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PPT on Kaizen Costing, Just in time approach & lifecycle costing
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Prepared by
Neelam Jodhwani
Pinakini Trivedi
Jay Raval
Dept of Business Admin Bhavnagar University Bhavnagar
Guided by
Himanshu Sir
SUBMITTED TO
Kaizen CostingJust In Time Approach
Life Cycle Costing
Jay Raval
KAIZEN COSTING
KIA-----CHANGEZEN-----BETTER
CHANGE FOR BETTER
Jay Raval
DEFINATION
A Japanese term for making improvements to a process through small incremental
amounts rather than through large innovations
Jay Raval
BENEFITSChange in attitudeReduction in Production TimeReduction in RejectionEnergy SavingImproved QualityMotivationTeam Building
Sense of belongingnessEnvironment conservation
Jay Raval
bullProactive approach to cTSost managementbullOrients organizations towards customersbullBreaks down barriers between departmentsbullFoster partnerships with suppliersbullMinimize non value-added activitiesbullEncourages selection of lowest cost value added activities
Jay Raval
LIMITATION
Effective implementation and use requires the development of detailed cost data
its implementation requires willingness to cooperate
Requires many meetings for coordination
May reduce the quality of products due to the use of cheep components which may be of inferior quality
Jay Raval
Jay Raval
CUSTOMER VALUE
Jay Raval
STANDARD COSTING VS KAIZEN COSTING
1 Cost reduction targets are set and applied monthly
2 Variance analysis involves target Kaizen costs versus actual cost reduction amounts3 Investigation occurs when target reductions are not attained
1 Standards are set annually or semi- annually2 Variance analysis involves comparing actual to standard costs3 Investigation occurs when standards are not met
Jay Raval
CONCERNS
Often viewed as reactionary not value addingThe system places enormous pressure on employees to reduce every conceivable costThe product is already in the manufacturing process thus it is difficult and costly to make large changes to reduce costsThe cost of disruptions to production may be greater than the savings
Jay Raval
RULES FOR IMPLEMENTATION OF KAIZEN COSTING
1048707List your own Problems1048707Grade problems as to minor difficult and major1048707Start with the smallest minor problem1048707Move on to next graded problem and so on1048707Remember improvement is part of daily routine1048707Never accept status quo1048707Never reject any idea before trying1048707Eliminate tried but failed experiments1048707Highlight problems rather than hiding
Jay Raval
Just-In-Time Systems
Jay Raval
History and Philosophy of Just-In-Time
bull A philosophy that seeks to eliminate all types of waste including carrying excessive levels of inventory and long lead times
bull Takes its name from the idea of replenishing material buffers just when they are needed and not before or after
bull Developed by Toyota Motor Company in mid-1970sbull Best applied to a production system such as
automobile assembly that would be considered repetitive such as a flow shop
Jay Raval
Characteristics of Lean Systems Just-in-Timemiddot Pull method of materials flowmiddot Consistently high qualitymiddot Small lot sizesmiddot Uniform workstation loadsmiddot Close supplier tiesmiddot Flexible workforcemiddot Line flowsmiddot Automated productionmiddot Preventive maintenance
Jay Raval
JIT Means hellip
bull Keeping work flows movingbull Eliminating inventoriesbull Reducing travel distancesbull Eliminating defects and scrapbull Maximizing usage of space
Jay Raval
JIT Demand-Pull Logic
Customers
Sub
Sub
Fab
Fab
Fab
Fab
Vendor
Vendor
Vendor
Vendor
Final Assembly
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Then sub-assembly work is pulled forward by that demandhellip
Then sub-assembly work is pulled forward by that demandhellip
The process continues throughout the entire production process and supply chain
The process continues throughout the entire production process and supply chain
Jay Raval
Just-In-Time Production
bull Management philosophybull ldquoPullrdquo system though the plant
WHAT IT IS
bull Employee participationbull Industrial engineeringbasicsbull Continuing improvementbull Total quality controlbull Small lot sizes
WHAT IT REQUIRES
bull Attacks wastebull Exposes problems and bottlenecksbull Achieves streamlined production
WHAT IT DOES
bull Stable environment
WHAT IT ASSUMES
Jay Raval
Traditional Systems Compared to JIT
Jay Raval
Priorities
bull Traditionallyndash Accept all customer ordersndash Provide a large number of options from which
