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The Hidden Factory is the set of activities in the process which leads to decrease in quality or efficiency of a manufacturing or business process and not known to the organization or responsible individuals seeking to improve the process. 

It is that part(s) of a process that decreases the quality or efficiency of a manufacturing operation, formed when a defect flows downstream. It results when a quick fix is implemented to immediately correct nonconformity (or defect). The quick fix may solve the problem on a short term basis, but when you make it a practice, the results of the quick fix or workarounds compounds, ultimately developing into a hidden factory. 

A hidden factory hardly results from a single problem in a process, rather by compounding, multiple problems in a mixed system that must be solved at the same time.

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Effect of the Hidden Factory

The hidden factory conceals your true yield; in addition, costs are hidden as shown in the following ways below:

  • Feedback loop

 The activities of the hidden factory are not obvious; this results in no immediate feedback loop for correcting process deficiencies. 

  • True cost is unknown 

 In a situation when a hidden factory is a result of a defective product requiring rework and an operator has to work overtime because of the rework, the cost of overtime may not be directly attributable to the reworked item. 

  • Silo mind-set 

 The hidden factory can be as a result of a company’s silo mind-set, with very prominent inter-departmental barriers. To curb this issue, you may need to find the following as examples: 

  • How often does your senior finance personnel visit the factory floor and question excessive inventory levels, process cycle times, process constraints, etc.? 
  • How does your manufacturing managers determine if their departments’ performance are within budget?

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Benefits of Understanding the Hidden Factory

The hidden factory determines the efficiencies of your process performance in order to have a complete picture of how the process is behaving. The following are some examples of understanding the hidden factory.

  • Result in increased costs

 Rework, scrap, and other costs are among the components of a hidden factory. If these costs are not been tracked, your entire cost structure may not be accurate. 

  • Elimination of false illusion of performance 

 If eventually, you are able to produce enough items that meet your customer demands, perhaps assuming because 1,000 units went into your process and 1,000 came out, your yield is 100%. This may not be true if you now choose to count the units scrapped or the ones reworked. You may realize that your true yield is likely less than your reported yield. 

  • Impact on profit 

If the hidden costs associated with your hidden factory could be identified, and steps taken to remove them, the effect on profits may become really significant.

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Dealing with the Hidden Factory

One important step to dealing with the hidden factory is to first be aware it exists in your operations. The following are some vital tips to deal with your hidden factory.

  • Use rolled throughput yield (RTY) to calculate your process yield 

 Using RTY instead of overall final yield provides better insight into what your process’ true capability is, hence it is important to make use of it to calculate process yield. 

  • Sources of waste 

 Understand the 8 wastes of lean and apply them to identify possible sources of waste and rework. 

  • Benchmark 

If possible, benchmark your key KPI with best-in-class companies to help identify if you have a hidden factory.

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Industry Practical Examples of the Hidden Factory 

The following are some list of activities that are being done in your hidden factory. 

  • Sorting Mix-Ups: Time taking for sorting mix-ups that allow defective products to reach the customer.
  • Lag Time: Lag time in reporting quality data that allows problems to get worse.
  • Multiple Versions of Specifications: Having different versions of a specific specification increases the chances of using an out-dated version and increasing the time it takes to update the right one.
  • Reworking Processing Parts: Operators reworking parts at their station, taking extra steps that others are not aware of often causes problems when that operator is away from work or leaves.
  • Speeding up Cycle Time: Supervisors speeding up cycle time in order to catch up when they’re behind or meet production targets, not realizing it’s causing hidden part damage is another major example.
  • Idea Sharing: This results it becomes difficult for people to share ideas and improvements with excessive red tape.
  • Lack of Preventative Maintenance: This results when operators fail to carry out preventative maintenance on machines, leading to hidden part damage and future machine failure.


About the Author

Adebayo is a thought leader in continuous process improvement and manufacturing excellence. He is a Certified Six Sigma Master Black Belt (CSSMBB), Digital Manufacturing Professional and ISO Management Systems Lead Auditor (ISO 9001, 45001 & ISO 22000) with strong experience leading various continuous improvement initiative in top manufacturing organizations. 

You can reach him here.

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