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Economies of scale: Where size and productivity part ways

Article-Economies of scale: Where size and productivity part ways

Molders are notoriously busy-changing molds, changing materials, installing new machines, designing parts, shipping parts, meeting old customers, and scouring for new customers. Chances are that in the midst of this chaos many have stopped to wonder at what point all this business starts to erode productivity.

Bob Hoffer Sr. wondered the same thing more than 40 years ago when he and his wife started Hoffer Plastics in Elgin, IL. As the company grew from one machine in 1953, Hoffer wanted always to keep his plants to a size that could be feasibly managed by one plant manager.

"You have to know exactly what you're doing, whether the job made money or lost money, how many hours you were down, how many cavities you blocked-everything," says Hoffer of his philosophy. "You want a manageable number to achieve maximum benefits."

The key is finding the most manageable operation size. He eventually settled on 12 machines. For a plant manager, foreman, and three assistant foremen, this seemed to be the most manageable number. And for years Hoffer Plastics has adhered to that standard-despite the fact that all eight of the company's plants reside under one roof. In one physical space of 340,000 sq ft exist eight virtual plants, each with 12 presses and one plant manager. Each plant is an independent entity that shares common tool maintenance and administration resources.

But a few years ago Hoffer started to wonder if more wouldn't be better. "I thought, 'Suppose we try 24 machines,'" explains Hoffer. "I was thinking it might really be the plant manager's fault that we couldn't be more productive with more machines. So we tried it for a long time. And our production dropped." Downtime increased, output decreased, and revenue declined.

"What we found was that one manager wasn't able to handle 24 machines," Hoffer says. "So, while we might be wrong at 12 machines, we know we were wrong at 24. What happens is that you lose the personal attention that the plant manager and foremen give to a job, and it just kills productivity."

The Logistics Factor
Limiting plant size to 12 presses, by nature, limits other production variables as well. A 12-machine facility can only handle so many molds, so much material, and can accommodate only a certain number of customers. It's a self-limiting arrangement that ensures the plant will likely never overextend itself. But how does a molder measure whether he or she is trying to do too much?

Inspired by Hoffer, Sid Rains, president of IMM Performance Products, has developed what he calls the Logistics Factor, a calculation that can be used to measure how manageable or unmanageable an operation is.

Rains, who has had a long career as both a molder and a supplier to molders, has identified a series of variables that, when taken together, produce a Logistics Factor-an abstract, relative number that provides a measure of a plant's efficiency.

The Logistics Factor includes several variables:

1. Number of presses: Each press requires planning or scheduling plus an operator, technician, or other support.

2. Number of molds: Each mold requires planning or scheduling plus maintenance.

3. Number of different materials: Each type of material requires planning, ordering, and delivery to match the press and mold schedule.

4. Number of colors molded (optional): Each color requires planning, ordering, and delivery to match material, mold, and press.

5. Number of customers: Every customer has a different need, product, procedure, and schedule.

What's your Logistics Factor?
 Since a Logistics Factor is meaningful only by comparison, IMM asks you to use this form to calculate your own. Then fax it to us and we'll publish what we receive for you to compare. We won't publish company names, but we will list the variables and results you send. Fax your form to Karen Wood, managing editor, (303) 321-3552.
 Your name:
 Company name:
 Custom or captive:
 Major market served:
 Number of presses:
 Number of molds:
 Number of different materials:
 Number of different colors:
 Number of customers:
 Logistics Factor:
A molder could add other variables that also complicate production, such as secondary operations or assembly, brands of presses, sizes of presses, sizes of injection units, and types of screws and front-end parts.

The formula, once the variables are assembled, is simple: Multiply all of these variables together to get the Logistics Factor. Basically, the higher the number, the more complicated and less productive the plant is.

Consider, for example, three hypothetical molding plants. Plant A is a typical custom molder with a limited number of customers and molds, and therefore a limited number of materials. Plant B is a housewares molder with many colors and molds, but few customers (this profile could fit many custom molders as well). Plant C is a closure or commodity molder with a high number of presses and a slightly larger group of molds and customers, but few materials or colors.

The table below shows how these three plants might compare for each variable, and what each Logistics Factor would be. The factor by itself is a meaningless, abstract number. But when compared to others, it starts to take on meaning. By comparison a molder can detect where elevated variables contribute to a more complicated operation. It points out where simplification may streamline operations.

 Logistics factors for three hypothetical molding plants

Plant   A  B  C
Presses 10 15 40
Molds 20 60 200
Materials 20 5 2
Colors 10 60 2
Customers 8 2 5
Logistics Factor 320,000 540,000 160,000
Plant B, with the highest factor, is hindered by a large number of molds and many colors. Plant C has the most molds, but its factor is kept down by few materials and colors. Plant A enjoys fewer presses, but as a custom shop has to manage several materials in different colors.

The question is, how do you use the Logistics Factor? The obvious goal is to lower the factor by reducing variables. One of the easiest to reduce is the number of presses. This does not imply that molders should sell presses, but instead consider subdividing plants into groups of subplants, or suboperations (a la Hoffer Plastics).

Rains also suggests that a molder decide what factors are important to his operation and benchmark against other plants that are involved in the same or similar endeavor. "The most important thing to remember," Rains says, "is that each and every logistic function requires people. If you have a very high Logistics Factor, then you will need lots of people, computers, and planning. Your strategic plan should include an effort to drive the Logistics Factor down, not up."


Contact information
IMM Performance Products
Medina, OH
Sid Rains
Phone: (330) 239-5704
Fax: (330) 239-3904
E-mail: s.e.rains

Editor’s note: Sid Rains is the main dinner speaker at IMM’s next Molding Management Conference, Jan. 31-Feb. 1 in Scottsdale, AZ. See the complete conference program or contact Mel Friedman at (919) 845-2517 for more information about the conference.
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