© bma inc. 2009. all rights reserved. value stream cost & capacity exercises lean accounting...
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© BMA Inc. 2009. All rights reserved.
Value Stream Cost & Capacity Exercises
Lean Accounting for the Lean Enterprise
© 2009 BMA Inc. All rights reserved. 20090224rev
BHM revisions
© BMA Inc. 2009. All rights reserved.
Value Stream Capacity Exercise
© BMA Inc. 2009. All rights reserved.
Step 1. Calculate the Total Available Employee Time(#employees x #days x Labor Hrs per shift) x 3,600 seconds
Step 2. Calculate the Employee Productive Time(Qty per Month – (Qty x (scrap + rework rate))) x Cycle Time x Crew Size)
Step 3. Calculate the Employee Productive Capacity Percentage.(Employee Productive Time / Total Available Time)
Step 4. Calculate the change-over time, scrap & rework time, downtime, inspection time. C/O = (quantity/batch size) x Change-over timeScrap/rework = Qty x (scrap + rework rate) x Cycle Time x Crew sizeD/T = Downtime% x Total Available TimeInspection= (Inspect% x Quantity) x Inspection time
Step 5. Calculate the Total Non-Productive TimeStep 4 plus 5S & meetings
Step 6. Calculate the Employee Non-Productive Capacity PercentageTotal Non-Prod Time / Total Available Time
Step 7. Calculate the Employee Available Capacity Percentage. 100% - (Prod. Capacity + Non-Prod Capacity)
Calculate the Employee Capacity for this small value stream.
12
3
4
5
67
Current State
Employee Productive Capacity 44%
Employee Non-Productive Capacity 46%
Employee Available Capacity 9%
Quantity per Month 10000
Employee Cycle Time 60
I nternal Change Over Time Sec 10800
External Change-Over Sec 0
Labor Hours per shift 7.50
# Shifts per day 1
Average Batch Size 500
Scrap Rate 20%
Rework Rate 20%
Downtime % 10%
I nspection % 10%
I nspection Time Sec 120
Crew Size 2
# cells 2
Number of Employees 5
Days per month 20
Total Available Employee Time 2,700,000
Productive Time 1,200,000
Change Over Time Sec 216,000
Scrap & Rework Time 518,400
Downtime 270,000
I nspection Time 168,000
5S & Clean up 60,000
Meetings & reporting 12,000
I mprovement projects 0
Total Non-Productive Time 1,244,400
Current State
10000
60
10800
0
7.50
1
500
20%
20%
10%
10%
120
2
2
5
20
60,000
12,000
0
© BMA Inc. 2009. All rights reserved.
The employee capacity has changed as a result of the kaizen improvements.
Calculate the employee capacity after the kaizen
Current State
Kaizen I mprovement
Future State 1
Employee Productive Capacity 44% 44%
Employee Non-Productive Capacity 46% 9%
Employee Available Capacity 9% 46%
Quantity per Month 10000 10000
Employee Cycle Time 60 60
I nternal Change Over Time Sec 10800 75% improvement 2700
External Change-Over Sec 0 0
Labor Hours per shift 7.50 7.50
# Shifts per day 1 1
Average Batch Size 500 Reduce to 300 300
Scrap Rate 20% 20% improvement 16%
Rework Rate 20% 50% improvement 10%
Downtime % 10% Eliminated 0%
I nspection % 10% Eliminated 0%
I nspection Time Sec 120 120
Crew Size 2 2
# cells 2 2
Number of Employees 5 5
Days per month 20 20
Total Available Employee Time 2,700,000 2,700,000
Productive Time 1,200,000 1,200,000
Change Over Time Sec 216,000 90,000
Scrap & Rework Time 518,400 84,240
Downtime 270,000 0
I nspection Time 168,000 0
5S & Clean up 60,000 60,000
Meetings & reporting 12,000 12,000
I mprovement projects 0 0
Total Non-Productive Time 1,244,400 246,240
Future State 1
10000
60
2700
0
7.50
1
300
16%
10%
0%
0%
120
2
2
5
20
0
0
60,000
12,000
0
© BMA Inc. 2009. All rights reserved.
