Tag: idle capacity

Excessive Idle Capacity Costs: The Silent Profit Leak You Can Fix in 90 Days

Every factory operating in KSA and the GCC region likely spends money on unproductive idle time that exceeds actual estimates. The facility operates with running electricity and air-conditioning systems while teams remain idle and equipment ages without producing any output. The costs of idle capacity exceed necessary levels because they reduce profit during slow periods and mask poor production choices during busy times.

A step-by-step method exists to detect and value and remove these costs without requiring automatic capital expenditures.

The first step requires identification of idle time sources while distinguishing between useful and unnecessary periods of inactivity.

The maintenance of protective idle time serves to prevent equipment constraints from running out of resources. That’s fine. The actual problem arises from the surplus operational hours which your organization has already paid for but failed to convert into deliverable products.

The evaluation should focus on minutes and rates instead of dealing with abstract overhead costs.

The Capacity Cost Rate (CCR) represents the price of one minute of operation for each line or cell.

The idle minutes represent the operational time that exceeds actual production hours.

Time-Driven ABC enables organizations to track both elements. The model operates with two essential variables which include the expense of capacity supply and the duration needed to complete activities. The model transforms traditional costing methods from uncertain spreadsheet calculations into precise operational calculations based on actual minutes. The following article serves as an essential introduction to Time-Driven Activity-Based Costing for beginners: HBR — Time-Driven Activity-Based Costing.

The second step involves linking costs to actual operational data through OEE (Overall Equipment Effectiveness) measurements.

The OEE system reveals the exact locations where idle minutes occur through its three main categories.

The three main categories of idle minutes include breakdowns and setup times and changeover periods and performance issues from slow production cycles and quality problems from scrap and rework.

Your ability to increase OEE will release paid-for capacity that remains unused. The implementation of TPM and quick changeovers by plants which focus on the “six big losses” enables them to achieve double-digit performance improvements without needing additional equipment. The NIST MEP’s TPM cases demonstrate actual improvements in OEE performance and decreased lost production time on essential equipment. Your business saves money from every production shift through this process. NIST MEP — TPM reduces downtime and lost capacity.

A fast-paced example based on Gulf market conditions

The cast-aluminum cell operates at Dammam facilities. The total yearly resource expenditure amounts to SAR 2.4M.

The facility operates two shifts per day for six days which generates 24,960 available working minutes during a month.

The total number of annual practical minutes throughout the year amounts to approximately 300,000.

The cost per minute of operation amounts to SAR 8.00.

The planned operational time for this month totals 24,960 minutes.

The actual productive minutes reached 12,979 after the OEE measurement improved from 52% to 12,979.

The total idle time reached 11,981 minutes.

The excessive idle capacity expenses for this month amount to SAR 95,848 based on 11,981 minutes multiplied by SAR 8.00 per minute.

The total cost of idle minutes in one cell exceeds SAR 3.4M annually when three similar cells are considered.

The story illustrates the critical point where organizations must choose between investing in capital equipment or demonstrating operational courage.

The 90-day anti-idle playbook

1. Make the money visible. The Idle Cost Heatmap should be distributed weekly to show idle costs by production line and shift and product family. The calculation of idle minutes at their actual cost in riyals becomes possible through multiplying CCR by idle minutes.
2. Protect the constraint. The implementation of TPM checklists together with planned maintenance schedules and Andon triggers (visual/auditory alert) will help you achieve this goal. The bottleneck should not receive excessive firefighting efforts.
3. Slash setup time. The top three changeovers need SMED implementation to achieve time reductions between 30% to 50%.
4. Stabilize the plan. The S&OP planning period should extend to 12 weeks while establishing boundaries to prevent spontaneous marketing changes.
5. Fill valleys, not peaks. The implementation of price fences through off-shift price reductions and minimum order quantity increases for slow-moving product families will help you fill production gaps. The constraint needs continuous supply while all other production areas must operate at their designated levels. https://3msbusiness.store/value-based-pricing-charge-for-outcomes-not-hours/

The following KPIs hold significance for measurement purposes

OEE calculation requires three factors which are Availability and Performance and Quality.

The measurement process requires data from MES systems and basic stop logs and cycle counters and first-pass yield records.

Capacity Utilization requires the division of Productive minutes by Practical minutes. The calculation of practical minutes requires subtraction of unavoidable breaks and maintenance time from scheduled minutes.

CCR (SAR/min) requires dividing Total resource cost by Practical minutes.

Annualized controllable cell costs requires division by the total number of practical minutes in a year.

Idle Capacity Cost requires multiplication of CCR by the difference between practical minutes and productive minutes.

Throughput/Constraint Hour requires the division of Value-added margin by Constraint hours.

The calculation of Throughput/Constraint Hour requires OEE data to obtain productive minutes which should be computed weekly.

Implement a costing system that penalizes idle time instead of rewarding it

The traditional absorption method rewards underutilization by distributing fixed costs across fewer units of production. TDABC operates with a different approach. The system should not allocate costs to customers or SKUs that do not use any production time. The unused production time generates idle capacity costs which appear on dashboards that plant managers and financial teams actively monitor.

The time equations should be integrated into ERP quotation processes to prevent Sales from making promises that deplete bottleneck resources or create excessive setup times. The pricing system needs a tool to create price barriers that will occupy unproductive time slots without reducing peak production hours. The implementation of TDABC Modeling and Cost-to-Serve methods is described in https://3msbusiness.store/activity-based-costing-done-right-a-practical-startup-guide/

 and https://3msbusiness.store/capacity-costing-charge-for-the-plant-you-actually-use/

GCC reality check: align with the national agenda

The Kingdom’s NIDLP document explicitly states that efficiency will drive national competitiveness. Plants that adopt ISO-style KPI standards and track OEE daily and use CCRs for capacity pricing will achieve profitable growth beyond physical expansion. Your approach to Vision 2030 implementation will protect your cash reserves. Vision 2030 — NIDLP.

This week’s action list

Create a single slide that presents CCRs for your five most important resource pools without any time is better than never.

Establish a daily OEE huddle at the constraint point which should use a whiteboard if no other option exists.

A 3-day SMED (Single-Minute Exchange of Die) workshop should focus on the most challenging changeover process which should be recorded and timed before implementing solutions.

Create an Idle Cost Heatmap that displays the product of CCR and idle minutes for each shift.

Create two pricing strategies to maximize off-peak production capacity during the upcoming month.

The bottom line

Excessive idle capacity costs do not need to be inevitable. They’re a choice. The combination of OEE for finding minutes and TDABC for pricing them will help you reduce burn rates and delay capital expenditures while enabling better pricing strategies. Most manufacturing facilities can unlock 10–20% of their effective production capacity within a 90-day period. Start there. Then hard-wire the habits.

Do you need assistance to transform idle production time into monetary gains?

Schedule a Capacity & Costing Diagnostic to receive assistance. Our team will determine idle minutes and calculate their costs using CCR before creating a 90-day implementation plan with your operations and finance teams during a four-week period.

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