Chapter 2. Losses, Costs and Efficiency

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Losses in Production System

Figure 2.1 shows the structure of the losses inherent in a typical production system. These losses can be split into three main categories: those preventing equipment from being used as efficiently as it could (The 8 Big Equipment Losses, at the upper right of the diagram), those preventing labour from being used as efficiently as it could (The 5 Big Labour Losses, at the upper left of the diagram), and those preventing resources from being used as efficiently as they could (The 3 Big Resource Consumption Losses, at the bottom of the diagram). These sixteen losses are collectively referred to as The 16 Big Losses.

1. Making Plant and Equipment More Efficient

The losses holding back the efficiency of a fabrication, assembly or packaging operation employing mainly non-process-type equipment will be different from those in an operation that employs mainly storage tanks, columns, heat exchangers and similar process plant. The two types of operation will therefore be discussed separately, beginning with the former.

1.1 The 8 Big Equipment Losses and OEE (Overall Equipment Effectiveness)



Maximising equipment efficiency means making it work as well as it possibly can. Looked at the other way round, this means that it can be made more efficient by eliminating all the losses that prevent it from working as well as it possibly can. Eight major equipment losses (described below) have been identified. It is essential to improve our companies’ business performance by eliminating these losses and thereby maximising the efficiency with which we utilise our equipment. Table 2.1 defines these losses.

(1) Breakdown Loss

Breakdown loss is the greatest hindrance to making equipment more effective. Some equipment failures bring the equipment to a complete standstill (called ‘function- stoppage failures’), while others merely make it underperform (called ‘function-reduction failures’). The former happen suddenly, while the latter arise insidiously, progressively making the equipment function further and further below its true capability.

(2) Setup and Adjustment Loss

This is the downtime loss that occurs when a changeover is carried out. Changeover time is the total time required to switch from one product to another (from when the last good product of the previous run has emerged to when the first good product of the next run comes off the line). Adjustment is the most time-consuming element of changeover.

(3) Cutting-Tool Replacement Loss

Cutting-tool replacement loss is the loss incurred by stopping a machine in order to change a cutting tool such as a grindstone, saw blade, cutter wire or lathe tool when it has become worn out or damaged.

(4) Startup Loss

Startup loss is the loss incurred when production starts. It begins when the equipment is activated, and continues during the run-up to steady-state operation until processing conditions have stabilised.

(5) Minor Stops and Idling Loss

Unlike equipment failures, minor stops result in stopping-and-starting, and transient problems that require the machine to be paused or idled for short periods. They typically occur when a product gets stuck in a chute, so the machine starts idling, or when a defective product activates a sensor and temporarily halts the machine. In such cases, the product only has to be removed and the equipment reset for it to resume normal operation, so the situation is fundamentally different from equipment failure.

(6) Speed Loss

Speed loss is the loss arising from the difference between the equipment’s design speed and the speed at which it actually operates. When equipment is operated at its design speed, quality defects and mechanical problems sometimes arise, so it is run at a lower speed. The consequent loss is called speed loss.

(7) Quality Defect and Rework Loss

This is the loss attributable to defective products. The definition of defectives is often restricted to products that have to be scrapped, but products that need reworking or repairing should also be included, as this is also a loss.

1.1.2 The 1 Big Loss affecting Utilisation

(8) Shutdown Loss

This is the loss incurred by deliberately shutting down the equipment within the production plan, for periodic overhaul, statutory inspections and so forth. The cleaning, inspection, parts replacement, precision checks and other maintenance work done at these times is essential in order to keep the equipment in good condition, but this type of shutdown has a serious impact on utilisation and should therefore be treated as a loss. Examples include the total shutdown of a process plant, and periodic cleaning and parts replacement in the interior of vacuum equipment in a semiconductor factory.

1.1.3 How to calculate OEE

This section explains how to calculate OEE and describes how it relates to the 7 Big Losses that affect it.

(1) Availability

Availability is the time the equipment actually operates, expressed as a percentage of the time for which it is supposed to operate. It is calculated by the following formula:

Availability =((Loading time – Downtime Loading time) / Loading Time) x 100

Here, loading time (the time for which the equipment is supposed to operate) is the working time (the time for which the factory is operating) per day or month minus any planned downtime time built into the production schedule, planned maintenance time, routine management meetings, and the like. Downtime is time during which the equipment is at a standstill due to breakdown, setup, adjustment, cutting tool replacement and so on.

Suppose the loading time for a given day is 460 minutes, and the downtime per day consists of 20 minutes’ breakdown, 20 minutes’ setup and 20 minutes’ adjustment, making 60 minutes in all; the availability for this day or month then works out at approximately 87% (see Figure 2.2).

