Productivity And Cost

Productivity and Cost

In this paper, I will describe a company that has made a strategic decision based on productivity, wages and benefits, and other fixed and variable costs. I will also include the decision that was made and discuss the outcomes. In addition, I will incorporate the law of diminishing marginal productivity and the relationship between productivity and cost.

For the purpose of this paper, I have chosen the company Visteon Automotive Systems. Visteon Automotive Systems is an enterprise of the Ford Motor Company, as well as the world's second largest supplier of automotive parts and components. They employ 82,000 people and have 120 manufacturing, engineering sales, and technical centers located in 21 countries" (Holcomb et al., 2000).

In 1996, one of Visteon's plants, the Sterling Plant, started a new production line to assemble front axles for four wheel drive trucks and sport utility vehicles. They quickly discovered there is an incredible demand for four wheel drive trucks had become overwhelmed by it. In fact, in the first year of production, the demand increased to 550,000 units, however, Visteon had only projected a production capacity of 400,000. Visteon knew that every axle they were not able to produce meant a loss in sales of one of the highly profitable 4x4 vehicles. It became extremely critical for them to increase the productivity of the front-axle line (Holcomb et al., 2000).

One of the problems they realized is the production cycle is so cumbersome and complex that if one of the 39 stations goes down, then the entire assembly line eventually shuts down, causing the loss of valuable production time and hindering their ability to meet the demand. In order to resolve this, Visteon decided to set up two new systems.

The first system is the Ford Production System or FPS. The FPS is a "lean, flexible, and disciplined common production system that is defined by a set of principles and processes, and that employs groups of capable and empowered people who are learning and working safely together to produce and deliver products that consistently exceed customers' expectations in quality, cost and time" (Holcomb et al., 2000). Visteon applied the following major elements of FPS to their sector:

1. Visual Factory - the use of standardized controls that enable individuals to immediately recognize the standard and any deviation from it. It also creates a visual language that helps them to distinguish quickly between normal and abnormal and makes waste obvious

2. Error Proofing - a process improvement system to prevent a specific defect from occurring

3. Industrial Materials - non-production-related materials required to operate a plant with the right part, at the right place, at the right time, at the right cost

4. Quick Changeover - team-based improvement to reduce setup and changeover time.

5. Ford Total Productive Maintenance - small groups working to continuously improve the overall effectiveness of their equipment and processes

6. Quality Process Sheets - a method work groups use to document standards for performing their tasks to aid continuous improvement through the elimination of waste

7. FPS Measurables - which includes:

a. Dock-To-Dock Time - the elapsed time between the unloading of raw materials and the release of finished goods for shipment,

b. First-Time Through Capability - the percentage of units that complete a process and meet quality guidelines without being scrapped, rerun, returned, or diverted into an off-line repair area,

c. Build To Schedule - the percentage of units scheduled for a given day and in the correct sequence, and

d. Overall Equipment Effectiveness - a measure of the availability, performance efficiency, and quality rate of a give piece of equipment (Holcomb et al., 2000).

The Front-Axle Division implemented the FPS system within a group of workers who volunteered to work in a "self-directing group responsible for tracking its own performance and developing plans for achieving its objectives for safety, quality, cost, and productivity" (Holcomb et al., 2000). Basically, they were able to have the employees take ownership of their job and become involved in finding a solution.

The second system is the Machine Monitoring System or MMS. The MMS is a system that "collects, stores, and reports machine productivity information." Data is collected by the machine in real time and includes