deliver.
5. Ownership
The approach of cross-functional working and intimate involvement in identifying inefficiency, calculating savings and instigating projects allows for a detailed understanding of the whole process and thus promotes ownership by all involved.
6. Proven to Deliver
Organisations typically set their annual cost reduction target at 6-10% of conversion cost. Numerous organisations have successfully delivered this improvement year-on-year and established Cost Deployment as a strategic business driver.
The Mechanics of Cost Deployment
- Machine Losses: Inefficiencies related to machinery downtime, breakdowns, and suboptimal performance.
- Material Losses: Waste and inefficiencies in the use of raw materials and components.
- Labour Losses: Inefficient use of labour resources, including overtime and rework.
- Supply Chain/External Service Losses: Inefficiencies in the supply chain and external services impacting the plant’s operations.
defined losses to provide standardisation across different sites of an organisation.
Initial loss analysis is based on existing equipment and labour. The analysis will clearly show the opportunities/losses by comparing them to expected standards. The output is a programme focused on attackable losses in the short term, thus generating net savings quickly.
Cost Deployment enables people to understand the total value of their plants’ losses and engage in the resulting projects.
A set of interlinked matrices is used to represent all of the collected information to formalise the selection of projects. The delivery of a Cost Deployment programme is through a series of workshops that will generate the matrices that form the heart of the programme.
Delivery of Cost Deployment
Cost Deployment is delivered through a series of workshops carefully designed so that the output is achieved in the minimum time with the full engagement of the participants. Generating the output in the form of matrices (“Matrix-A” through to “Matrix-G”) creates an alignment of finance and operations.
The 7-Step Model:
- Loss Identification: Recognise and categorise operational losses.
- Quantification: Measure the financial impact of each loss.
- Prioritisation: Rank losses based on their impact and feasibility of improvement.
- Root Cause Analysis: Investigate underlying causes of prioritised losses.
- Solution Development: Develop strategies to address root causes.
- Implementation: Execute improvement projects based on developed strategies.
- Review and Sustain: Monitor results, refine processes, and ensure sustainability.
Take the First Step: Unlock Hidden Profits
Manufacturing leaders often delay seeking external support until their operations are in crisis, resulting in missed opportunities and significant losses. To help you avoid this, we have introduced Free Site Assessments as part of our offering.
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- Available to UK companies only
- Offer ends – 31 August 2024
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