Availability =((460 – 60) / 460) x 100 = 87%

(2) Performance

The performance rate is the product of the speed operating rate and the net operating rate. The speed operating rate indicates the difference between the potential and actual operating speed, or the speed at which the equipment actually operates as a percentage of the speed at which it is intrinsically capable of operating (in terms of cycle time or stroke count). In short, it indicates whether the equipment is actually operating as fast as it should (i.e., at the standard speed or cycle time). If the equipment is working slower than it should, this will be immediately obvious from the speed operating rate, which is calculated using the following formula:

In contrast to the speed operating rate, the net operating rate shows whether the equipment is operating at a uniform speed within a given unit of time. It does not indicate whether it is operating faster or slower than the standard speed, but whether it is operating consistently at its actual speed for long periods of time, even if the speed is slow. Use of this indicator allows us to calculate the loss due to minor stops and other small problems that do not show up in the daily report. The net operating rate is calculated as follows:

The performance rate can be calculated from the speed operating rate and net operating rate as follows (see Figure 2.3):

Any of the following values can be used for the standard cycle time:

  • Design speed
  • Maximum speed of another machine of the same model
  • Maximum speed of the fastest machine on the production line
  • Maximum speed of a pilot machine, after improvement
  • Theoretical maximum speed
  • Maximum speed obtained in the past
  • Speed calculated on the basis of daily production volume

(3) Quality

The quality rate is the quantity of acceptable product produced, as a percentage of the quantity of product processed or the quantity of materials fed into the process (see Figure 2.4). Defectives include product to be reworked as well as product to be discarded.

(4) OEE

The various losses affecting equipment efficiency calculated as described above can now be multiplied together to give an overall indication of how effectively the equipment is being utilised. The resulting percentage is called the OEE (Overall Equipment Effectiveness), and is calculated as follows (see Figure 2.5):

OEEs calculated in this way are generally found to be in the range of 50% to 60% before the equipment is improved. The OEE of 42.6% in this example is particularly low, because the speed operating rate and the net operating rate are both poor. It is clearly necessary to speed up the equipment and reduce the frequency of minor stops.

1.2 The 8 Big Plant Losses and OPE

In process industries, products are manufactured in equipment complexes (called ‘plant’) consisting of columns, storage tanks, heat exchangers, pumps, compressors, furnaces and other such units, all connected by pipes, instrumentation systems, and so forth. Because of this integration, it is more important to focus on maximising the overall effectiveness of the plant than the effectiveness of its individual equipment items. As with non-process-type equipment, the best way of ensuring that plant is utilised as efficiently as possible is to eliminate all the losses that militate against this, with the ultimate objective being to raise the performance of the entire plant to the highest possible level and keep it there. To do this, we need to eliminate, or at the very least minimise, breakdowns, quality defects, and any other problems affecting the smooth running of the plant.

1.2.1 The 8 Big Plant Losses



The following eight losses (called ‘the 8 Big Plant Losses’) have been identified as the major losses preventing any plant from reaching its maximum effectiveness:

  1. Shutdown loss
  2. Production adjustment loss
  3. Equipment failure loss
  4. Process failure loss
  5. Normal production loss
  6. Abnormal production loss
  7. Quality defect loss
  8. Reprocessing loss

(1) Shutdown loss

Shutdown loss is the time lost when production stops for planned annual shutdown maintenance or other forms of periodic servicing. While shutdown maintenance periods are essential for maintaining a plant’s performance and ensuring its safety, maximising the plant’s production effectiveness requires us to treat shutdown periods as losses and do our utmost to minimise them. We can do this by keeping the plant going continuously for as many days as possible between shutdowns and by doing the maintenance work more efficiently in order to make the shutdowns shorter.

(2) Production adjustment loss

Production adjustment loss is the time lost when the production plan has to be changed to accommodate fluctuations in demand. It would not occur if all the product a plant made could be sold according to plan. If the demand for a product falls because market needs change, however, the plant that produces it may have to close down temporarily. Nevertheless, even if the plant is not working all the time, it should be made to work as efficiently as possible when it is working, in order to maintain superiority in quality, cost and delivery. Efforts should also be made to raise its productivity in order to free up resources for improving existing products or developing new ones, and to ensure that the plant is always ready to respond to any possible future increases in demand. If, as is sometimes done, a plant’s production rate is lowered to accommodate decreased demand, suitable adjustments should be made to staffing levels to prevent productivity from falling. Production adjustment loss can also be treated as a management loss.

