Assign value to down equipment/late shipments?

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    I am a 6 Sigma Deployment Champion at a small to middle sized company (depending on your operational definition).  Part of my duties is to work with Project Sponsors to write Project Charters.  In this area I have come across two “accounting/value” type questions a couple of times and have been unable to find an answer to either of them.  They are:

    How do you assign a dollar value to the amount of time that a machine is unavailable due to a maintenance issue?  Specifically when a job needs to shutdown because another work center is not available to do the work.  It is easier to calculate the cost if the parts are run on a less efficient machine, that is simply a case of the “normal or planned cost” minus the actual cost.
    Along a similar line, how can a value be assigned to a late shipment?  It is rather clear cut if late deliveries are causing orders to be lost and/or as direct result customers are lost but, it becomes much more difficult if the only measurable result is reduced customer satisfaction.  Personally I feel that any method used would need to take into account “how” late the shipment is.  Intrinsically, I feel that the later the shipment is the higher the cost.  The amount of detail one goes to, to define “late” (weeks, days, hours) of course would need to be proportional to the value of being late.
    If anyone else has come across similar issues I would like to hear how they were addressed.
     Thank you.



    When this happend the most typical cost that all the companies fall are the expeditation of the material (by air, hand carriers, over time at your facilities, over time at customs..etc), this cost are tangible you can calculate how much per each you need to espend(extra), the other cost is the customer insatisfacction this are priceless, some companies have a rate for late shipments, and this are calculated from the sum of all the cost above mentioned, but its depends of kinfd of business, if the customer are far of your location, contracts..etc.
    Hope thsi help.



    Just spitballing here….the cost of the downtime depends on the nature of the idle resources….If constrained, a unit of downtime at the machine is equal to a unit of downtime for the entire line or plant (depending on the nature of the resource – dedicated or mixed use).  If unconstrained, the cost of a unit of downtime should simply be the cost associated with the idle resources for that area or workstation.

    Determine the amount of downtime for the resource and divide into that the takt time.  This is the lost capacity and can now be extrapolated into lost capacity and hence, revenue loss.
    Or hard costs based on idle resources at the point of use (wasted labor, utility, etc)
    Additional trackable costs include OT as a result of lost capacity, cost to expidite late shipments, over staffing as a result of cycling faster than takt time, etc.
    Good luck…hope it helps.



    Re the late shipment portion of the question:  does late shipment result in delayed invoicing and payment?  The time value of  late payments may underlie your thoughts about increasing cost associated with increasing delay. 

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