customers may orderbull JIT
ndash low costhigh quality within limited market
Jay Raval
Engineering
bull Traditionalndash design custom outputs
bull JITndash design standard outputsndash incremental
improvementsndash design for
manufacturability (DFM)
Jay Raval
Capacity
bull Traditionalndash excess capacity designed into system just-in-case
problem arisesndash highly utilizedndash inflexible
bull JITndash minimize waste of having extra capacityndash flexible capacityndash moderately utilized
Jay Raval
Transformation System
bull Traditionalndash job shopndash materials handling equipmentndash lots of space to store inventory
bull JITndash mostly used in repetitive production situationsndash job shops often converted to cellular
manufacturing
Jay Raval
Transformation System continued
bull Traditional-long lead times are often thought to allow more time to make decisions and get work performed
bull JITndash short lead times mean easier more accurate forecasting and planning
ndash If lead times are reduced there is less time for things go awry to get lost or to be changed
Jay Raval
Transformation System continued
bull JIT
ndash Employing Kanban (Toyotarsquos materials management system)ndash Pull system System for moving work where a workstation
pulls output from the preceding station as needed (control-based systems that signals the requirement for parts as they are needed in reality)
ndash Push system System for moving work where output is pushed to the next station as it is completed (planning-based systems that determine when workstations will probably need parts if everything goes according to plan)
Jay Raval
Sequential Production System with Two Machines
Jay Raval
Layoutbull Traditional
ndash job shop approach of using widely spread-out equipment with space for stockrooms tool cribs and work-in-process inventories between the equipment
ndash To handle and move all this inventory automated or semi automated materials handling equipment (conveyors forklifts) is required which takes even more space
bull JITndash Equipment is moved as close together as possible so that parts can be
actually handed from one worker or machine to the next ndash Use of cells and flow lines dictates small lots of parts with minimal
work-in-process and material-moving equipmentndash manual transfer
Jay Raval
Workforcebull Traditional
ndash competitive attitude between workers and managersndash status symbols and privilegesndash much of the employeesrsquo time is nonworking time looking for parts
moving materials setting up machines getting instructions and so on When actually working they tend to work fast
bull JITndash broadly skilled flexible workers who can uncover and solve problemsndash workteamsndash cooperative attitudes
Jay Raval
Inventories
bull Traditionalndash used to buffer
operationsndash large WIP buffers
bull JITndash inventory is seen as an
evilndash small WIP buffers
Jay Raval
Scrap Unreliable suppliers
Capacity imbalance
Inventory Hides Problems
Jay Raval
Lowering Inventory Investment to Expose Problems
Jay Raval
Suppliers
bull Traditionalndash suppliers treated as
adversariesndash multiple sourcing
bull JITndash supplier considered part
of teamndash single-sourcing
agreementsndash supplier certification
programs
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
KAIZEN COSTING
KIA-----CHANGEZEN-----BETTER
CHANGE FOR BETTER
Jay Raval
DEFINATION
A Japanese term for making improvements to a process through small incremental
amounts rather than through large innovations
Jay Raval
BENEFITSChange in attitudeReduction in Production TimeReduction in RejectionEnergy SavingImproved QualityMotivationTeam Building
Sense of belongingnessEnvironment conservation
Jay Raval
bullProactive approach to cTSost managementbullOrients organizations towards customersbullBreaks down barriers between departmentsbullFoster partnerships with suppliersbullMinimize non value-added activitiesbullEncourages selection of lowest cost value added activities
Jay Raval
LIMITATION
Effective implementation and use requires the development of detailed cost data
its implementation requires willingness to cooperate
Requires many meetings for coordination
May reduce the quality of products due to the use of cheep components which may be of inferior quality
Jay Raval
Jay Raval
CUSTOMER VALUE
Jay Raval
STANDARD COSTING VS KAIZEN COSTING
1 Cost reduction targets are set and applied monthly
2 Variance analysis involves target Kaizen costs versus actual cost reduction amounts3 Investigation occurs when target reductions are not attained