(3) Equipment failure loss

Equipment failure loss is the time lost when a plant shuts down completely because a pump, motor or some other unit has suddenly broken down and stopped working. If the plant is underperforming because of deterioration, but is still working, this should be treated as an abnormal production loss (see below).

(4) Process failure loss

Process failure loss is the time lost when a plant shuts down as a result of causes other than equipment breakdown, such as operating errors or changes in the physical or chemical properties of whatever is being processed. Failures of this kind are actually very common in process industries. They may happen because of misoperation, weighing errors, or quality problems with raw materials or auxiliary materials. They may also be due to problems such as valves sticking because their interiors have become coated with product; switches tripping because something is blocked; electronic instruments getting damaged by leaks and spills; or changes in the load on the plant as a result of changes in the physical properties of the materials being processed. Process industries will progress towards the goal of zero breakdowns only if they pay sufficient attention to eradicating process failures like these.

(5) Normal production loss

Normal production loss is the time or rate losses that occur during startup, shutdown, or changeover. The plant has to be warmed up or cooled down at such times, making it impossible to keep it operating at its standard production rate, but efforts should be made to minimise these losses.

(6) Abnormal production loss

Abnormal production loss is the losses that occur when the production rate of a plant has to be lowered as a result of malfunctions or abnormal conditions affecting the plant’s performance. The overall capacity of a plant is expressed by the standard production rate (usually measured in tonnes per hour). Abnormal production loss is the difference between the standard production rate and the lower production rate the plant is forced to run at because something out of the ordinary has happened.

(7) Quality defect loss

Quality defect losses include the physical loss of any product that has to be scrapped, the time wasted by producing it, and the financial loss due to having to downgrade product and sell it at a lower price. Quality defects can have many causes. Some may be due to production conditions being set incorrectly as a result of instrument malfunction or operating errors; others may be due to equipment failures, or to external factors such as problems with raw materials.

(8) Reprocessing loss

Reprocessing losses are the time, physical and financial losses that arise when rejected material has to be returned to a previous process and reworked to make it acceptable. The notion common in process industries that reworking is permissible because the product turns out all right in the end must be re-examined. It should be remembered that reprocessing is a significant waste of time, materials, and energy. In certain industries and with certain products, defective product cannot be reworked or reprocessed and has to be scrapped. In such cases, there would be no reprocessing losses, only quality defect losses, and the 8 Big Plant Losses would reduce to 7.

1.2.2 How to calculate OPE (Overall Plant Effectiveness)

To find out where the losses preventing greater efficiency are occurring, and how big they are, it is helpful to identify the structure of the losses that typically occur in a process plant. Figure 2.6 outlines the structure of the 8 Big Plant Losses and gives the formula for calculating the OPE. This loss structure was developed from a time-based analysis of the losses.

(1) Calendar time
Calendar time is the number of hours on the calendar, i.e.:

365 x 24 = 8,760 hours in a year
30 x 24 = 720 hours in a 30-day month

(2) Working time

Working time is the actual number of hours the plant is expected to operate in a year or month. It is equal to the calendar time minus the time lost through deliberately closing the plant in order to match production to demand, or for annual shutdown maintenance and other periodic overhauls (this lost time is called ‘shutdown time’).

(3) Operating time

Operating time is the time during which a plant actually operates. It is equal to the time for which the plant should be operating (the working time) minus the time lost through the plant shutting down as a result of equipment failures or process failures (this lost time is called ‘downtime’).

(4) Net operating time

Net operating time is the time for which the plant would need to have been operating to produce the same output if it had operated consistently at the standard production rate. It is the time for which the plant is actually operating (the operating time) minus the total time lost through underperformance. The total time lost through underperformance is the sum of normal production losses (the time lost through production-rate reductions due to startup, shutdown, and changeover) and abnormal production losses (the time lost because of production-rate reductions due to abnormalities).

(5) Value-adding operating time

Value-adding operating time is the time for which the plant would need to have been operating to produce the same output if it had consistently operated at the standard production rate without producing any defective product. It is equal to the net operating time minus the time wasted by producing defective product (including reprocessable product, downgraded product, and scrap).

(6) Availability

Availability is the operating time expressed as a percentage of the calendar time. In other words, it is the time for which the plant is actually available to produce product, as a percentage of the time it could theoretically be available if it never had to shut down.

Availability = (Operating Time / Calendar Time) x 100
where Operating Time = (Calendar Time – Shutdown Time – Downtime)

(7) Performance Rate



Performance Rate is the actual production rate expressed as a percentage of the standard production rate. The standard production rate, expressed in tonnes per hour or day, is equivalent to the plant’s design capacity and is unique to each plant. The actual production rate is calculated as an average, by dividing the plant’s output by the operating time.

