Capturing SS project benefits
March 2, 2006 at 7:44 pm #42586
I some advice on how you would capture a project which would increase throughput as a added benefit. For example, lets say the key opportunity is to decrease Overtime hours but in doing this project, you were able to make the process more efficient that the process was able to produce one more unit per day. So, would that extra unit produce be captured as Incremental Revenue or would it be just considered as Reduction of labor costs or both?
If it is Incremental Revenue for the extra unit produced, then can you capture the total value of the unit as the project savings? Hope this makes sense.
Thanks, AJ0March 2, 2006 at 8:24 pm #134548
ramblinwreck13Participant@ramblinwreck13 Include @ramblinwreck13 in your post and this person will
be notified via email.
Your improvements are great!
I have to assume that the improved through put has occured on fixed work stations where you could not maintain the current output rate and reduce headcount. That is to say the extra unit if not made would not “save” labor.
If this is the case then the next question is do you manufacture to Customer orders or do you make to Stock?
If you make to Customer Orders then the incremental unit is valuable only if there is demand for the product. In this case the TAKT rate has been improved fro every unit coming off the production line and calucuating Savings should be rather straight forward and simple. Accounting might be able to assist in this matter if you get stuck.
If you make to stock, that is to say you manufacture products to a production plan and expect to sell the plan volume in a given period, weekly, monthly annually. Then the “extra” unit has value as long as the 1 of two situations occur, 1) You can sell the extra volume. 2) You can’t sell the extra volume but you can realign the labor on the production line for other productive purposes once the desired inventory level is reached.This would mean ideling the line for a period of time as you produce more than needed with the improvements made.
If there is a chance to sell the extra unit, then the improvement should be seen as incremental to the volume and revenue stream, if the extra unit can not be sold and you idel your lines and put the labor to other productive work, then it is a labor savings.
Just my opinion.
Ramblin0March 2, 2006 at 8:49 pm #134552
We sell to customer orders but they fluctuate so much that we seem to either have idle time or overtime. But with this new process, we will cut over-time when the orders come in, plus be able to produce more units (15units/day) vs. (13 units/day).
Your comments were very helpful. Thanks for taking the time to respond.
aj0March 6, 2006 at 10:31 pm #134724
rodriguesParticipant@maria Include @maria in your post and this person will
be notified via email.
This project is a perfect candidate por soft savings, because it is no head count or overhead reduction, it is efficiency improvment.
The baseline should be calculated based on the actual labor and overhead cost, no material cost should be involved, the cost for labor and overhead of every additional piece produced as your project result will be considered as savings.
Hope this helps.
The forum ‘General’ is closed to new topics and replies.