Current State
Kaizen I mprovement
Future State 1 Business Decisions
Future State 2
Employee Productive Capacity 44% 44% 67%
Employee Non-Productive Capacity 46% 9% 12%
Employee Available Capacity 9% 46% 22%
Quantity per Month 10000 10000 I ncrease Sales 20% 12000
Employee Cycle Time 60 60 60
I nternal Change Over Time Sec 10800 75% improvement 2700 2700
External Change-Over Sec 0 0 0
Labor Hours per shift 7.50 7.50 7.50
# Shifts per day 1 1 1
Average Batch Size 500 Reduce to 300 300 300
Scrap Rate 20% 20% improvement 16% 16%
Rework Rate 20% 50% improvement 10% 10%
Downtime % 10% Eliminated 0% 0%
I nspection % 10% Eliminated 0% 0%
I nspection Time Sec 120 120 120
Crew Size 2 2 2
# cells 2 2 2
Number of Employees 5 5 Redeploy 1 person 4
Days per month 20 20 20
Total Available Employee Time 2,700,000 2,700,000 2,160,000
Productive Time 1,200,000 1,200,000 1,440,000
Change Over Time Sec 216,000 90,000 108,000
Scrap & Rework Time 518,400 84,240 84,240
Downtime 270,000 0 0
I nspection Time 168,000 0 0
5S & Clean up 60,000 60,000 48,000
Meetings & reporting 12,000 12,000 12,000
I mprovement projects 0 0 0
Total Non-Productive Time 1,244,400 246,240 252,240
Future State 2
12000
60
2700
0
7.50
1
300
16%
10%
0%
0%
120
2
2
4
20
0
0
48,000
12,000
0
© BMA Inc. 2009. All rights reserved.
Current State
Kaizen I mprovement
Future State 1 Business Decisions
Future State 2 Business Decisions
Future State 3
Employee Productive Capacity 44% 44% 67% 87%
Employee Non-Productive Capacity 46% 9% 12% 11%
Employee Available Capacity 9% 46% 22% 3%
Quantity per Month 10000 10000 I ncrease Sales 20% 12000 I ncrease 30% 15600
Employee Cycle Time 60 60 60 60
I nternal Change Over Time Sec 10800 75% improvement 2700 2700 2700
External Change-Over Sec 0 0 0 0
Labor Hours per shift 7.50 7.50 7.50 7.50
# Shifts per day 1 1 1 1
Average Batch Size 500 Reduce to 300 300 300 300
Scrap Rate 20% 20% improvement 16% 16% Improved Std.Work 5%
Rework Rate 20% 50% improvement 10% 10% 5%
Downtime % 10% Eliminated 0% 0% 0%
I nspection % 10% Eliminated 0% 0% 0%
I nspection Time Sec 120 120 120 120
Crew Size 2 2 2 2
# cells 2 2 2 2
Number of Employees 5 5 Redeploy 1 person 4 4
Days per month 20 20 20 20
Total Available Employee Time 2,700,000 2,700,000 2,160,000 2,160,000
Productive Time 1,200,000 1,200,000 1,440,000 1,872,000
Change Over Time Sec 216,000 90,000 108,000 140,400
Scrap & Rework Time 518,400 84,240 84,240 32,400
Downtime 270,000 0 0 0
I nspection Time 168,000 0 0 0
5S & Clean up 60,000 60,000 48,000 48,000
Meetings & reporting 12,000 12,000 12,000 12,000
I mprovement projects 0 0 0 0
Total Non-Productive Time 1,244,400 246,240 252,240 232,800
Future State 3
15600
60
2700
0
7.50
1
300
5%
5%
0%
0%
120
2
2
4
20
48,000
12,000
0
© BMA Inc. 2009. All rights reserved.
Inventory Valuation Exercise
© BMA Inc. 2009. All rights reserved.
TOTAL
$2,048,686
$849,526$312,984$342,421$116,550$53,731$41,200$9,664
$1,726,076
$322,610 16%
$1,186,035 $963,148
($222,887)
$99,723 5%
Calculate the Inventory Value Using the “Days of Inventory Method”
REVENUE
MaterialsDirect LaborSupport LaborMachinesOutside processFacilitiesOther Costs
TOTAL COST
VALUE STREAM PROFITReturn on Sales
Opening InventoryClosing Inventory
Inventory Adjustment
NET PROFIT
1. Calculate the material cost per day.2. Calculate the conversion cost per day3. Calculate Raw Material value (#days * material cost per day)4. Calculate the Finished Goods value (#days *( material +
conversion cost per day))5. Calculate WIP value (#days * material cost per day +
#days/2 * conversion cost per day)6. Calculate total inventory value by adding the three together
TOTAL
$2,048,686
$849,526$312,984$342,421$116,550$53,731$41,200$9,664
$1,726,076
$322,610 16%
$1,186,035 Closing Inventory
Inventory Adjustment
Days in the month Total Material CostMaterial Cost per
DayTotal Conversion
CostConversion cost
per day
20 $849,526 $42,476 $876,550 $43,828
Days Material Value Conversion Value Total Value
Raw Material 10 $424,763 $0 $424,763
Work in Process 3 $127,429 $65,741 $193,170
Finished Goods 4 $169,905 $175,310 $345,215
TOTAL INV VALUE 17 $722,097 $241,051 $963,148
Days in the month Total Material CostMaterial Cost per
DayTotal Conversion
CostConversion cost
per day
20 $849,526 $876,550
Days Material Value Conversion Value Total Value
Raw Material 10
Work in Process 3
Finished Goods 4
TOTAL INV VALUE 17
© BMA Inc. 2009. All rights reserved.
