Project Ramp-up: A Costs Minefield
How Wastage and Costs go up During Ramp-up
A manufacturing startup project involves:
Gathering relevant data and creating the project plan
Setting up the plant - acquiring premises and equipment, and all the other incidentals
Starting operations and ramping these up till scale and stability are achieved
The ramp-up involves trial and error and testing different options. It is a chaotic period with the potential for high levels of wastage - intentional or as part of the learning curve. Opportunities to inflate costs and hide mismanagement are plenty during this phase.
Issues include:
Capitalizing operating costs to show early profitability or to hide inefficiencies. For example, regular operational costs might be disguised as R&D expenses
Deliberately underestimating ramp-up costs to get these approved, and then using unauthorised change orders to meet actual higher costs.
Awarding contracts to parties related to project executives, and fraudulent payments for ghost deliverables or through duplicate billing. Costs might also be increased by including unnecessary elements to favour specific vendors
Excessive wastage resulting from lack of operational training, inefficiencies and poor ramp-up management
Bogus costs through ghost employee payments or mis-classifying executive salaries, and inflated overtime payments
In a batch-process environment, management might run massive batches. These massive runs reduce per unit costs but result in large unsellable inventories, which might even have to be written off
Cellular Manufacturing Ramp-up is Particularly Vulnerable
Cellular manufacturing involves precise operations with all workstations in the cell completing their tasks in a synchronised manner. If a single machine or operator fails, the whole cell suffers.
The problem is aggravated by the need to cross-train operators for multiple roles. One worker might have to manage the whole cell during low-volume Takt time operations.
Issues in such a context include:
An unbalanced production line leading to WIP inventories at downstream workstations and idle upstream stations
Learning curves for cross-training workers are often underestimated, and semi-trained workers might be too slow, or produce too many defects
Inefficient set up changes between different products lead to losing the cellular production benefits, and costly idle time
If the agile cell is coupled with "monuments" like a massive heat treatment oven located at a safe distance, batches of the cell products will need to be transported to and from these monuments. The resultant costs and delays could wipe out the cellular savings
With semi-trained workers, it is easy to miss the tight workflows. Resultant rushed work could lead to omitting quality checks, leading to high scrap rates.
Ramp-up Costs: Isolate, Don’t Club
Rule of Ramp-Up Costing: Ramp-up variances must never be buried inside standard plant overhead or operational variance accounts. They must be tracked in a dedicated 'Ramp-Up Cost Isolation Account' with defined expiration deadlines. When ramp-up costs are clubbed with standard operations, baseline operational inefficiencies are permanently masked, and ramp-up waste becomes normalized.
Ramp-Up S-Curve vs. The Cost Abyss
The Cost Abyss:
When time-to-volume is extended, fixed overhead (salaries, depreciation, utilities) accumulates exponentially while revenue stays near zero.
A 2-week delay in ramp-up can wipe out 50% of a project's Net Present Value (NPV), not just because of scrap, but because of the delayed cash conversion cycle.
If the ramp-up period gets prolonged, the entire project investment could be wiped out by the excessive wastage in different forms.
Case Study: An Auto Component U-Cell Ramp-up
The auto component factory decided to adopt the U-shaped manufacturing cell based on a report that advocated its advantages and promised a ten-minute product changeover time and flexible single-piece flow.
During the ramp-up several issues emerged:
Workstation #3 took double the estimated time to complete its work. This meant an unbalanced cell with WIP inventories at downstream stations and upstream stations remaining idle waiting for work.
Tables were inserted inside the cell to store the accumulating WIP inventories. This led to inefficient movement of workers and materials
The semi-trained workers learning new skills, who also had to move around the newly inserted tables, became fatigued quickly. Instead of an efficient cell with smooth single-piece workflow, the new cell resembled a cluttered warehouse
Products had to be transported to a centralized cleaning oven located across the factory. This movement took 20 minutes every hour.
Results
Piles of inventory sitting between workstations inside the cell
High overtime costs to achieve the same daily output
Constant forklift and cart traffic around what was supposed to be a self-contained cell
Long Ramp-up Period
The ramp-up took six months instead of the estimated two weeks. The high scrap and labor costs wiped out the entire cost savings estimated in the project report.
Summary Table
Metric Project Proposal (Target) Ramp-Up Reality (Actual)
Changeover Time 10 Minutes Extended due to unorganized tools & WIP clutter
Ramp-Up Duration 2 Weeks 6 Months (300% overrun)
Transport Waste Self-contained flow 20 min/hour transit to central cleaning oven
Cell Floor Space Lean U-shape Cluttered with intermediate WIP storage tables
Financial Outcome Projected Cost Savings Entire ROI wiped out by scrap and overtime
Conclusion
The final stage of implementing a manufacturing project is starting production operations and ramping these up to scale and stability. The ramp-up phase is a chaotic one, open to high levels of wastage.
We look at the different types of wastage, which can occur in the course of learning or through deliberate intent. We look particularly at cellular manufacturing, which requires precise synchronization of operations.
We went through a case study where the high levels of scrap and labor costs wiped out the estimated savings of the new cellular setup.