The company creates and manufacturers fragrances for use in high-end perfumes, scented candles and body lotions.
Improve the organization’s competitiveness by reducing the amount of time from customer order for a new fragrance to delivery of the final product.
- The long development time in creating new fragrances was negatively impacting the organization’s ability to meet customer demands
- The process of developing a new fragrance consisted of the mixing of 8 to 20 different ingredients. The addition of each of these ingredients to the formula was called a pour. Once mixed, these ingredients were blended for 15 to 25 minutes to create a test formula.
- The development process of a new fragrance often required 10 to 15 test formulas to create a fragrance which met the customer’s requirements. The mixing of ingredients to create a test formula is performed by laboratory technicians.
- An inventory of ingredients was maintained at a location central to the technician work stations with the remainder stored in several adjoining storage areas.
- The productivity level of the laboratory technicians averaged 416 pours per week. The number of pours per week per technician during the most recent six month period ranged from a low of 280 to a high of 690. This substantial variation in pours per technician per week indicated a significant opportunity to increase productivity.
- Recent quality problems had resulted in substantial customer delivery delays and significant increases in operating expense.
- The labor cost per pour during the most recent six month period was $2.33.
- The technician department had the highest headcount to sales revenue ratio in the company’s history.
- The solution to reducing the development time of new fragrances was to increase the productivity of laboratory technicians.
The initial focus of the project was to develop performance metrics to establish productivity goals for the technician staff. This began with the selection of the two technicians with the highest productivity and quality performance in the department during the past six months. The next step was to conduct time studies of these two technicians. The time studies established the productivity goal at 700 pours per week.
The next focus of the project concentrated on process improvements which would increase productivity. Two major process improvements were identified by observations of these high performers. The first was an opportunity to increase technician productivity by eliminating the practice of monitoring of the blending process. The current process included mixing of ingredients and then observing the automated process of blending them for 15 to 25 minutes. The improved process consisted of setting the amount time for blending and returning to the work station to begin developing the next formula.
The second process improvement was based on the application of the 80/20 Principle. An analysis of several months of formulas indicated that 80% of the requirements of these formulas could be fulfilled by 20% of the ingredients. This fact provided a significant opportunity to improve the current process. Currently, substantial amounts of time are spent by laboratory technicians traveling to obtain needed ingredients. To improve the process, a quantity of each of the 20% of ingredients was stored at each work station. This improvement reduced the time associated with obtaining ingredients by over 80%.
To support the technician staff in increasing productivity, performance goals were included on each work order for the development of test formulas. These performance goals were established in minutes based on the number of pours in the formula. This provided each technician with the productivity goal for each formula in advance of beginning work.
The next step in the improvement effort was the implementation of a Gain Sharing Incentive Compensation Plan based on increased productivity and quality. The quality element of the plan provided for a 10% increase of the productivity bonus when the number of errors per 1,000 pours were less than the prior year. When the number of errors were greater than the prior year, the productivity bonus was reduced by 20%.
To encourage teamwork and promote positive peer pressure among the laboratory technicians, the plan was designed to pay incentive based on the department’s overall productivity performance. This provided an equal sharing of the savings achieved in labor expense among all of the laboratory technicians.
The first monthly check distributed under the incentive plan was $365.00 for each laboratory technician. Within 45 days of receiving the first check, the productivity level of laboratory technicians had increased from an average of 416 pours to 896 pours per week per technician. Several technicians regularly exceeded 1,000 pours per week.
This increase in productivity reduced the time from customer orders to delivery of the final product by 40%. In addition, this improvement in productivity reduced the labor cost per pour from $2.33 to $1.17.