Total Units Manufactured
Total Material CostAverage Material
Cost per UnitTotal Conversion
Cost
Average Conversion cost
per Unit
22,861 $849,526 $37.16 $876,550 $38.34
Quantity Material Value Conversion Value Total Value
Raw Material 11,430 $424,744 $0 $424,744
Work in Process 3,430 $127,460 $65,758 $193,218
Finished Goods 4,573 $169,898 $175,341 $345,276
TOTAL INV 19,433 $963,238 $722,140 $241,098
TOTAL
$2,048,686
$849,526$312,984$342,421$116,550$53,731$41,200$9,664
$1,726,076
$322,610 16%
$1,186,035 $963,163
($222,872)
$99,737 5%
Calculate the Inventory Value Using the “Number of Units Inventory Method”
REVENUE
MaterialsDirect LaborSupport LaborMachinesOutside processFacilitiesOther Costs
TOTAL COST
VALUE STREAM PROFITReturn on Sales
Opening InventoryClosing Inventory
Inventory Adjustment
NET PROFIT
1. Calculate average material cost and average conversion cost
2. Calculate Raw Material value (#units * material cost per unit)3. Calculate the Finished Goods value ((#units * material +
conversion cost per unit))4. Calculate WIP value (#units * material cost per unit +
#units/2 * conversion cost per unit)5. Calculate total inventory value by adding the three together
TOTAL
$2,048,686
$849,526$312,984$342,421$116,550$53,731$41,200$9,664
$1,726,076
$322,610 16%
$1,186,035 Closing Inventory
Inventory Adjustment
Total Units Manufactured
Total Material CostAverage Material
Cost per UnitTotal Conversion
Cost
Average Conversion cost
per Unit
22,861 $849,526 $876,550
Quantity Material Value Conversion Value Total Value
Raw Material 11,430
Work in Process 3,430
Finished Goods 4,573
TOTAL INV 19,433
© BMA Inc. 2009. All rights reserved.
Calculate the Inventory Value Using the “Days of Conversion Cost Method”
Inventory Value Materials Only
Number of Days in the Month
Number of Days of Inventory
$474,036 20 11.16
Inventory Value Materials Only
Number of Days in the Month
Number of Days of Inventory
$474,036 20
This method is used when the company tracks inventory but maintains inventory value for the ,material content only. The conversion cost is then applied based upon the number of days of material.
1. Calculate the number of days of inventory. (Days in the month * Inventory value / Monthly Material Cost)
2. Calculate the Conversion Cost Applied. (Number of days of inventory * total conversion cost / Number of Days in the Month)
3. Calculate total inventory cost. (Add materials value plus conversion cost applied)
Opening InventoryClosing Inventory
Inventory Adjustment
NET PROFIT
TOTAL
$2,048,686
$849,526$312,984$342,421$116,550$53,731$41,200$9,664
$1,726,076
$322,610 16%
$1,186,035 $963,152
($222,883)
$99,726 5%
TOTAL
$2,048,686
$849,526$312,984$342,421$116,550$53,731$41,200$9,664
$1,726,076
$322,610 16%
$1,186,035 Closing Inventory
Inventory Adjustment
REVENUE
MaterialsDirect LaborSupport LaborMachinesOutside processFacilitiesOther Costs
TOTAL COST
VALUE STREAM PROFITReturn on Sales
Total Conversion Cost
Conversion Cost Applied
Total Inventory Cost
$876,550 $489,115 $963,151
Total Conversion Cost
Conversion Cost Applied
Total Inventory Cost
$876,550
© BMA Inc. 2009. All rights reserved.
