Presentation Transcript

1. Targeting Improvement Module Key Operational Metrics: Time T, Inventory I, Throughput rate R Link through Little’s Law Link Operational Metrics to Financial Metrics Levers for Improvement Firm & Divisional Level: MBPF Inc. Mkt-Ops: CRU Computer Rentals
2. What is an improvement? Strategic fit & competencies Financials & process view
3. Operational Performance Measures Flow (Cycle) time - T Throughput / flow rate – R Takt Time Inventory - I Process Cost Quality
4. x + + + + + - - x The business imperative: economic value creation Improvement levers Increase price Increase throughput Price Revenues Quantity Profit Material Labor Costs Reduce costs Improve quality Energy Economic value added (EVA) Overhead PP&E Reduce capital intensity Reduce inventory Capital invested Inventory Opportunity cost Other Reduce time Weighted average cost of capital Operational metrics Financial metrics
5. What is Toyota doing now? Taiichi Ohno’s answer was very simple: “All we are doing is looking at the time line from the moment the customer gives us an order to the point when we collect the cash. And we are reducing that time line by removing the non-value-added wastes.” Simple but brilliant. (Taiichi Ohno. Toyota Production System: Beyond Large-Scale Production. p. ix.)
6. How reduce flow time? There are only two available levers
7. Total time available Customer demand Takt Time “The rhythm of the conductor to keep the orchestra in time” Takt time = Takt time yields the rate at which customers demand product and the production rate to stay synchronized with demand Example: Demand = 150,000 cars per year Total available production time = 2 x 8 hrs/day x 250 days/yr = 4,000 hrs/year Takt = 4,000 hrs/150,000 cars = 1hr/37.5 cars = 96 sec / car What does Little’s Law say about takt time? metronome Willys Jeep
8. Inventory = Throughput x Flow Time I = R xT Inventory Turnover = Throughput / Inventory = 1/ T Linking operational measures: Little’s Law Flow rate/ThroughputR [units/hr] Inventory I [units] ... ... ... ... ... Flow Time T[hrs]
9. A Process Example using Little’s Law 25% quit 4 patients/hr Initial doctor consultation Patient checks in Wait Doctor requests tests for patient Wait Nurse takes tests 75% 5 min 2 patients 12 min 5 min 1 patient 30 min
10. Targeting Improvement Module Key Operational Metrics: Time T, Inventory I, Throughput rate R Link through Little’s Law Link Operational Metrics to Financial Metrics
11. Inventory Turns in Retailing and Its Link to Inventory Costs If Wal-Mart carried the same months of inventory as Home Depot, its inventories would be I = This would tie up about $ billion extra in inventory.
12. Cash-to-Cash Cycle Inventory Accounts Receivable Accounts Payable Cash Cash Conversion Cycle Measures duration between purchase of inventory and collection of accounts receivable: Cash Conversion Cycle= Days of Inventory + Days of Receivables - Days of Payables How long does it take between outlay of cash and collecting the reward?
13. MBPF Inc.: Consolidated Statement
14. MBPF Inc.: Balance Sheet
15. Business Process Flows at MBPF, Inc: Cash to Cash cycle C2C = - Days payable + Days of inventory + Days receivables
16. Amazon Income Statement
17. Amazon Balance Sheet
18. MBPF Inc.: Inventory and Cost of Goods
19. MBPF Inc.: Detailed Financial Flows $60.2/yr Labor & OH $25.3/yr Labor & OH $110.3/yr $50.1/yr $6.5 $15.1 Raw Materials (roofs) Fabrication (roofs) $175.8/yr $175.8/yr $10.6 $9.8 $40.2/yr Assembly Finished Goods $8.6 $40.2/yr Purchased Parts (bases)
20. MBPF Inc.: Detailed Flow Times
21. Flow rate R ($/week) 5.0 3.38 Accounts Receivable 2.12 Assembly Finished Goods Fabrication 0.96 Raw Materials 0.77 Purchased Parts 11.12 6.75 7.12 3.14 2.90 5.80 Flow Time T (weeks) Where target improvement?

22. Case: CRU Computer RentalsLinking Financial and Operational Flows&Targeting Areas for Improvement

    Handouts to be distributed in class