This blog is 5 years old and this brings to mind the question: how much improvement can you make in an existing operation in a regulated environment in five year?
The charts below are a case study. Using a standardized tool (Operations Modeling), cost of manufacture was forecast each year from the current year’s figures for a range of medical device kits. The method uses Activity Based Costing to break down cost drivers into Volume related (those driven solely by volume without any changover or batch costs included), Batch related (those driven solely by having do work in batches without any volume effects), Product related (the part of overhead that is driven by having a number of variants in the product range) and Facility related (all other expense that would exist if the factory was in readiness to produce, but made nothing).
The analysis has been normalized for a set volume of output in the year 2005.
The chart titled ’5 Year View of Unit Cost’ shows the original forecast made in 2000 for the unit cost in 2005 to be about £0.25. As each year went by, the forecast for 2005 increased to £0.28 but rallied in the last year to £0.23.
The breakdown in ABC categories is quite revealing. For the first year, nothing happened, except some general inflation. However, from then onwards there was a significant annual reduction of about 10% in the volume related unit cost. This was caused by great success in purchasing raw materials at progressively lower prices. See the chart titled ‘Material Cost per Unit’. 
This was offset by a huge increase in fixed overhead (Facility cost), caused by a number of issues outside the control of production management. Despite the efforts of an army of lean black belts, the product, batch and labor part of volume related cost did not show as good a reduction. Indeed, there was losses and gains in these cost elements over the years, which fortunately ultimately came together in the last year. See the chart titled ‘Batch related cost per batch’.
Conclusion:
If you can keep up the effort, it is amazing how far you can get in five years.
If you are going to blog then I’d do it every few months not every 2 years
Thank you, Mike!
Comment valid and will try harder.