Calculate the Inventory Value Using the “Monthly Average Cost Method”
1. Calculate Days of This Month. (Lower of “# Days” and “Days in the Month” 2. Calculate Days for Last Month (“# Days” minus “Days of This Month”3. Calculate Current Month Average Value (“Days of This Month” * “Average Cost this
Month” * Average Daily Demand for this Month”4. Calculate Last Month Average Value (“Days of Last Month” * ”Average Cost Last
Month” * “Average Daily Demand This Month”5. Calculate the Inventory Value (“Current Month Average Value + Last Month Average
Value”)
Average CostQuantity in
StockAverage Daily
Demand# Days
Days in the Month
Inventory Value
January $10.23 12,460 356 35 21 $130,015
February $11.43 14,912 466 32 20 $163,734
March $9.22 10,295 355 29 22 $100,412
April $9.14 9,950 398 19 21 $69,117
Days of This Month
Days of Last Month
Current Month Average Value
Last Month Average Value
February 20 12 $106,528 $57,206
March 22 7 $72,008 $28,404
April 19 0 $69,117 $0
Month Month Average Value Average Value
February
March
April
Average CostQuantity in
StockAverage Daily
Demand# Days
Days in the Month
Inventory Value
January $10.23 12,460 356 35 21 $130,015
February $11.43 14,912 466 32 20
March $9.22 10,295 355 29 22
April $9.14 7,562 398 19 21
Days of This Days of Last Current Month Last Month
© BMA Inc. 2009. All rights reserved.
Defining Value StreamsExercises
© BMA Inc. 2009. All rights reserved.
Exercise: Defining Value StreamsCompany & Product Description
Universal Valve
Company manufactures
industrial valves
Sizes
Mini
Small
Medium
Large
Types Medium Pressure
Low Pressure
High Pressure
Plastic
Brass
Alloy
Refrigeration
Construction
DIY
Hydraulics
Coffee Makers
Commercial
MANIFOLDSBrass/AlloySmall, Med,
Large
© BMA Inc. 2009. All rights reserved.
Exercise: Defining Value Streams Company & Product Description• The Universal Valve Company (UVC)
manufactures valves in four industry standard sizes – “Mini”, “Small”, “Medium” and “Large”.
• UVC makes valves for applications classed as “Low Pressure” (LP), “Medium Pressure” (MP) and “High Pressure” (HP).
• The valves are machined and assembled from
– plastic (LP)
– brass (LP and MP)
– alloy (HP) components.
• The plastic valves all have low pressure applications and are made exclusively for the plumbing/ water industry – domestic and commercial – and are sold to DIY chains, trade wholesalers and direct to construction companies. Only “Small” and “Medium” sized LP valves are made.
• Brass valves are made for low pressure and medium pressure applications. LP brass valves all have plumbing/ water uses and are made in “Small” and “Medium” sizes. MP brass valves are made in all four sizes and serve mainly refrigeration, and coffee machine OEMs. Large MP brass valves are made to order in two cells for fluid applications by specialist OEMs.
• Alloy valves are for specialized high pressure uses including hydraulics, commercial refrigeration and other technical applications by specialist OEMs. The alloy valves manufactured by UVC are all “Mini”, “Small” or “Medium” sizes.
• The company also combines brass or alloy valves with other components into Manifolds – with two assembly cells dedicated to this. “Small” and “Medium” valves (brass or alloy) are assembled into Manifolds on one cell; with “Large” valves (brass) assembled on the other cell.
© BMA Inc. 2009. All rights reserved.
Exercise: Defining Value StreamsProduct Data for Valves; MINI family
MINI Plastic Brass Alloy
Size of Valve: Mini
None
Medium Pressure High Pressure
% of Total Revenue 9% 10%
Main CustomersOEM Refrigeration & Coffee Machines
OEM Hydraulics & other specialist
uses
No. of Manufacturing Cells
3 cells
(1 Refrigeration
2 Coffee)
1 cell
© BMA Inc. 2009. All rights reserved.
Exercise: Defining Value StreamsProduct Data for Valves; SMALL family
SMALL Plastic Brass Alloy
Size of Valve: Small
Low Pressure Low PressureMedium Pressure
High Pressure
% of Total Revenue
7% 3% 13% 9%
Main Customers
DIY Stores, Trade
Wholesalers, Construction
firms
DIY Stores, Trade
Wholesalers, Construction
firms
Refrigeration OEM, Coffee
Machine OEM
Commercial refrigeration.