1 Standards are set annually or semi- annually2 Variance analysis involves comparing actual to standard costs3 Investigation occurs when standards are not met
Jay Raval
CONCERNS
Often viewed as reactionary not value addingThe system places enormous pressure on employees to reduce every conceivable costThe product is already in the manufacturing process thus it is difficult and costly to make large changes to reduce costsThe cost of disruptions to production may be greater than the savings
Jay Raval
RULES FOR IMPLEMENTATION OF KAIZEN COSTING
1048707List your own Problems1048707Grade problems as to minor difficult and major1048707Start with the smallest minor problem1048707Move on to next graded problem and so on1048707Remember improvement is part of daily routine1048707Never accept status quo1048707Never reject any idea before trying1048707Eliminate tried but failed experiments1048707Highlight problems rather than hiding
Jay Raval
Just-In-Time Systems
Jay Raval
History and Philosophy of Just-In-Time
bull A philosophy that seeks to eliminate all types of waste including carrying excessive levels of inventory and long lead times
bull Takes its name from the idea of replenishing material buffers just when they are needed and not before or after
bull Developed by Toyota Motor Company in mid-1970sbull Best applied to a production system such as
automobile assembly that would be considered repetitive such as a flow shop
Jay Raval
Characteristics of Lean Systems Just-in-Timemiddot Pull method of materials flowmiddot Consistently high qualitymiddot Small lot sizesmiddot Uniform workstation loadsmiddot Close supplier tiesmiddot Flexible workforcemiddot Line flowsmiddot Automated productionmiddot Preventive maintenance
Jay Raval
JIT Means hellip
bull Keeping work flows movingbull Eliminating inventoriesbull Reducing travel distancesbull Eliminating defects and scrapbull Maximizing usage of space
Jay Raval
JIT Demand-Pull Logic
Customers
Sub
Sub
Fab
Fab
Fab
Fab
Vendor
Vendor
Vendor
Vendor
Final Assembly
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Then sub-assembly work is pulled forward by that demandhellip
Then sub-assembly work is pulled forward by that demandhellip
The process continues throughout the entire production process and supply chain
The process continues throughout the entire production process and supply chain
Jay Raval
Just-In-Time Production
bull Management philosophybull ldquoPullrdquo system though the plant
WHAT IT IS
bull Employee participationbull Industrial engineeringbasicsbull Continuing improvementbull Total quality controlbull Small lot sizes
WHAT IT REQUIRES
bull Attacks wastebull Exposes problems and bottlenecksbull Achieves streamlined production
WHAT IT DOES
bull Stable environment
WHAT IT ASSUMES
Jay Raval
Traditional Systems Compared to JIT
Jay Raval
Priorities
bull Traditionallyndash Accept all customer ordersndash Provide a large number of options from which
customers may orderbull JIT
ndash low costhigh quality within limited market
Jay Raval
Engineering
bull Traditionalndash design custom outputs
bull JITndash design standard outputsndash incremental
improvementsndash design for
manufacturability (DFM)
Jay Raval
Capacity
bull Traditionalndash excess capacity designed into system just-in-case
problem arisesndash highly utilizedndash inflexible
bull JITndash minimize waste of having extra capacityndash flexible capacityndash moderately utilized
Jay Raval
Transformation System
bull Traditionalndash job shopndash materials handling equipmentndash lots of space to store inventory
bull JITndash mostly used in repetitive production situationsndash job shops often converted to cellular
manufacturing
Jay Raval
Transformation System continued
bull Traditional-long lead times are often thought to allow more time to make decisions and get work performed
bull JITndash short lead times mean easier more accurate forecasting and planning
ndash If lead times are reduced there is less time for things go awry to get lost or to be changed
Jay Raval
Transformation System continued
bull JIT
ndash Employing Kanban (Toyotarsquos materials management system)ndash Pull system System for moving work where a workstation
pulls output from the preceding station as needed (control-based systems that signals the requirement for parts as they are needed in reality)
ndash Push system System for moving work where output is pushed to the next station as it is completed (planning-based systems that determine when workstations will probably need parts if everything goes according to plan)
