Internal Business Process Performance Measures [LO3]

Exeter Corporation has recently begun a continuous improvement campaign. As a consequence, there have been many changes in operating procedures. Progress has been slow, particularly in trying to develop new performance measures for the factory.

Management has been gathering the following data over the past four months:

Month 1 2 3 4 Quality control measures:

Customer complaints as a percentage of units sold . . . 1.4% 1.3% 1.1% 1.0%

Warranty claims as a percentage of units sold . . . . . . . 2.3% 2.1% 2.0% 1.8%

Defects as a percentage of units produced . . . . . . . . . 4.6% 4.2% 3.7% 3.4%

Material control measures:

Scrap as a percentage of total cost . . . . . . . . . . . . . . . 3.2% 2.9% 3.0% 2.7%

Machine performance measures:

Percentage of machine availability . . . . . . . . . . . . . . . . 80% 82% 81% 79%

Use as a percentage of availability . . . . . . . . . . . . . . . . 75% 73% 71% 70%

Average setup time (hours) . . . . . . . . . . . . . . . . . . . . . . 2.7 2.5 2.5 2.6 Delivery performance measures:

Throughput time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ? ? ? ?

Manufacturing cycle efficiency . . . . . . . . . . . . . . . . . . . ? ? ? ?

Delivery cycle time . . . . . . . . . . . . . . . . . . . . . . . . . . . . ? ? ? ?

Percentage of on-time deliveries . . . . . . . . . . . . . . . . . . 84% 87% 91% 95%

The president has attended conferences at which the importance of throughput time, manufacturing cycle efficiency, and delivery cycle time were stressed, but no one at the company is sure how they are computed. The data to compute these measures have been gathered and appear below:

Month 1 2 3 4 Wait time per order before start of production, in days . . . . . 16.7 15.2 12.3 9.6 Inspection time per unit, in days . . . . . . . . . . . . . . . . . . . . . 0.1 0.3 0.6 0.8 Process time per unit, in days . . . . . . . . . . . . . . . . . . . . . . . 0.6 0.6 0.6 0.6 Queue time per unit, in days . . . . . . . . . . . . . . . . . . . . . . . . 5.6 5.7 5.6 5.7 Move time per unit, in days . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 1.3 1.3 1.4 Required:
1. For each month, compute the following operating performance measures:

a. Throughput t ime.

b. Manufacturing cycle efficiency (MCE).

c. Delivery cycle time.
2. Using the performance measures given in the problem and those you computed in (1) above, do the following:

a. Identify areas where the company seems to be improving.

b. Identify areas where the company seems to be deteriorating or stagnating.

c. Explain why you think some specific areas are improving while others are not.
3. Refer to the move time, process time, and so forth, given above for month 4.

a. Assume that in month 5 the move time, process time, and so forth, are the same as for month 4, except that through the implementation of Lean Production, the company is able to completely eliminate the queue time during production. Compute the new throughput time and MCE.

b. Assume that in month 6 the move time, process time, and so forth, are the same as for month 4, except that the company is able to completely eliminate both the queue time during production and the inspection time. Compute the new throughput time and MCE.