Hydraulic OEMs. Specialist OEMs
No. of Manufacturing
Cells2 1 cell
4 cells
(2 Refrigeration; 2 Coffee)
1
© BMA Inc. 2009. All rights reserved.
Exercise: Defining Value Streams Product Data for Valves; MEDIUM family
MEDIUM Plastic Brass Alloy
Size of Valve: Medium
Low Pressure Low PressureMedium Pressure
High Pressure
% of Total Revenue
8% 5% 12% 6%
Main Customers
DIY Stores, Trade
Wholesalers, Construction
firms
Construction firms & misc.
Refrigeration OEM
Commercial refrigeration.
Hydraulic OEMs.
Specialist OEMs
No. of Manufacturing
Cells2 1 2 1
© BMA Inc. 2009. All rights reserved.
Exercise: Defining Value Streams Product Data for Valves; LARGE family
LARGE Plastic Brass Alloy
Size of Valve: Large
None
Medium Pressure
None
% of Total Revenue 8%
Main CustomersMade to order for specialist OEM
firms
No. of Manufacturing Cells
2
© BMA Inc. 2009. All rights reserved.
Exercise: Defining Value Streams Product Data for Valves; MANIFOLDS
MANIFOLD Brass Brass Alloy
Size of Valve: LargeSmall or Medium
Size Small or Medium
Size
% of Total Revenue 3% 7%
Main CustomersMade to order for specialist OEM
firmsMade to order for specialist OEM firms
No. of Manufacturing Cells
1 1
© BMA Inc. 2009. All rights reserved.
Exercise: Defining Value Streams
• Manifold Assembly Cells– 1 cell assembles “Small” or “Medium” brass or
alloy (never mixed) valves into Manifolds. This accounts for 7% of total UVC revenue with specialist OEMs as the customers.
– 1 cell assembles “Large” brass valves into Manifolds. This accounts for 3% of total UVC revenue with specialist OEMs as the customers.
© BMA Inc. 2009. All rights reserved.
Exercise: Defining Value Streams Summary of Production Cells
SIZE Plastic Low Pressure
Brass Low Pressure
Brass Medium Pressure
Alloy High Pressure
Mini 0 03
(1 Refrigeration; 2 Coffee)
1(specialist)
Small 2(plumbing/ water)
1(plumbing/ water)
4
(2 Refrigeration; 2 Coffee)
1
(specialist)
Medium 2(plumbing/ water)
1(plumbing/ water)
2
(2 Refrigeration)
1
(specialist)
Large 0 02
(specialist)0
Manifolds2
(specialist)
1(Specialist)Shared with
Brass
© BMA Inc. 2009. All rights reserved.
Exercise: Defining Value Streams Factory Layout – before Value Streams
Plastic Deflash
4 people
Engineering5 people
Receiving & Shipping
2 People
Plastic Machining & Assembly.
4 cells
Brass screw, deburr &
assembly.
13 cells
Finished Goods
Injection Moulding
2 people
12 people 65 people
Alloy Screw, deburr &
assembly.
3 cells
16 people
Manifold Assembly. 2 cells
4 people
6 people
Production Control3 people
Purchasing3 people
Customer Service2 people
© BMA Inc. 2009. All rights reserved.
Exercise:Defining Value Streams
In your group discuss the possible ways in which you might define the Value Streams for the Universal Valve Company.
What are the advantages and disadvantages of each ?
State your preferred selection with reasons.
Remember: Order Fulfillment Value Streams are primarily defined by materials flow.
© BMA Inc. 2009. All rights reserved.
Exercise: Define Value Streams
• Order fulfillment value streams are primarily set up based upon the flow of materials through the process.
• We need to create a value stream team that includes both production people and the people that support production.
• The value stream must be a reasonable size. – No less than 10% of revenues– Between 20-150 people.
© BMA Inc. 2009. All rights reserved.
