OSC 435 Chapter’s 29-33

1. OSC 435 Chapter’s 29-33 March 10, 2005 Robert Wharton Alina Zvonova

2. Positive Changes at the Plant • New contracts are emerging due to shorter lead times. • Efficiencies have gone up because of the increase in throughput • The reduced batch sizes have helped to keep the workers busy and control inventory. Product can now be moved to the next station much faster.

3. Positive Changes at the Plant • Inventories are at their lowest level ever and are not filling up because the only WIP inventory on the floor is for current demand. • Less idle time on the bottlenecks. More setups means the same costs for direct labor, but less inventory and less wasted idle time.

4. Cost Measurement Problems • The current system doesn’t show the true picture. • It appears that the cost per part has increased.

5. Example: 100 Unit Batch Setup Time: 120 min Process time per part: 5 min So, the direct labor is 5+(120/100)=6.2 Example: 50 Unit Batch Setup Time: 120 min Process time per part: 5 min So, the direct labor is 5+(120/50)=7.4 Cost Measurement Problems

6. Cost Measurement Problems • It looks like more setups increase the cost but no new people were added, so no additional cost was incurred. • Cost has actually gone down with the reduced holding costs of inventory and the increased amount of product made and sold for the same cost.

7. Just Change the System • Al and Lou decide that they will make the numbers show a more accurate reflection of what’s going on. • They use the cost factor for the last two months instead of 12.

8. Opportunity Knocks • Burnside’s order comes down, and the crew investigates the possibilities. • They agree to ship 250 units a week for four weeks. This actually works better for Burnside’s order.

9. Performance Review • Al feels confident because • The increase in throughput has allowed him to promise shorter lead times. • Inventory levels are down • Operating expenses are down. • The plant is making money. • With the new cost system profit has hit 17%.

10. Surprise Tour • Smyth tours the plant to get a tape with the robots and sees the idle machines, causing an audit. • The numbers are recalculated and the result shows a profit of only 12.8%.

11. Burnside comes to Town • Due to the quick and precise completion of the order for 1000 units in 4 weeks, Mr. Burnside comes to the plant and shakes each individual’s hand. • This has won the company a huge contract with Burnside and made a lot of money for the company.

12. Fundamental Assumptions During his performance review Alex addresses fundamental assumptions that are wrong. • A traditional view is that capacity should be balanced with demand first and then flow maintained. In fact, the rule is balance the flow, not the capacity.

13. False Assumptions The assumption is that the level of utilization of any worker is determined by his own potential. That’s false because of dependency. For any resource that’s a bottleneck, the level of activity from which the system may profit is determined by some other constraint within the system.

14. False Assumptions • It’s assumed that utilization and activation are the same. Activating resources and utilizing them are not synonymous. • An hour lost at the bottleneck is just an hour lost at that resource. No, an hour lost on the bottleneck is an hour for the entire system.

15. False Assumptions • An hour saved at a non-bottleneck resource is good. Actually, an hour saved at a non-bottleneck is useless. • Bottlenecks have little impact on inventory. The truth is that bottlenecks govern both throughput and inventory.

16. False Assumptions • Evaluating performance of operations by cost-of-product (with the half-batch system it looks like the cost-of-product measurement increased.) Performance should be evaluated by the bottom line. Basically, whether or not the plant is making money.

17. Performance Review • Hilton refuses to change his view, so Alex goes straight to Peach. • Alex gets the promotion. • Alex goes to Jonah and is told that he must find the answers for himself.

18. Common Sense • Al tries to give the credit of his accomplishments to those who helped him • The couple discusses common sense and how sometimes common practice serves as a mask. Jonah worked as an external trigger to remove this mask by asking the right questions.

19. Lou’s Plans • Lou wants to develop a cost measurement system that will correct the current one. • Even though inventory is thought of as a liability, on the balance sheet it’s reported as an asset. So plant is being penalized for reducing those inventories.

20. Lou’s Discovery • Lou discovers that they have actually been making a higher profit than they thought. The true improvement is actually well over 20% not 17%.

21. Bob’s Dream • Bob wants to stay in the plant and develop it further. He wants to redesign procedures and promote initiative taking in re-engineering orders to increase sales. • He thinks that with a new system they’ll be able to give marketing rigid lead times for each product. Lead times would be calculated based on the load of the bottlenecks.

22. Stacey’s Dream • Stacey wants to become the plant’s new production manager to concentrate on improvements to squeeze more throughput from the current resources. • She believes that improvement should not be solely concentrated on bottlenecks, but on CCRs as well. If not, the plant will run into an inter-active bottleneck situation and chaos would be inevitable.

23. Ralph’s Dream • Ralph wants to develop a system that will have accurate, timely, and meaningful data. This new useful data will help to: • Drastically shrink time and effort needed to engineer a sale. • Manage the buffers and local improvements • Measure, in a much more beneficial way, performance of the plant and local improvements.