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Manufacturing Processes—Production and Business: Measurements for Effective Decision Making, Part 8

Manufacturing Processes—Production and Business: Measurements for Effective Decision Making, Part 8

By Bob Sproull

Review of Measurements for Effective Decision Making, Part 7

In my last post, I discussed the ratio of maintenance downtime to operating time on constrained resource, throughput of post-constraint resource, and constraint utilization.

In this post, I will explain the next three measurements: constraint schedule attainment, manufacturing productivity, and manufacturing effectiveness. As I have been doing throughout this series, I will refer to material from [1] Throughput Accounting—A Guide to Constraint Management, a book written by Steven M. Bragg.

Constraint schedule attainment gives insight into manufacturing production efficiency

While it is possible for the manager of the constrained resource to achieve strong utilization performance by running low priority jobs through it, this approach provides a false sense of efficiency. A preferable measurement is calculated by dividing the number of scheduled jobs completed by the number of jobs scheduled. Bragg points out that it is important to keep the measurement period relatively short (e.g. one week). By doing so, the constraint manager cannot run a job scheduled for late in the measurement period in advance of the jobs scheduled to occur earlier. If this happens, the measurement may show a high level of performance while certain shipments are delivered late.

The calculation is:

Number of scheduled jobs completed


Number of scheduled jobs in the measurement period

Let’s look at an example that Stephen Bragg gives us:

The SafeFlight Corporation produces the Bi-Push Commuter, which is a small rear-propeller plane with a carbon composite body, designed for low-cost, short-duration commuter flights. SafeFlight has a backlog of 550 Bi-Push planes, and it is having difficulty meeting its production schedule because of its constrained resource, which is the composites lamination department. Bubbles are appearing at random in the lamination, requiring the scrapping or rework of some body components. The constraint schedule attainment measurement covers a one-month period. The following table lists measurement results for the past four months:

Month Scheduled Production Units Completed Production Units Constraint Schedule Attainment

January

18

17

94%

February

20

16

80%

March

22

15

68%

April

24

14

58%

The table demonstrates that SafeFlight has not solved their production problems in the composites lamination department. In fact, it is increasing its production schedule each month under the false assumption that the constraint is improving its efficiency, when the exact opposite is true. In this example, a poor constraint schedule attainment measurement may not be entirely the fault of the constraint manager, but rather those charged with fixing the underlying bubble problem.

Manufacturing productivity measures cost control

Even though TOC’s Throughput Accounting places the greatest emphasis on increasing system throughput, we must remember that it is still very important to keep our costs under control. In order to measure this, Steven Bragg recommends comparing throughput dollars to production expenses by dividing the total throughput dollars during the period by the total production expenses incurred during the same period. The calculation is as follows:

Manufacturing Productivity =

Throughput dollars shipped


Production expenses incurred

Bragg also recommends changing the denominator to all company expenses incurred, which provides a better picture of how every expenditure, anywhere in the company, affects total throughput. This broader perspective is especially useful when a large and expensive sales force drives sales. This measurement can also show how decreases/increases in operating expense influences throughput. Finally, if you are having shipment problems, this too will be revealed as a worsening productivity ratio, since throughput will decline. Let’s look at a simple example.

The Bingo Bakery wants to lower its operating expenses by using heat transfer pumps to shift heat from its baking ovens to its low-temperature proofing ovens, which are used to trigger the yeast in the bread prior to final baking. The cost of the heat transfer pumps is $190,000; which annual reductions of $100,000 for natural gas needed to fire the heaters under the proofing ovens offsets the cost of the heat transfer pumps. There is no impact on throughput. Bingo currently has annual throughput of $10.5 million and operating expenses of $7.2 million, which is a manufacturing ratio of 146-percent ($10.5 million throughput/$7.2 million operating expenses). After installation of the heat transfer pumps, the productivity ratio improves to 148-percent ($10.5 million throughput/$7.1 million operating expenses).

Manufacturing effectiveness how the constraint affects final throughput

You should also evaluate the manufacturing process based on the amount of throughput achieved versus every hour the constraint is used. The measurement here is to divide total throughput dollars shipped during the measurement period by the number of hours of use for the constraint. The calculation for manufacturing effectiveness is:

Manufacturing Effectiveness =

Throughput dollars shipped


Constraint hours used

The mix of products sold by the company and the scheduling of customer orders through the constraint affects this measurement. If the sales department runs a price discount on a low-throughput product resulting in a large increase in orders, the manufacturing manager will suffer. The manufacturing manager will show a low manufacturing effectiveness ratio simply because of the reduced throughput dollars shipped. Likewise, if the materials manager schedules the production of low-throughput products because he does not have the needed raw materials available for high-throughput products, then the manufacturing effectiveness metric will suffer accordingly.

Next time

In the next post, we will complete our discussion of the 16 performance measures by looking at the last four—order cycle time, throughput shipping delay, inventory turnover, and return on investment. As always, if you have any questions or comments about any of my posts, leave a message and I will respond.

Until next time.

Bob Sproull

References:

[1] Throughput Accounting—A Guide to Constraint Management, by Steven M. Bragg, John Wiley & Sons, Inc., 2007.

Bob Sproull

About the author

Bob Sproull has helped businesses across the manufacturing spectrum improve their operations for more than 40 years.

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