Chapter 14, Problem 42E

1.

To determine

Describes the terms value-added time, non-value added time, and process cycle efficiency (PCE) and specifies how tasks included in the value-added, non-value - added time will be measured.

Explanation of Solution

Operational performance measures are the primary measures used to assess a company's operational efficiency.

Just-in-time (JIT) manufacturing is a strategy that aims to minimize the time a product spends on production while simultaneously reducing the response time for suppliers. Controlling the variables is the secret to keeping down production costs while enhancing efficiency.

Processing cycle efficiency (PCE) is a measure of operating performance defined as the

 ratio of processing time to total manufacturing time. It is a method of assessing process efficiency, based on the relationship between actual processing time and total production time. Excluded from this calculation are the "non-value - added" periods associated with the commodity being transported, processed or checked. A time-efficiency calculation is called the "Processing Cycle Efficiency (PCE)" which is defined as follows:

The formula to calculate PCE is:

PCE = Processing time/Total manufacturing time

OR

PCE = Processing Time ÷ (Processing Time + Moving Time + Storage Time + Inspection Time)

Value added time is the production or manufacturing processes and operations that enhance the product or add value to it.

Non-value added time is the amount of time in the manufacturing process that does not produce products or services directly. That is, in other words, the amount of time that the products are not being actively handled.

In the customer's viewpoint the terms "value-added" and "non-value-added" are defined (i.e. an external viewpoint is taken). The conceptions of "value-added" vs. "non-value-added" are not explicitly or specifically defined, because the viewpoint is external. When classifying behaviors the main question is whether the user should "pay" for the operation. It is one way the two concepts can be operationalised. These terminologies are extracted from the literature of activity-based costing (ABC).

2.

To determine

Define the terms cycle time and processing (manufacturing) time and mention that how the processing time will be broken down further.

Explanation of Solution

Cycle time (or manufacturing lead time) is the total time from the beginning of manufacturing to the moment when the product is finished.

Cycle time is the total time needed from production start up to output completion. The time required for production (or refining or manufacturing) reflects the time currently needed is known as the processing (manufacturing) time. As such, cycle time includes processing time, preparation time, travel time, configuration time, and inspection time, all of which can be viewed from the customer's perspective as "non-value added."

3.

To determine

Calculate and interpret the PCE for both the current manufacturing process and the proposed process after implementing JIT.

Explanation of Solution

Operational performance measures are the primary measures used to assess a company's operational efficiency.

Just-in-time (JIT) manufacturing is a strategy that aims to minimize the time a product spends on production while simultaneously reducing the response time for suppliers. Controlling the variables is the secret to keeping down production costs while enhancing efficiency.

Processing cycle efficiency (PCE) is a measure of operating performance defined as the

 ratio of processing time to total manufacturing time. It is a method of assessing process efficiency, based on the relationship between actual processing time and total production time. Excluded from this calculation are the "non-value - added" periods associated with the commodity being transported, processed or checked. A time-efficiency calculation is called the "Processing Cycle Efficiency (PCE)" which is defined as follows:

The formula to calculate PCE is:

PCE = Processing time/Total manufacturing time

OR

PCE = Processing Time ÷ (Processing Time + Moving Time + Storage Time + Inspection Time)

Calculate Processing Cycle Efficiency (PCE), Pre-JIT:

$\begin{array}{c}\text{PCE}=\text{Processing time/Total manufacturing time}\\ =60\min ÷195\min \\ =\text{3}0.\text{77}\%\end{array}$

OR

$\begin{array}{c}\text{PCE}=\text{1}.0\text{ hr}.÷\left(\text{1}.0\text{ hr}.+\text{1}.0\text{ hr}.+0.\text{5}0\text{ hr}.+0.\text{75 hr}.\right)\\ =\text{1}.0÷\text{3}.\text{25}\\ =\text{3}0.\text{77}\%\end{array}$

Hence, the processing Cycle Efficiency (PCE), pre-JIT is 30.77%.