Performance Rate = (Actual Production Rate / Standard Production Rate) x 100

where Actual Production Rate = Actual Output / Operating Time

(8) Quality Rate

Quality Rate is the amount of acceptable output (total product output minus reprocessed, downgraded, or scrapped product) expressed as a percentage of total output. It is equivalent to the right-first-time rate in a fabrication/assembly plant.

Quality Rate = (Right-first-time output / Total output) x 100 where Right-first-time output = Total output – Defective output (9) Overall Plant Effectiveness

Overall Plant Effectiveness (OPE) is the product of Availability, Performance Rate and Quality Rate. It is a comprehensive indicator of a plant’s time, production rate, and quality performance, measuring the effectiveness with which a plant is being used to add value. Figure 2.7 shows the relationship between output and losses for a month’s production in a particular plant. The example of how to calculate OPE given below is based on this figure.

Calendar Time: 24 h x 30 days

Operating Time: 24 h x 27 days

The plant has an OPE of 79.3%. Its performance rate and availability obviously need to be improved.

2. The 5 Big Labour Losses

The previous section discussed the losses affecting plant and equipment, but labour losses also arise in conjunction with these. The size of labour losses is affected by skill discrepancies, work methods, layouts, and the standard of workplace management. The five main losses impeding labour effectiveness, known as the 5 Big Labour Losses, are listed below.

  1. Management Loss
  2. Motion Loss
  3. Line Organisation Loss
  4. Logistics Loss
  5. Measurement and Adjustment Loss

(1) Management Loss

Management loss is the loss in labour-hours occurring when operators’ time is wasted owing to poor workplace management. Examples include time spent waiting for materials, trolleys, tools, instructions, and repairs.

(2) Motion Loss

This is the loss caused by deficiencies in operator skills needed for setup and adjustment, cutting tool replacement and similar tasks. It also includes losses arising from a lack of the skills needed for attaching and removing workpieces, loading and unloading materials, etc.

(3) Line Organisation Loss

This loss includes losses due to operators having to wait around while others work because they do not have the necessary skills to operate multiple machines or processes, and to unbalanced deployment of labour.

(4) Logistics Loss

This is the labour-hours wasted on moving materials and products around, and shifting skips, trolleys, conveyor trucks, etc. from place to place.

(5) Measurement and Adjustment Loss

This is extra work in the form of frequent measurements and adjustments that have to be carried out to prevent defective items from being made or passed on.

3. The 3 Big Resource Consumption Losses



The three main losses making resource utilisation less effective than it could be, called the 3 Big Resource Consumption Losses, are listed below.

  1. Energy Loss
  2. Consumables Loss
  3. Yield Loss

(1) Energy Loss

Energy loss is the energy not used effectively in processing, relative to the energy introduced into the process (typically electricity, gas, or fuel oil). It includes losses such as warm-up time taken to reach a stable temperature, and escaped heat and idling during processing.

(2) Consumables Loss

Consumables loss is the cost of consumable items per unit of product produced. It includes expenses generated by replacing or refurbishing broken or worn-out dies, jigs and tools, as well as the cost of other supplementary supplies such as cutting and grinding fluid.

(3) Yield Loss

Yield loss is the difference between the weight of material fed into the process, and the weight of acceptable product. It includes material losses in the form of defective product, cutting debris, leaks, spills, evaporation, product lost at startup, and the like.

4. How Losses and Costs Are Structured

In its early days, TPM concentrated on equipment management and was the exclusive province of the production department, but it has recently begun to spread out to all other functional areas, including development, sales and administration. It can now be expected to contribute even more to the company’s overall business objectives. Although the reduction of equipment-related losses is still its main focus, TPM is now used to contribute directly to the company’s profitability by reducing losses in all other areas as well. It has become an enterprise-wide movement that helps to reduce production costs at the process, site and corporate levels.

Although OEE is the principal management indicator used for monitoring equipment losses in TPM, it is no more than an index showing the equipment’s current capability as a percentage of the capability it would have if it suffered no losses. As such, it does not necessarily coincide with the company’s business indicators. What actually impacts directly on a site’s costs and overall business indicators is the 16 Big Losses, which form the basis for calculating OEE. Nevertheless, OEE is a useful universal indicator of the standard to which a process or plant is being managed over the long term.

To demonstrate the importance of the TPM programme, it is important to identify the OEE and loss structures for individual processes and for the site as a whole, and determine how these relate to factory costs, process costs, product costs and management indicators.

