Page 62 - Root Cause Failure Analysis

Root Cause Failure Analysis Methodology 53

has a quantifiable value. The value of each unit of product produced (either in-pro-
cess or finished goods) multiplied by the capacity gain (i.e.. 30 percent) is a quantifi-
able benefit.

In addition to the capacity gain, the increase in availability has the additional benefit
of reducing the cost per unit of both production and maintenance. Labor costs make
up about 60 percent of the costs required to produce and maintain process systems
and are relatively fixed. With a production capacity of 100,OOO units and total produc-
tion costs of $lOO,OOO, the cost per unit is $1. If the capacity increases to 200,000
units, the cost drops to $0.50 per unit.
Increased Revenue

Increased capacity, as illustrated in the preceding section, is a major benefit that may
be derived from implementing corrective actions. In addition to the reduction in unit
costs, this increase also will provide additional revenue for the plant, assuming there
is a market for the additional product that can be produced. If the sales value is $100
per unit and the 30 percent increase represents 30,000 units. the benefit is $3 million
per year.

Remember that the potential benefit of the improvement is over the useful lifetime of
the process system being improved. For a typical machine, the life generally is 20
years. Therefore, the lifetime benefit is 20 times $3 million or $60 million.

Cost Avoidance

The second type of benefit that should be considered is cost avoidance or the eliminat-
ing unnecessary or excessive costs, such as high maintenance costs created by a
machine with a history of chronic problems. To establish this type of benefit. the
investigator needs to gather the cost history of the machine or system that is being
investigated. These data provide the reference or existing costs.

The second step is to calculate the projected costs, in this case maintenance. of the
upgraded or new machine. The simplest way to develop these future costs is to use the
vendor’s recommendations for routine maintenance and upkeep. Using these recom-
mendations and the internal labor and material costs, the annual and lifetime costs of
the upgrade or modification can be calculated.

Cost avoidance should include all unnecessary or avoidable costs that have been
incurred as a result of the problem being investigated. The following are examples of
avoidable costs:

1. Losses incurred due to poor quality (e.g., scraps, rejects, and reworks).
2. Overtime premiums for production and maintenance labor.
3. Expedited vendor deliveries or outside repair work for emergency ship-
ments and repairs.