Jay Raval
Sequential Production System with Two Machines
Jay Raval
Layoutbull Traditional
ndash job shop approach of using widely spread-out equipment with space for stockrooms tool cribs and work-in-process inventories between the equipment
ndash To handle and move all this inventory automated or semi automated materials handling equipment (conveyors forklifts) is required which takes even more space
bull JITndash Equipment is moved as close together as possible so that parts can be
actually handed from one worker or machine to the next ndash Use of cells and flow lines dictates small lots of parts with minimal
work-in-process and material-moving equipmentndash manual transfer
Jay Raval
Workforcebull Traditional
ndash competitive attitude between workers and managersndash status symbols and privilegesndash much of the employeesrsquo time is nonworking time looking for parts
moving materials setting up machines getting instructions and so on When actually working they tend to work fast
bull JITndash broadly skilled flexible workers who can uncover and solve problemsndash workteamsndash cooperative attitudes
Jay Raval
Inventories
bull Traditionalndash used to buffer
operationsndash large WIP buffers
bull JITndash inventory is seen as an
evilndash small WIP buffers
Jay Raval
Scrap Unreliable suppliers
Capacity imbalance
Inventory Hides Problems
Jay Raval
Lowering Inventory Investment to Expose Problems
Jay Raval
Suppliers
bull Traditionalndash suppliers treated as
adversariesndash multiple sourcing
bull JITndash supplier considered part
of teamndash single-sourcing
agreementsndash supplier certification
programs
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
DEFINATION
A Japanese term for making improvements to a process through small incremental
amounts rather than through large innovations
Jay Raval
BENEFITSChange in attitudeReduction in Production TimeReduction in RejectionEnergy SavingImproved QualityMotivationTeam Building
Sense of belongingnessEnvironment conservation
Jay Raval
bullProactive approach to cTSost managementbullOrients organizations towards customersbullBreaks down barriers between departmentsbullFoster partnerships with suppliersbullMinimize non value-added activitiesbullEncourages selection of lowest cost value added activities
Jay Raval
LIMITATION
Effective implementation and use requires the development of detailed cost data
its implementation requires willingness to cooperate
Requires many meetings for coordination
May reduce the quality of products due to the use of cheep components which may be of inferior quality
Jay Raval
Jay Raval
CUSTOMER VALUE
Jay Raval
STANDARD COSTING VS KAIZEN COSTING
1 Cost reduction targets are set and applied monthly
2 Variance analysis involves target Kaizen costs versus actual cost reduction amounts3 Investigation occurs when target reductions are not attained
1 Standards are set annually or semi- annually2 Variance analysis involves comparing actual to standard costs3 Investigation occurs when standards are not met
Jay Raval
CONCERNS
Often viewed as reactionary not value addingThe system places enormous pressure on employees to reduce every conceivable costThe product is already in the manufacturing process thus it is difficult and costly to make large changes to reduce costsThe cost of disruptions to production may be greater than the savings
Jay Raval
RULES FOR IMPLEMENTATION OF KAIZEN COSTING
1048707List your own Problems1048707Grade problems as to minor difficult and major1048707Start with the smallest minor problem1048707Move on to next graded problem and so on1048707Remember improvement is part of daily routine1048707Never accept status quo1048707Never reject any idea before trying1048707Eliminate tried but failed experiments1048707Highlight problems rather than hiding
Jay Raval
Just-In-Time Systems
Jay Raval
History and Philosophy of Just-In-Time
bull A philosophy that seeks to eliminate all types of waste including carrying excessive levels of inventory and long lead times
bull Takes its name from the idea of replenishing material buffers just when they are needed and not before or after
bull Developed by Toyota Motor Company in mid-1970sbull Best applied to a production system such as
automobile assembly that would be considered repetitive such as a flow shop
Jay Raval
Characteristics of Lean Systems Just-in-Timemiddot Pull method of materials flowmiddot Consistently high qualitymiddot Small lot sizesmiddot Uniform workstation loadsmiddot Close supplier tiesmiddot Flexible workforcemiddot Line flowsmiddot Automated productionmiddot Preventive maintenance