4.1 The 16 Big Losses, and Related Costs

The losses associated with manufacturing equipment in factories are generally very large, and many companies carry on their operations in blissful ignorance of the high levels of hidden losses they are suffering from. Attacking the 16 Big Losses and driving up OEE is a powerful way of achieving the lowest possible cost base in a given situation. Focused improvements and other TPM activities are extremely effective in improving equipment and labour efficiency and thereby minimising production costs.

How does working patiently and persistently to eliminate the 16 Big Losses not only have the benefit of driving up OEE, but also help greatly to drive down costs? If a plant has been working flat-out to meet demand, for example, with its operators doing overtime and holiday work, increasing its efficiency can make it possible to save labour, energy and other costs by meeting the production requirements during normal working hours. Big cost savings can also be made even when a plant is under-utilised owing to insufficient demand, since raising OEE can allow production to be consolidated on fewer equipment units while still meeting the targets. Factories need loss-cost matrices like the one in Figure 2.8, clearly showing what costs will decrease as a result of reducing what losses. They should also develop loss-cost trees like the one in Figure 2.9, showing total losses, total costs, loss-reduction targets and progress towards those targets in bar- chart format.

(1) Breakdown Losses and Costs

What are the cost implications of a breakdown? First, there is the operating cost of the equipment that has broken down. Then, if the equipment is attended by human operators, there is the cost of their labour. Next, there is the cost of the labour, spare parts and other materials used to repair and re-adjust the equipment. Finally, there are the various administrative labour costs, telephone charges and other ancillary costs spawned by the breakdown.

Increases in labour costs, spares costs, equipment depreciation, logistics costs and various other costs all affect the cost of producing the product, but it would be a hard task to collect and analyse all the figures needed to do an exhaustive analysis. Let us therefore concentrate on the ones that have the biggest impact:

The fixed cost of a breakdown can be regarded as consisting of:

Equipment breakdown cost = breakdown time x number of personnel x total production cost / person

However, the actual cost affecting the cost of the product consists of the direct labour cost only, i.e.:

Breakdown time x number of operators x operating wage rate,

plus the loss due to having to do breakdown maintenance, i.e.:
costs of spares used + (breakdown time x number of maintenance personnel x maintenance wage rate).

Reducing these costs by reducing breakdowns will of course favourably affect the unit cost of the product.

(2) Changeover Losses and Costs

Shortening changeover times reduces the time lost between producing the last good product of one run of products and the first good product of the next run of products. It therefore reduces the equipment operating costs wasted while the equipment is being changed over (those incurred both by the equipment being changed over and by other machines being kept waiting, if the line is a long one and there are imbalances in the changeover times). Changeovers naturally affect the operating costs of the equipment and the direct labour costs.

The fixed costs are: Changeover time x no. of people x wage rate
Variable costs include: Unit cost of parts used for trial processing x number of parts used



(3) Costs of Minor Stops and Speed Losses

Minor stops and speed losses differ from equipment breakdowns in that they do not necessitate repairs or the replacement of parts. However, they still lead to an increase in direct labour costs, pushing up the unit costs of the product, as well as to an increase in equipment operating costs that are significant within the loss structure.

The fixed costs are: Minor stop time x no. of people x wage rate

(4) Losses and Costs of Defectives and Rework

Defectives and rework give rise to all sorts of costs, including the time wasted in producing the defective product, the time wasted in reworking it, and the costs of the raw materials, parts, etc. required for reprocessing it, as well as the power, fuel and other energy costs and the costs of the auxiliary materials and consumables needed. The labour and raw materials costs are largest when the process is labour-intensive, while the raw materials, auxiliary materials and energy costs are largest when the process is equipment- intensive.

Fixed costs: (Time spent producing defectives + time spent reworking defectives) x no. of people x wage rate

Variable costs: Wasted raw material + energy + cost of auxiliary materials, etc.

(5) Losses and Costs associated with Labour Inefficiency

Labour-related losses include meetings, checking and cleaning times and other elements of planned downtime, plus management losses such as waiting for confirmation and instructions; waiting for materials, etc.; and motion losses such as rearranging products, transportation and walking. There are also measurement losses associated with in-process checks; in-process adjustment losses; and line organisation losses such as those that arise when personnel have to be redeployed because of a model change. All of these affect the direct labour costs.