Calculate Processing Cycle Efficiency (PCE), Post-JIT Implementation:

$\begin{array}{c}\text{PCE}=\text{Processing time/Total manufacturing time}\\ =30\min ÷80\min \\ =\text{3}7.\text{50}\%\end{array}$

OR

$\begin{array}{c}\text{PCE}=0.\text{5}0\text{ hr}.÷\left(0.\text{5}0\text{ hr}.+\text{2}0\text{/6}0\text{ hr}.+\text{15/6}0\text{ hr}.+\text{15/6}0\text{ hr}.\right)\\ =0.\text{5}0÷\left(0.\text{5}0+0.\text{333}+0.\text{25}+0.\text{25}\right)\\ =0.\text{5}0÷\text{1}.\text{3333 }\\ =\text{37}.\text{5}0\%\end{array}$

Hence, the Processing Cycle Efficiency (PCE), Post-JIT Implementation is 37.50%.

4.

To determine

Calculate the percentage change expected under JIT for the average PCE.

Explanation of Solution

Operational performance measures are the primary measures used to assess a company's operational efficiency.

Just-in-time (JIT) manufacturing is a strategy that aims to minimize the time a product spends on production while simultaneously reducing the response time for suppliers. Controlling the variables is the secret to keeping down production costs while enhancing efficiency.

Processing cycle efficiency (PCE) is a measure of operating performance defined as the

 ratio of processing time to total manufacturing time. It is a method of assessing process efficiency, based on the relationship between actual processing time and total production time. Excluded from this calculation are the "non-value - added" periods associated with the commodity being transported, processed or checked. A time-efficiency calculation is called the "Processing Cycle Efficiency (PCE)" which is defined as follows:

The formula to calculate PCE is:

PCE = Processing time/Total manufacturing time

OR

PCE = Processing Time ÷ (Processing Time + Moving Time + Storage Time + Inspection Time)

Calculate the percentage change expected under JIT for the average PCE:

$\begin{array}{c}\text{\% change in average PCE}=\left(0.\text{375}0-0.\text{3}0\text{77}\right)÷0.\text{3}0\text{77 }\\ =\text{22}\%\end{array}$

Hence, the % change expected under JIT for the average PCE is 22%.

5.

To determine

Mention of additional nonfinancial performance metrics that will be tracked by management in accordance with the transition to JIT.

Explanation of Solution

Operational performance measures are the primary measures used to assess a company's operational efficiency.

Just-in-time (JIT) manufacturing is a strategy that aims to minimize the time a product spends on production while simultaneously reducing the response time for suppliers. Controlling the variables is the secret to keeping down production costs while enhancing efficiency.

The transition to a JIT manufacturing method should be followed by improvements in efficiency, declines in waste and inefficiencies, reduction in inventories kept, improvements in cycle times (and customer response time, CRT), and, perhaps, increases in sales. Such standards indicate that the following non-financial performance metrics will be tracked and reported by the management accounting and control framework of the organization:

The following are the supplier-Related Measures:

• Deadline from placement of the order (for raw materials) and receipt by the manufacturer of these materials
• On-time delivery percentage
• Percentage of orders issued from placement of order (for raw materials) and receipt by the manufacturer of these materials
• Through companies directly active in the manufacturing process
• Percentage of defects (supplies, components and sub-assemblies)
• The percentage of accredited suppliers (i.e., eligible to supply without incoming inspections);

The following are the production-Related Measures

•    Parts-per-million (ppm) defect rates

•    Scrap and waste percentage

•    % first-pass yield

•    Inventory turnover rates

•    Machine uptime

•    % capacity utilization (i.e., managing the supply of resource capacity)

•    Actual production as % of planned production

The following are the distribution activities measures:

•    % of items delivered with no (zero) defects

•    Number and frequency of customer complaints

•    % on-time delivery

•    lead time from placement of order to delivery

•    Delivery time (i.e., time from completion of production to delivery to customer)