Ship/Rec
Sales
Cust Serv
Acct
IT
Manager
16 cell
1 FG (share)
1 PC (Share)
1 Eng
55 cell
2 FG
2 PC
2 Eng
1 Purchase
16 cell
1 FG
1 PC (share)
1 Eng
1 Purchase
18 cell
1 FG
1 PC
1 Eng
1 Purchase
People
18%42%25%15%Revenue
%
41134Number of
Cells
Make to Order
Refrigerator
Coffee
DIY
Construction
Hydraulic
Refrigerator
Commercial
DIY
ConstructionMarket
SHAREDNEW
PRODUCT DESIGN
BRASS
Large & Manifolds
BRASS
Mini, Small, Med
ALLOYPLASTICSVALUE
STREAM
Ship/Rec
Sales
Cust Serv
Acct
IT
Manager
16 cell
1 FG (share)
1 PC (Share)
1 Eng
55 cell
2 FG
2 PC
2 Eng
1 Purchase
16 cell
1 FG
1 PC (share)
1 Eng
1 Purchase
18 cell
1 FG
1 PC
1 Eng
1 Purchase
People
18%42%25%15%Revenue
%
41134Number of
Cells
Make to Order
Refrigerator
Coffee
DIY
Construction
Hydraulic
Refrigerator
Commercial
DIY
ConstructionMarket
SHAREDNEW
PRODUCT DESIGN
BRASS
Large & Manifolds
BRASS
Mini, Small, Med
ALLOYPLASTICSVALUE
STREAM
Exercise: Work SheetVALUE
STREAM
Market
Number of Cells
Revenue
%
People
© BMA Inc. 2009. All rights reserved.
Value Streams by MarketSample Answer #1
Value Streams
by Materials
PLASTICS
BRASS large & Manifolds
ALLOY
BRASS Mini, Small, Medium
Plastic SmallLP 7% 2cells
Brass SmallLP 3% 1 cell
Plastic MedLP 8% 2 cells
18 people
Brass MiniMP 9% 3 cell
Brass SmallMP 13% 4 cell
Brass MediumMP 12% 2 cell
Alloy MiniHP 10% 1 cell
Alloy SmallHP 9% 1 cell
Brass MediumLP 5% 1cell
Alloy MediumHP 6% 1 cell
ManifoldsHP 10% 2 cell
Brass LargeMP 8% 2 cell
10 people
6 people 5 people
11 people
55 people
© BMA Inc. 2009. All rights reserved.
Exercise: Sample Answer #1VALUE
STREAMPLASTICS ALLOY
BRASS
Mini, Small, Med
BRASS
Large & Manifolds
NEW PRODUCT DESIGN
SHARED
MarketDIY
Construction
Hydraulic
Refrigerator
Commercial
Refrigerator
Coffee
DIY
Construction
Make to Order
Number of Cells
4 3 11 4
Revenue
%15% 25% 42% 18% Ship/Rec
Sales
Cust Serv
Acct
IT
ManagerPeople
18 cell
1 FG
1 PC
1 Eng
1 Purchase
16 cell
1 FG
1 PC (share)
1 Eng
1 Purchase
55 cell
2 FG
2 PC
2 Eng
1 Purchase
16 cell
1 FG (share)
1 PC (Share)
1 Eng
© BMA Inc. 2009. All rights reserved.
Value Streams by MarketSample Answer #2
Value Streams
by Market
DIY, Trade &Construction
OEM & Specialist
Hydraulics
Refrigeration& CoffeePlastic Small
LP 7% 2cells
Brass SmallLP 3% 1 cell
Plastic MedLP 8% 2 cells
10 people
18 people
Brass MiniMP 9% 3 cell
Brass SmallMP 13% 4 cell
Brass MediumMP 12% 2 cell
Alloy MiniHP 10% 1 cell
Alloy SmallHP 9% 1 cell
Brass MediumLP 5% 1cell
Alloy MediumHP 6% 1 cell
ManifoldsHP 10% 2 cell
Brass LargeMP 8% 2 cell
10 people
6 people 5 people
11 people
45 people
© BMA Inc. 2009. All rights reserved.
Exercise: Sample Answer #2VALUE
STREAMDIY, Trade &
Construction
Refrigeration & Coffee Valves
HydraulicsOEM &
Specialist
NEW PRODUCT DESIGN
SHARED
ProductsPlastics
Brass Low Pressure
Brass Medium Pressure
Alloy Mini & Small
Manifolds
Brass Large
Alloy Medium
Number of Cells
6 9 cells 2 5
Revenue
%23% 34% 19% 24% Ship/Rec
Sales
Cust Serv
Acct
IT
ManagerPeople
28 Cell1 FG1 PC1 Eng
1 Purch
45 cell2 FG1 PC1 Eng
1 Purch
11 cell1 FG (Share)1 PC (Share)
1 Eng1 Purch
18 cell1 FG1 PC2 Eng
© BMA Inc. 2009. All rights reserved.