Fixed costs:
Planned downtime x no. of personnel x wage rate
Time spent waiting for confirmation and instructions x no. of personnel x wage rate
Time spent on rearranging products, transportation and walking x no. of personnel x wage rate Adjustment time x no. of personnel x wage rate
Time wasted through redeploying personnel x no. of personnel x wage rate

(6) Energy Losses and Costs

Energy has to be fed into the production process in various forms, such as electricity and fuel (gas, fuel oil, kerosene, etc.), but some of it is wasted by having to preheat machines, by releasing heat to atmosphere, etc. The difference between the energy input into the process and the energy used effectively is the energy loss, and it affects the variable energy and fuel costs.

Variable costs:
Startup loss: startup time x energy cost per unit time
Waste heat loss: cost of total energy input – cost of energy used effectively

(7) Yield Losses and Costs

In addition to quality defect losses, yield losses include, for example, paint required for touching up; solvents used and paint wasted when changing between colours; ends of coiled materials that are too bent to be used as good product; and material that has to be left on a product so that the product can be processed, but is later removed and scrapped. All of these affect the variable materials costs.

Variable cost: Amount of material scrapped x unit cost of this material

(8) Jig and Tool Losses and Costs

The initial investment in jigs and tooling is counted as a fixed cost and is subject to depreciation, and any excess cost over and above the target cost is treated as an initial investment loss.

Initial investment loss = actual cost – estimated cost

Costs arise from losses in jig and tool parts and blades as a result of wear shortening their prescribed life during operation and breakage resulting from incorrect setup. These costs are often dealt with as the consumables cost part of the (variable) production costs.

Life curtailment loss = actual jig and tool costs – estimated jig and tool costs Breakage loss = refurbishment costs

As described above, the 16 Big Losses affect costs in various ways. Their effects on costs should be measured in as much detail as possible in order to help drive down production costs by prioritising those on which improvements can have the biggest impact, and monitoring them as target costs.

4.2 From Reducing Production Costs to Reducing Total Product Costs

Reducing production costs at the company, site and process levels is one of industry’s biggest concerns. It has addressed this issue vigorously and has achieved commensurate results, but it is probably fair to say that it has done so by focusing on investing in new, more efficient equipment for producing its principal products, with only a limited number of people involved in the improvement drive. To break the deadlock that this focus on reducing production costs has reached, or as a means of further reducing production costs in business environments where there is little prospect of any growth in volume or sales revenues, the scope of the activities must be extended to cover not just the production department (eliminating equipment and labour-related losses from factories) but all the company’s activities including those of its head-office administrative departments, sales departments, technical departments and so on.

The losses inherent in every single production and administrative activity currently being carried out must be identified (see Figure 2.10) – this includes, for example, direct production losses, administrative and indirect losses, purchasing losses, and technical losses such as those due to delay in introducing innovative technology or applying value analysis and value engineering (i.e. not applying concurrent engineering to the development of new products). The relationships between these losses and costs must be identified, and the losses must be systematically reduced with the focus on lowering total product costs. At the same time, losses should be collated not by their sources but by cost item; the cost structuring process should be reviewed; and deployment targets (including targets for reducing production costs) should be allocated for the activity as a whole.

5 Chronic Losses



5.1 Sporadic losses and Chronic Losses

Breakdowns and quality defects can be categorised as either sporadic or chronic. It is usually relatively easy to establish the cause of a sporadic problem, and also to find a solution, since the cause and the problem itself are normally quite clearly related. In most cases, remedial action is sufficient; in other words, it is sufficient to restore the relevant variable or condition to its original level.

In contrast, chronic problems often fail to respond to repeated attempts to solve them. They require a breakthrough − some kind of innovative solution that has not been tried before. This is because they rarely have a single cause, their causes are often difficult to pinpoint, and their causal relationships are unclear.

5.2 Why Chronic Losses Persist

There are four main reasons why chronic losses tend to stay unresolved:

(1) Solutions are tried, but they do not work

Often, a trial-and-error approach is employed, and numerous attempts are made to solve the problem without having been able to identify its causes accurately. The results are disappointing, there are no indications that the situation is likely to improve, and everyone becomes discouraged and resigned to the loss.

(2) There is no time to do anything about the problem

In some cases, the pressure to produce or deliver the product is so great that there is not enough time or resource to stop the line and take radical action to solve the problem. Makeshift measures are applied, but the problem persists and the losses remain chronic.

(3) Nothing is done about the problem, even though something could be

Sometimes, we are aware that a chronic loss exists, but take no action because we have not measured it and have no idea how large it is.

(4) The problem is not recognised

Occasionally, a chronic loss goes completely unrecognised, and we are not even aware of its existence. Usually, however, we realise that it is there, but regard it as inevitable. We do nothing about it because we think the present situation is the best it can get, and that a certain level of losses is bound to occur. This is seen most often with minor stops, speed losses, rework and startup.

