A lean enterprise requires the ability to accurately trace costs, material movement and processes throughout a plant. Activity based analysis principles (e.g., Activity Based Costing/Management) creates a strong foundation for lean principles and other quality improvement initiatives by identifying true costs of producing products/services and improving activities or processes that add value in a systematic fashion, thus minimizing all forms of waste. Forms of waste include: waste of capital (inventory), waste of material (scrap), wasted time (cycle time), wasted human effort (inefficiency, rework), wasted energy, and wasted environmental resources (pollution).
Typical Management Issues:
- Inaccurate Product Costing from current accounting system
- Unknown costs of intermediate products and processes
- No clear defining and understanding of capacity for implementing changes
- Unclear sourcing decisions from multiple locations and contract plants
- What products should be marketed to increase profitability?
- Plant-wide process improvement - where should resources be applied to maximize production or plant improvements?
Our team of experts uses advanced management techniques to focus on the structural design and management of activities as the key to competitive advantage. Such a process recognizes that the only way to control the cost and quality of any process is by efficiently structuring the way in which the work or activities are performed. Linking many strategies together offers management with a view of manufacturing operations much different from traditional accounting systems and cost allocations.
Accurate product costing requires the tracing of actual resource usage costs to appropriate manufacturing processes and production lines. This method helps management make better informed decisions in each area of the plant, instead of treating the entire manufacturing environment as a whole, or allocating costs based on direct labor. The example below shows production costs for an individual production line in a packaging plant.
An average cost is generated, along with production cost curves for different batch sizes – both with and without process improvements. This begins providing management insight into target cost initiatives.
When such production costs are rolled together and compared against system-generated product costs, you get charts such as below. This chart begins to highlight the sometimes vast distortions in true versus system-generated product costing – often leading to improper decisions on what products to produce.
Analyzing capacity provides a unique view into how specific machinery and processes are used.
Our activity analysis techniques identify capacity costs and time in a format useful to production and process management – and which is coordinated with product costing and process improvement results.
By defining capacity in terms of cost and time in an easily readable format, management readily identifies pressing problems within the plant versus wading through detailed capacity reports and graphs. Studying capacity through this model allows management to make decisions on:
- Balancing production to support market changes
- Eliminating NVA (non-value added activity) such as inefficient changeovers or setups
- Quantifying costs due to faulty equipment or production processes
- Eliminating downtime costs whether internally or externally generated
The charts below provide insight into how shift hours and resources are being employed. Each of the three presents a different view of a single line’s capacity. The first is based on costs and the next two are based on time – total available time and normal operating hours. One can easily see the large portion of capacity costs consumed with non-productive and idle time.
Each packaging line within the plant can be analyzed individually, and then total plant capacity can be visually illustrated as seen below. From this data, upper management immediately recognizes the available line capacities throughout the plant.
|
|