Value Streams by MarketSample Answer #3
Value Streams
by Detailed Market
Water
OEM & Specialist
Coffee
Refrigeration
Plastic SmallLP 7% 2cells
Brass SmallLP 3% 1 cell
Plastic MedLP 8% 2 cells
10 people
18 people
Brass MiniMP 3% 1 cell
Brass SmallMP 6% 2 cell
Brass MediumMP 12% 2 cell
Alloy MiniHP 10% 1 cell
Alloy SmallHP 9% 1 cell
Brass MediumLP 5% 1cell
Alloy MediumHP 6% 1 cell
ManifoldsHP 10% 2 cell
Brass LargeMP 8% 2 cell
10 people
6 people
5 people
11 people
5 people
Manifolds
Brass MiniMP 6% 2 cell
10 people
Brass SmallMP 7% 2 cell
10 people
10 people
© BMA Inc. 2009. All rights reserved.
Exercise: Sample Answer #3VALUE
STREAMWater Refrigeration Coffee Manifold
Specialist OEM
SHARED
ProductsPlastic & Brass Low Pressure
Brass Medium Pressure
Brass Medium Pressure
Brass & Alloy
Small, Medium, & Large
Alloy High Pressure
Brass large Medium Pressure
Number of Cells
6 5 4 2 5
Revenue
%23% 21% 13% 10% 33% Ship/Rec
Sales
Cust Serv
Acct
IT
ManagerPeople
28 cell1 FG1 PC1 Eng
1 Purchase
25 cell1 FG1 PC1 Eng
1 Purch
10 cell1 FG Shared
0 PC1 Eng
0 Purchase
6 cell1 FG shared
0 PC1 Eng
0 Purchase
26 cell1 FG1 PC1 Eng
1 Purchase
© BMA Inc. 2009. All rights reserved.
Universal Value Company Value Stream Costing Exercise
© BMA Inc. 2009. All rights reserved.
Universal Valve CompanyCreating an Income Statement
August ($ Thousands)
Plastics 458.3
Alloy 675.0
Brass 1,408.3
Large Brass 525.0
Total 3,066.6
© BMA Inc. 2009. All rights reserved.
Universal Valve CompanyCell Staffing & Machines
In August there were no staffing changes.
Value Stream
Plastics Alloy BrassLarge &
ManifoldsSupport
Number of Cells
4 3 11 4 Materials Handling
(1)
Sales (7)
Cust.Servce (1)
Accounting (3)
IT (3)
Engineering Mgr (1)
Plant Manager
(1)
Operators 18 16 55 16
Materials Handlers
1 1 21 shared
with Brass
Production Control
1 1 21 shared with Alloy
Engineering
1 1 2 1
Purchasing
1 1 11 shared
with Brass
Number of Machines
13 11 40 12
© BMA Inc. 2009. All rights reserved.
Universal Valve CompanyBreakdown of Costs
• Payroll per Annum– Operators & Materials Handlers $50,450– Engineers
$82,143– Engineering Manager $100,000– Customer Service $40,000– Production Control, Purchasing, Accounting & IT
$55,000– Plant manager $120,000– Sales are paid on commission of 0.42% of sales
• Insurance, payroll taxes, & fringes 12.7%
• Machine depreciation/machine per annum $6,000
© BMA Inc. 2009. All rights reserved.
Universal Valve CompanyMore Costs for the month of August
Value Stream
Plastics Alloy BrassLarge &
ManifoldsSupport
Materials $205.8K $562.5K $765.0K $362.5K $44.5K
$5.2KEnergy Costs
$6.4K $25.0K $45.0K $20.5K
MRO & Supplies
$5.0K $6.5K $16.2K $7.1K $4.3K
Space Used
Sq. Feet18,800 17,400 57,900 15,900 40,000
Travel Costs
$1K $1.2K $2.2K $.8K $8.6K
Occupancy cost = $2.00 per square foot per annum
© BMA Inc. 2009. All rights reserved.
Universal Valve CompanyMore Information for Costs
• There are Corporate overhead costs of 1% of sales and Group overhead costs of ½% of sales. These are not allocated to the value streams.
• In August Universal Valve has gained $56.5K owing to exchange rate changes.
© BMA Inc. 2009. All rights reserved.
On your flip chart:
1. Be sure to include all four value streams and support.
2. Add the “below the line” adjustments to bring the statement into line with GAAP and other external
reporting requirements.3. You may use rounded figures.
Develop a “plain English” income statement for the Month of August
Universal Valve CompanyValue Stream Income Statement
© BMA Inc. 2009. All rights reserved.