5.3 The Causal Structure of Chronic Losses

The relationship between a chronic loss and its potential causes is normally unclear, because the loss is usually due to numerous potential causes occurring in different combinations on different occasions. This is why chronic losses are so persistent, often resisting repeated attempts to solve them.

Three different causal patterns giving rise to chronic losses can be identified: single, multiple and complex. As chronic losses rarely have a single cause, let us look at the other two patterns.

Multiple causes

With multiple causes, the chronic loss is due to a single cause each time it happens, but that cause is different each time. To eliminate the problem, all the different potential causes must be eliminated. Everything must then be kept in the correct state to prevent any of the potential causes from resurfacing.

Complex causes

With complex causes (complex combinations of interacting causes), a number of different causal factors, none of which is capable of producing the problem on its own, combine together in various ways to create the problem. Since the interaction between the causal factors is continually changing, it is extremely difficult to pin down. As with multiple causes, the only way to solve a problem due to complex causes is to painstakingly eliminate every factor that could conceivably be implicated in creating the problem.

6. The Fundamentals of Equipment Efficiency

To make our equipment as efficient as possible, we must get everything into the best possible condition. This means that we must learn how to recognise when something is not in the best possible condition and know what to do in order to restore it. This section discusses this approach, which goes a long way towards eliminating chronic losses.

6.1 Necessary, Desirable and Optimal Conditions

Necessary conditions

Necessary conditions are the minimum conditions that must be in place for the equipment to fulfil its basic functions.

Desirable conditions

Desirable conditions are the additional conditions that must be in place for the equipment to work at its best for extended periods.

Very often, the necessary conditions are in place (the equipment is at least working) but people do not know what the desirable conditions are (so the equipment does not work at its best). Just having the necessary conditions in place is not enough to eliminate chronic losses.

Optimal conditions

When the necessary and desirable conditions are all in place, optimal conditions (the conditions under which the equipment should really be working for optimal performance) will have been achieved. For example, a machine tool should be perfectly level and free of vibration, so that a coin could be stood on edge on the machine’s cover without falling over. As Figure 2.14 shows, there are eight types of optimal condition.

6.2 Categories of Equipment Defect

Although there is generally no clear definition of equipment defects, they are often divided into the three broad categories of major, moderate and minor (see Figure 2.15). Major and moderate equipment defects tend to receive the most attention, while minor ones tend to be neglected. Focusing on the larger defects may be effective and can give quick results in the early failure period, but it will not usually eliminate chronic losses, since these are almost always due to minor defects.

6.3 The Importance of Minor Equipment Defects

Although we tend to focus on larger equipment defects, because they are more obvious, minor equipment defects (defects so slight as to be almost imperceptible) are what usually lie behind chronic failures, chronic quality defects and other chronic problems, so we must pay them close attention. They include dust, dirt, slight looseness, wear of the order of 1/100 mm, and other hardly-noticeable imperfections not generally thought of as having much effect on the problem. For example, when a numerically- controlled machine tool such as a lathe does not work properly, it is often because of defective contact as a result of looseness, rust, dust or dirt. Seemingly trivial deficiencies such as these can conspire together to produce surprisingly serious results. Figure 2.16 gives additional reasons why minor equipment defects are so important.

One principal purpose of concentrating on minor equipment defects is to block the synergistic effect that develops when large numbers of them interact. Synergy occurs when the overall effect of a number of events or conditions far exceeds the sum of their individual effects. Even though individual minor defects may contribute only marginally to the problem, they should be corrected one by one, patiently and persistently, because of the following possibilities:

  • They could provoke other causal factors.
  • They could combine with other causal factors to produce a bigger effect.
  • They could interact with other causal factors to start a chain reaction.

The causes of chronic problems occurring on the shop floor are often hard to identify even through the use of sophisticated problem-solving techniques such as design of experiments, regression analysis, and multivariate analysis, because they are the result of an accumulation of minor defects working in concert. A second principal purpose of paying close attention to minor defects is to find a lead into solving the problem by tackling the causes en masse, rather than trying to single them out and address them individually.

A third purpose of focusing on minor equipment defects is to fix small problems as quickly as possible, before they can develop into bigger ones. The ‘A stitch in time saves nine’ principle definitely applies to these defects. If ignored, they can turn critical, causing breakdowns and quality problems. Even when they do not lead to major problems, they contribute to forced deterioration and loss of quality, so it is important to deal with them promptly. Doing so will prevent one problem from leading to another, as when a small amount of looseness in one part of a machine causes it to vibrate, progressively loosening other parts and eventually causing the machine to shake itself to pieces.

