In fiscal 2006, Omron began to adopt Material Flow Cost Accounting (MFCA) for its manufacturing process. In MFCA, a different approach to conventional cost accounting methods is used. Previously, just the cost of defective products was considered loss cost, but MFCA treats any economic loss generated from manufacturing processes as costs of loss. These now include costs for material scraps and energy costs for standby electricity. MFCA traces and measures the fl ow and stock of raw materials and energy in terms of quantity and monetary value, identifying where loss originates.

MFCA regards loss that becomes visible as “negative product.” Minimizing negative products will improve the manufacturing process, leading to conservation of both resources and energy.

An MFCA prototype was originally developed in Germany and fi rst saw adoption by businesses in Japan in 2000 as part of the Ministry of Economy, Trade and Industry’s Millennium project. At Omron, Group-wide implementation of MFCA began in fi scal 2006 by the Monozukuri Innovation Headquarters, in charge of environmental management for the entire Group. The first step was to solicit a model factory from the entire Group that would employ MFCA. At the time, Omron was seeing production for the Group as a whole increase annually but also with increasing waste generation.

Most waste was seen to originate during production in parts processing factories so it was a logical decision to select Omron Kurayoshi (in Tottori prefecture) which handles in-house processing of electronic components such as switches and sensors to be the model site for the eventual deployment of MFCA on a group-wide basis.

Costs that MFCA Makes Visible

* Yield: Amount of input raw materials which finally become products

A project team was assembled by the Monozukuri Innovation Headquarters at Omron head office and Omron Kurayoshi’s Parts Manufacturing Group. In May 2006, the team started adopting MFCA on the precision switch manufacturing process which had the largest output among all of Omron Kurayoshi’s product lines.

The team first checked the entire production line and extracted points where the state of materials was altered through processing. Next it was determined what materials were input at each point, in what quantities, how much of the material was discarded as waste or transferred to the next process by measuring the weight of materials at each point. This analysis correctly identified the quantity of material loss generated and at what point. The surprising outcome proved that of the materials input in the production line, only 28% remained as final products and as much as 70% was routinely discarded as waste.

Previously, Omron Kurayoshi viewed material loss as pertaining only to defective products, so the company had concentrated on ways to reduce defective products. However, at that time, the percentage of defective products was already a low 1.2%, so there was not much room for further improvement. But an in-depth check of the flow of materials revealed that there were other materials to be discarded than just defective products, which also lead to losses. This finding made engineers excited at the tremendous improvement potential that they now had a chance to create.

At Omron Kurayoshi, implementation of various onsite improvements ultimately led to an 11% reduction in waste compared to the previous year, which represented a reduction of 62 tons a year.

Switch Production Process

Effects of Improvements for Omron Kurayoshi