Effective Cost Strategies for Manufacturers March 27, 2014 √ o o o What is Lean? Activity Based Costing (ABC) Implementing Lean (using ABC) – Case Study Lean ABC Exercise o Lean can trace its roots to the Toyota Production System o Came to the United States in the 1980’s (Manufacturing) o Spreading to other Industries, such as construction o Making too much o Moving o Waiting o Storing Excess Inventory o Over-processing o Fixing mistakes Inspection Process Value added actvity Review previous days paper work Drive to first site Read Terry’s letters, letters to tenants Down load info to hand helds N Is site correct (Y/N) If site is still not correct call Terry for correct addess N Check email Check phone messages Add inspections to list Knock on door Review schedule Create the route for the day Is tenant home (Y/N) Y N Look in Thomas guide 5-15 min Leave card at door Code E1 or E2Inform office of no show Find and print out directions Enter residence greet tenant Get directions To first inspection Complete inspection room by room to verify it’s safe and livable Write notes on the Inspection Checklist A VALUE ADDED NON-VALUE ADDED • • • • • • Inspection Set-up Break-down Batch queues Adjustments …and more 5% Sustaining Tasks Example: Regulatory Authority requirements o o o What is Lean? Activity Based Costing (ABC) Implementing Lean (using ABC) – Case Study Lean ABC Exercise Price $$$ Design criteria Invisible Costs Transportation Procurement Accounts Payable Material handling Specifications Information Support Distribution Inventory management Disposal Manufacturing Investment Costs Forecasting Energy Costs Testing Mrp output Purchase Requisitions Etc Purchasing Orders/ Schedules/ Changes/ Large no of Suppliers Expediting Re-scheduling Invoice $5 Transport Check Accounting Grn's Receiving Multiple transactions Large data bases Products Count Re-pack Admin Expediting Point of Use Line Stock - Max Inspection Materials Handling Expediting Stores Materials Handling Point-of-use Invoice match and payment Storage and handling Inspection Receiving Expediting Raise purchase order Supplier negotiations Requisition / mrp Price Total Cost … spread costs over products like peanut butter DEPT #1 300% Overhead Costs 200% DEPT #2 100% Direct Labor / Machine Hours for Product ‘A’ Direct Labor Activity Costs $ Direct Material Costs for Product ‘A’ $ $ $ $ Direct Material Costs $ $ $ OVERHEAD COSTS DIRECT LABOR COSTS DIRECT MATERIAL COSTS $ PRODUCT ‘A’ Activities consume resources Standard Costing Practices COSTS X $ $ Activity Based Costing COSTS $ $ £ £ ACTIVITIES £ £ £ £ £ £ $ £ £ £ £ £ £ £ £ £ £ £ OBJECTS OBJECTS PRODUCTS & SERVICES Managing Gross Margin PRODUCTS & SERVICES CUSTOMERS / CHANNELS Managing Profit o o o What is Lean? Activity Based Costing (ABC) Implementing Lean (using ABC) – Case Study Lean ABC Exercise Order entry process improvement project BEFORE: • Measuring the impact of the Waste in the order entry process 100 orders Receive order 2% Fax received at reception Email sent to the wrong internal address 16 Process Mapping Find to Customer data Put in the order data Define shipping type 40% 35% 50% Stock outs Delivery address different from that in the system Individual typing for all orders Customer doesn’t know his customer number No customer number on the fax Define special prices 36% Price structure isn’t in system <13% perfect order NVA 57% VA 33% SNVA 10% NVA 57% additional Information VA 33% SNVA 10% The need to use additional paperwork and “aide memoirs” demonstrates the inability to enter orders right first time, where known information is not held in the SAP system file sales information 17 notes printouts Stapler & punch Order entry process improvement project • Dramatic reductions in Order Entry times from 60–90% 50 Before After 42 40 32 30 20 13 12 6 10 5 0 Customer Stream 1 BEFORE: Customer Stream 2 Customer Stream 3 820 AFTER: 90% 660 45% 18 Process Mapping Capacity Warehouse (orders/day) (orders/day until 14.00 in the warehouse) More open environment … AFTER: • Faster communication • Team motivated • Easy to control BEFORE: Elapsed Time (in minutes for one order) 50 40 Average 42 Optimum 32 30 20 13 6 10 12 5 0 Customer Stream 1 19 Customer Stream 2 Customer Stream 3 Warehouse Activity Based Costs Spaghetti Diagram Warehouse reorganization project BEFORE: Office • Reduction in distance traveled (Spaghetti Diagram) Small Parcel AFTER: Small Parcel Office Receiving /Shipping Large Customers Receiving 20 Shipping Large Customers Warehouse Reorganization resulted in the following improvements: Analysis of Shipping and Rental Costs and collection of quotes resulted in the following cost savings: LOGISTICS AND WAREHOUSE IMPROVEMENTS WAREHOUSE REORGANIZATION 120% 1660 820 1120 90% 80% 660 27 100% 60% 20 45% 18 40% 15 20% 0% Cost Elapsed Time FTE Capacity Warehouse (orders/day) (orders/day until 14.00 in the warehouse) (min/order) (T DM) 21 Shipping Costs Rent Costs Distance Travelled o What is Lean? Activity Based Costing (ABC) Implementing Lean (using ABC) – Case Study Lean ABC Exercise o o By company do a current state process map of the order entry process Or map out your Warehouse Questions and Discussion