6.4 Restoration

‘Restoration’ means restoring something to its original, correct state (see Figure 2.17). To restore equipment effectively, we need to take the following steps:

  1. Check what has changed with time, and reverse those changes.
  2. Identify and eliminate the causes of the deterioration (is it natural, or forced?).
  3. Install standards to sustain the restored situation.
  4. Eliminate vibration (forced or self-excited) – it is deterioration biggest ally.
  5. Check component precision, assembly precision and levelness. Static precision is a prerequisite for dynamic precision.
  6. First restore, then improve. Rushing to modify the equipment or re-specify its components is a recipe for failure.

6.5 The approach to Chronic Losses

As discussed earlier, although every problem has some cause or other, whether direct or indirect, it is sometimes impossible to identify it no matter how much intellectual effort we exert. In most cases, we cannot pin down a single cause, or even multiple independent causes, and say with confidence which is the primary cause, which the secondary cause and so on. This is because:

  • A single result (the phenomenon) may be due to a number of different causes.
  • The result may be due to several causes acting together.
  • The combination of causes may differ each time.It is therefore better to admit that in most cases we do not know the specific causes of the problem and are unlikely to reach a solution by trying to identify them (see Figure 2.18). A more practical approach in such cases is to eliminate anything that could theoretically be suspected of contributing to the problem. Even if this does not solve the problem straight away, it can be expected to eliminate some of the potential causes and provide clues as to how the problem can be solved.This comprehensive approach of eliminating all suspects takes longer but has been shown to be effective in practice. The approach of postulating and testing hypotheses as to the specific causes of problems can be more efficient, but does not work when there are numerous causes, each of which contributes only slightly to the problem. In such cases, the more painstaking method recommended here is more reliable.

6.6 How to Tackle Chronic Losses

Breakdowns and quality defects often remain at high levels because attempts are made to reduce them without really grasping the nature of chronic losses. To reduce chronic losses, the following three things must be done:

(1) Thoroughly analyse the phenomenon

All too often, people neglect to observe what is happening closely enough or stratify it finely enough. As a result, they fail to notice that different things are happening on different parts of the machine in different ways at different times. They tend to take
action without thinking about phenomena logically, or working out the mechanisms by which they arise − in other words, without understanding their causes. Given this scenario, it is not surprising that chronic losses resist all attempts to eliminate them.

(2) Carefully review the causal system that needs to be controlled

If the phenomena are not observed or analysed precisely enough, some of their potential causes (the factors that need to be controlled in order to prevent them from happening) will be overlooked. Sometimes, irrelevant factors are monitored while relevant ones are neglected. Phenomena need to be considered logically, itemising all the factors that could conceivably be implicated in producing them.

(3) Scrupulously identify all the deficiencies within the causal system

Even when something is wrong with a potential cause (in other words, when it is not as it should be and therefore really is a cause), the deficiency very often goes unrecognised. This is usually due to lack of ability to distinguish between what is normal and what is not. Minor equipment defects are particularly commonly overlooked. It is essential to identify and eliminate all such defects, even those so slight as to be almost unrecognisable.

6.7 Identifying Minor Equipment Defects

(1) Review in terms of principles and parameters

As well as analysing the phenomenon from the standpoint of engineering principles and parameters, it is important to review the relationship between minor defects and the equipment. No sophisticated theoretical analysis is required – a simple review of basic principles and a survey of all relevant factors will suffice. Do not be led astray by the phenomenon; ensure that all minor defects have been identified and none has been overlooked.

(2) Do not be influenced by the degree of contribution

When identifying minor equipment defects, the probability of any single defect’s contribution to the overall problem should be disregarded, because giving too much prominence to this would divert attention from the minor defects themselves and lead to some being ignored. Even if a particular defect is considered likely to play only a small part in causing the problem, it still ought to be eliminated. If no action were taken to re- tighten a part that had become slightly loose or replace one that had become slightly worn, for example, because no immediate effect on the result could be foreseen, some minor defects would remain unidentified and the situation would in all probability fail to improve.



All suspects must be rounded up, regardless of any preconceived notions about their importance. The size of the role played by equipment defects is relevant only during the early failure period, when there is a high rate of quality failures and breakdowns. In such a situation, the most effective approach is usually to identify and eliminate the major defects first. However, singling out and targeting particular minor defects is unproductive when addressing chronic losses, since it is virtually impossible to establish how much each contributes to the loss. Questioning the point of fixing a tiny amount of wear or slackness, and asking what benefit it would produce, indicates that we underestimate the importance of minor defects. If this is the case, we are likely to do nothing about them and end up leaving the situation exactly as before.

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