A small efficiency loss may cause a big loss of business value

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A small efficiency loss may cause a big loss of business value

At a recent project, we worked with an industrial bakery that faced a minor increase in natural gas consumption at its oven. Through an analysis of consumption/production data and discussions with the client, we found that the waste was caused by a faulty temperature-sensor calibration. The sensor was adjusted, and consumption came back to expected levels. The eliminated waste was worth about $10K pa on the utility bill.

Was a mere $10K per year of eliminated efficiency loss the entire value the client received? NO, our client has received way more.

A minor operational issue was fixed at the operational level, PREVENTING major issues from developing. Here is a short list of what could have happened had the sensor remained flawed:

  • Production volume and quality go down; waste and cost go up

The bakery runs a full-scale production business, with wrong temperature causing a mix of over-burned or under-baked product, depending on how the operator decides to further alter the procedure. Some baked product is sent to waste, and some substandard product is shipped to stores.

How does this affect KPIs? Will this bakery be in a position to attract equipment upgrades from corporate HQ? 

  • Production stops; emergency repairs are done at emergency rates

Eventually, the waste level gets noticed higher up, thus causing unplanned production stoppage, investigation, and urgent repairs. The maintenance budget is gone, and so is the maintenance plan. Without planned maintenance, the bakery faces an array of seemingly unrelated operational issues and costs. It’s a never-ending catch-up game instead of a steady industrial operation.

What is the value of introduced risks? 

  • Brand value is damaged; clients incur losses and costs

Since the floor operator strives to deliver volume, some subpar product reaches stores, where customers reject it. They do not complain much; they simply skip buying bread. Since bread is a must for every family, consumers may switch to another grocery store altogether. Sales and brand value go down. Stores waste perishable product and lose invaluable customers. Marketing costs are increased to boost sales of other items.

What is the total damage caused by these changes? How do these costs affect the bakery’s brand value? Future orders?

  • Bye-bye performance bonus

When the problem is eventually found, the ultimate responsibility hits the plant manager.

Where is the plant manager’s performance bonus or even job now?

Luckily, the operational issue remained only operational, and these expensive problems were avoided.

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