Jay Raval
JIT Means hellip
bull Keeping work flows movingbull Eliminating inventoriesbull Reducing travel distancesbull Eliminating defects and scrapbull Maximizing usage of space
Jay Raval
JIT Demand-Pull Logic
Customers
Sub
Sub
Fab
Fab
Fab
Fab
Vendor
Vendor
Vendor
Vendor
Final Assembly
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Then sub-assembly work is pulled forward by that demandhellip
Then sub-assembly work is pulled forward by that demandhellip
The process continues throughout the entire production process and supply chain
The process continues throughout the entire production process and supply chain
Jay Raval
Just-In-Time Production
bull Management philosophybull ldquoPullrdquo system though the plant
WHAT IT IS
bull Employee participationbull Industrial engineeringbasicsbull Continuing improvementbull Total quality controlbull Small lot sizes
WHAT IT REQUIRES
bull Attacks wastebull Exposes problems and bottlenecksbull Achieves streamlined production
WHAT IT DOES
bull Stable environment
WHAT IT ASSUMES
Jay Raval
Traditional Systems Compared to JIT
Jay Raval
Priorities
bull Traditionallyndash Accept all customer ordersndash Provide a large number of options from which
customers may orderbull JIT
ndash low costhigh quality within limited market
Jay Raval
Engineering
bull Traditionalndash design custom outputs
bull JITndash design standard outputsndash incremental
improvementsndash design for
manufacturability (DFM)
Jay Raval
Capacity
bull Traditionalndash excess capacity designed into system just-in-case
problem arisesndash highly utilizedndash inflexible
bull JITndash minimize waste of having extra capacityndash flexible capacityndash moderately utilized
Jay Raval
Transformation System
bull Traditionalndash job shopndash materials handling equipmentndash lots of space to store inventory
bull JITndash mostly used in repetitive production situationsndash job shops often converted to cellular
manufacturing
Jay Raval
Transformation System continued
bull Traditional-long lead times are often thought to allow more time to make decisions and get work performed
bull JITndash short lead times mean easier more accurate forecasting and planning
ndash If lead times are reduced there is less time for things go awry to get lost or to be changed
Jay Raval
Transformation System continued
bull JIT
ndash Employing Kanban (Toyotarsquos materials management system)ndash Pull system System for moving work where a workstation
pulls output from the preceding station as needed (control-based systems that signals the requirement for parts as they are needed in reality)
ndash Push system System for moving work where output is pushed to the next station as it is completed (planning-based systems that determine when workstations will probably need parts if everything goes according to plan)
Jay Raval
Sequential Production System with Two Machines
Jay Raval
Layoutbull Traditional
ndash job shop approach of using widely spread-out equipment with space for stockrooms tool cribs and work-in-process inventories between the equipment
ndash To handle and move all this inventory automated or semi automated materials handling equipment (conveyors forklifts) is required which takes even more space
bull JITndash Equipment is moved as close together as possible so that parts can be
actually handed from one worker or machine to the next ndash Use of cells and flow lines dictates small lots of parts with minimal
work-in-process and material-moving equipmentndash manual transfer
Jay Raval
Workforcebull Traditional
ndash competitive attitude between workers and managersndash status symbols and privilegesndash much of the employeesrsquo time is nonworking time looking for parts
moving materials setting up machines getting instructions and so on When actually working they tend to work fast
bull JITndash broadly skilled flexible workers who can uncover and solve problemsndash workteamsndash cooperative attitudes
Jay Raval
Inventories
bull Traditionalndash used to buffer
operationsndash large WIP buffers
bull JITndash inventory is seen as an
evilndash small WIP buffers
Jay Raval
Scrap Unreliable suppliers
Capacity imbalance
Inventory Hides Problems
Jay Raval
Lowering Inventory Investment to Expose Problems
Jay Raval
Suppliers
bull Traditionalndash suppliers treated as
adversariesndash multiple sourcing
bull JITndash supplier considered part
of teamndash single-sourcing
agreementsndash supplier certification
programs