Exercise Answer
$000 Plastic Alloy Brass
Large Brass & Manifold Support TOTAL
Income 458.3 675.0 1408.3 525.0 0.0 3066.6
Materials 205.8 562.5 765.0 362.5 44.5 1940.3MRO and Supplies 5.0 6.5 16.2 7.1 4.3 39.1Energy 6.4 25.0 45.0 20.5 5.2 102.1Space Costs 3.1 2.9 10.0 2.7 6.7 25.4Travel etc 1.0 1.2 2.2 0.8 8.6 13.8Machines 6.5 5.5 20.0 6.0 38.0
Sub Total 227.8 603.6 858.4 399.6 69.3 2158.7
Operators & Materials Handlers 79.9 71.5 241.7 69.4 4.2 466.7Production Controllers 4.6 6.9 9.2 2.3 0.0 23.0Engineers 6.8 6.8 13.7 6.8 0.0 34.1Purchasing 4.6 4.6 6.9 2.3 0.0 18.4Customer Service 3.3 3.3Finance & I.T. 27.5 27.5Engineering Manager 8.3 8.3Plant Manager 10.0 10.0Sales Commissions 12.8 12.8
Total Wages and Salaries 95.9 89.8 271.5 80.8 66.1 604.1Benefits 12.2 11.4 34.5 10.3 8.4 76.8
TOTAL COST 335.9 704.8 1164.4 490.7 143.8 2839.6
VALUE STREAM PROFIT 122.4 (29.8) 243.9 34.3 (143.8) 227.0
VALUE STREAM PROFIT % 26.71% -4.41% 17.32% 6.53% 0.00% 7.40%
Corporate Overheads 30.7 -30.7 Group Overheads 15.3 -15.3
Exchange Rate Gain 56.5 56.5
NET PROFIT 237.5NET PROFIT % 7.75%
Universal Valve Company August 2008 Income Statement by Value Stream
© BMA Inc. 2009. All rights reserved.
Universal Value Company Decision-Making Exercise
© BMA Inc. 2009. All rights reserved.
Example 1: Special Order with Available Capacity
• We received a special order of 1000 units per month of a Alloy Medium value– Price = $14.00 per unit– Standard Cost = $15– Margin = ($1)– Material unit cost - $9.50
• We have capacity available to produce these additional products
• Should we take the order?
© BMA Inc. 2009. All rights reserved.
Example 1: Special Order with Available Capacity
© BMA Inc. 2009. All rights reserved.
Example 2: Special Order without Available Capacity
• We have received a special order of 1000 units per month – Price = $14.00 per unit– Standard Cost = $15– Margin = ($1)
• Material unit cost - $9.50• Must add an extra person ($4,204 per month) to the
value stream
• Should we take the order?
© BMA Inc. 2009. All rights reserved.
Example 2: Special Order without Available Capacity
© BMA Inc. 2009. All rights reserved.
Example 3: Special Order with Outsourced Supplier
• We have received a special order of 1000 units per month – Price = $14.00 per unit– Standard Cost = $15– Margin ($1)
• We have no available capacity, but have found a local supplier– Outsourced purchase cost - $12.75
• Should we outsource this and take the order?
© BMA Inc. 2009. All rights reserved.
Example 3: Special Order with outsourced supplier
© BMA Inc. 2009. All rights reserved.
Example 4: Bring Outsourced Processes in House
• In the Brass Valves value stream continuous improvement has created enough capacity to possibly bring outsourced work in house.
– Monthly outsourced cost - $ 62,400– Material cost (if we make it in-house)= $36,000
• To produce in house we must: – buy a 2 machines ($3060 per month)– hire an extra supervisor ($4500/mo)– and 2 more operators ($8,400 per month)
• Should we bring this work in-house?
© BMA Inc. 2009. All rights reserved.
Example 4: Bring Outsourced Processes In House
© BMA Inc. 2009. All rights reserved.
Example 5: Capital Purchase Frees Up People
• We are thinking of buying a new machine to automate a manual production task in the Brass Valves value stream.– Machine cost = $4,000 per month– Machine purchase frees up 2 assembly operators ($8400 per
month)
• We have received orders for 2500 more units per month and the new machine provides the additional capacity.– The price is $18.00 and the material cost is $14.00
• Should we buy the machine?
© BMA Inc. 2009. All rights reserved.
Example 5: Capital Purchase which Frees Up People