Continuous Improvements and How They Can Positively Affect a Company’s Performance
Continuous Improvement (CI) projects/programs are important for recapturing money for the company by optimizing processes, reducing waste, improving production throughput, and typically improving quality for the product being manufactured. In a competitive medical device environment where medical insurance dictates the high end of prices allowed and the business needs to maintain a minimum profit to grow, looking internally is the logical choice. It can reduce product costs and make the entire (OEM / standalone) company more competitive with a program initiative utilizing cost savings coupled with customer price reductions.
In Medical Devices, there are several regulations that need to be considered before starting the actual implementation process, but identifying potential products and areas of interest clearly needs to be scoped out first to enhance the expected cost reductions and make the most impact on the business. For example, a 25% decrease in production time for a part that is only 2% of total volume has much less impact than a part that is reduced 5% in production time but makes up 20% of the total volume, assuming similar standard costs (see below). The goal at the end of the month is not to look at percentages, but the total dollar savings the company is winning back.
For companies that choose to initiate CI programs, the additive amounts of cost savings throughout the fiscal year may positively affect their work center overhead rates for the next fiscal year if the product volume increases through the same production areas without adding undue overhead via headcount and equipment. This makes the CI programs good for companies and potentially their customers too. When Continuous improvements are a mindset for the company and not just a one-time event, they will have the greatest impact on the business. Many medical device companies, from large through small, have established that it is possible to find continuous production savings for medical device products and maintain regulatory compliance during the changeover period when the plan is laid out appropriately. Therefore, staying cost competitive in the Medical Device arena is more easily done with an actively productive Continuous Improvement Program than without for either OEM or standalone companies.
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|Given: Standard Rate = 10 minutes, Total Annual Volume = 250,000 parts, Labor Rate = $23/hour|
|Case #1 2% Vol, 25% decrease||Case #2 20% Vol, 5% decrease|
|2% x 250,000 = .02 x 250,000 = 5000 parts||20% x 250,000 = .20 x 250,000 = 50,000 parts|
|25 % x 10 min. = .25 x 10 = 2.5 min.||5% x 10 min. = .05 x 10 = .5 min.|
|Total Cost Savings = 2.5 min. x 5000 x $23/hr. = 2.5/60 x 5000 x 23 = $4792 Annually||Total Cost Savings = .5 min. x 50,000 x $23/hr. = .5/60 x 50,000 x 23 = $9583 Annually|