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
BENEFITSChange in attitudeReduction in Production TimeReduction in RejectionEnergy SavingImproved QualityMotivationTeam Building
Sense of belongingnessEnvironment conservation
Jay Raval
bullProactive approach to cTSost managementbullOrients organizations towards customersbullBreaks down barriers between departmentsbullFoster partnerships with suppliersbullMinimize non value-added activitiesbullEncourages selection of lowest cost value added activities
Jay Raval
LIMITATION
Effective implementation and use requires the development of detailed cost data
its implementation requires willingness to cooperate
Requires many meetings for coordination
May reduce the quality of products due to the use of cheep components which may be of inferior quality
Jay Raval
Jay Raval
CUSTOMER VALUE
Jay Raval
STANDARD COSTING VS KAIZEN COSTING
1 Cost reduction targets are set and applied monthly
2 Variance analysis involves target Kaizen costs versus actual cost reduction amounts3 Investigation occurs when target reductions are not attained
1 Standards are set annually or semi- annually2 Variance analysis involves comparing actual to standard costs3 Investigation occurs when standards are not met
Jay Raval
CONCERNS
Often viewed as reactionary not value addingThe system places enormous pressure on employees to reduce every conceivable costThe product is already in the manufacturing process thus it is difficult and costly to make large changes to reduce costsThe cost of disruptions to production may be greater than the savings
Jay Raval
RULES FOR IMPLEMENTATION OF KAIZEN COSTING
1048707List your own Problems1048707Grade problems as to minor difficult and major1048707Start with the smallest minor problem1048707Move on to next graded problem and so on1048707Remember improvement is part of daily routine1048707Never accept status quo1048707Never reject any idea before trying1048707Eliminate tried but failed experiments1048707Highlight problems rather than hiding
Jay Raval
Just-In-Time Systems
Jay Raval
History and Philosophy of Just-In-Time
bull A philosophy that seeks to eliminate all types of waste including carrying excessive levels of inventory and long lead times
bull Takes its name from the idea of replenishing material buffers just when they are needed and not before or after
bull Developed by Toyota Motor Company in mid-1970sbull Best applied to a production system such as
automobile assembly that would be considered repetitive such as a flow shop
Jay Raval
Characteristics of Lean Systems Just-in-Timemiddot Pull method of materials flowmiddot Consistently high qualitymiddot Small lot sizesmiddot Uniform workstation loadsmiddot Close supplier tiesmiddot Flexible workforcemiddot Line flowsmiddot Automated productionmiddot Preventive maintenance
Jay Raval
JIT Means hellip
bull Keeping work flows movingbull Eliminating inventoriesbull Reducing travel distancesbull Eliminating defects and scrapbull Maximizing usage of space
Jay Raval
JIT Demand-Pull Logic
Customers
Sub
Sub
Fab
Fab
Fab
Fab
Vendor
Vendor
Vendor
Vendor
Final Assembly
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Then sub-assembly work is pulled forward by that demandhellip
Then sub-assembly work is pulled forward by that demandhellip
The process continues throughout the entire production process and supply chain
The process continues throughout the entire production process and supply chain
Jay Raval
Just-In-Time Production
bull Management philosophybull ldquoPullrdquo system though the plant
WHAT IT IS
bull Employee participationbull Industrial engineeringbasicsbull Continuing improvementbull Total quality controlbull Small lot sizes
WHAT IT REQUIRES
bull Attacks wastebull Exposes problems and bottlenecksbull Achieves streamlined production
WHAT IT DOES
bull Stable environment
WHAT IT ASSUMES
Jay Raval
Traditional Systems Compared to JIT
Jay Raval
Priorities
bull Traditionallyndash Accept all customer ordersndash Provide a large number of options from which
customers may orderbull JIT
ndash low costhigh quality within limited market
Jay Raval
Engineering
bull Traditionalndash design custom outputs
bull JITndash design standard outputsndash incremental
improvementsndash design for
manufacturability (DFM)
Jay Raval
Capacity
bull Traditionalndash excess capacity designed into system just-in-case
problem arisesndash highly utilizedndash inflexible
bull JITndash minimize waste of having extra capacityndash flexible capacityndash moderately utilized
Jay Raval
Transformation System
bull Traditionalndash job shopndash materials handling equipmentndash lots of space to store inventory
bull JITndash mostly used in repetitive production situationsndash job shops often converted to cellular
manufacturing
Jay Raval
Transformation System continued
bull Traditional-long lead times are often thought to allow more time to make decisions and get work performed
bull JITndash short lead times mean easier more accurate forecasting and planning
ndash If lead times are reduced there is less time for things go awry to get lost or to be changed
Jay Raval
Transformation System continued
bull JIT
ndash Employing Kanban (Toyotarsquos materials management system)ndash Pull system System for moving work where a workstation
pulls output from the preceding station as needed (control-based systems that signals the requirement for parts as they are needed in reality)
ndash Push system System for moving work where output is pushed to the next station as it is completed (planning-based systems that determine when workstations will probably need parts if everything goes according to plan)
Jay Raval
Sequential Production System with Two Machines
Jay Raval
Layoutbull Traditional
ndash job shop approach of using widely spread-out equipment with space for stockrooms tool cribs and work-in-process inventories between the equipment
ndash To handle and move all this inventory automated or semi automated materials handling equipment (conveyors forklifts) is required which takes even more space
bull JITndash Equipment is moved as close together as possible so that parts can be
actually handed from one worker or machine to the next ndash Use of cells and flow lines dictates small lots of parts with minimal
work-in-process and material-moving equipmentndash manual transfer
Jay Raval
Workforcebull Traditional
ndash competitive attitude between workers and managersndash status symbols and privilegesndash much of the employeesrsquo time is nonworking time looking for parts
moving materials setting up machines getting instructions and so on When actually working they tend to work fast
bull JITndash broadly skilled flexible workers who can uncover and solve problemsndash workteamsndash cooperative attitudes
Jay Raval
Inventories
bull Traditionalndash used to buffer
operationsndash large WIP buffers
bull JITndash inventory is seen as an
evilndash small WIP buffers
Jay Raval
Scrap Unreliable suppliers
Capacity imbalance
Inventory Hides Problems
Jay Raval
Lowering Inventory Investment to Expose Problems
Jay Raval
Suppliers
bull Traditionalndash suppliers treated as
adversariesndash multiple sourcing
bull JITndash supplier considered part
of teamndash single-sourcing
agreementsndash supplier certification
programs
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
bullProactive approach to cTSost managementbullOrients organizations towards customersbullBreaks down barriers between departmentsbullFoster partnerships with suppliersbullMinimize non value-added activitiesbullEncourages selection of lowest cost value added activities
Jay Raval
LIMITATION
Effective implementation and use requires the development of detailed cost data
its implementation requires willingness to cooperate
Requires many meetings for coordination
May reduce the quality of products due to the use of cheep components which may be of inferior quality
Jay Raval
Jay Raval
CUSTOMER VALUE
Jay Raval
STANDARD COSTING VS KAIZEN COSTING
1 Cost reduction targets are set and applied monthly
2 Variance analysis involves target Kaizen costs versus actual cost reduction amounts3 Investigation occurs when target reductions are not attained
1 Standards are set annually or semi- annually2 Variance analysis involves comparing actual to standard costs3 Investigation occurs when standards are not met
Jay Raval
CONCERNS
Often viewed as reactionary not value addingThe system places enormous pressure on employees to reduce every conceivable costThe product is already in the manufacturing process thus it is difficult and costly to make large changes to reduce costsThe cost of disruptions to production may be greater than the savings
Jay Raval
RULES FOR IMPLEMENTATION OF KAIZEN COSTING
1048707List your own Problems1048707Grade problems as to minor difficult and major1048707Start with the smallest minor problem1048707Move on to next graded problem and so on1048707Remember improvement is part of daily routine1048707Never accept status quo1048707Never reject any idea before trying1048707Eliminate tried but failed experiments1048707Highlight problems rather than hiding
Jay Raval
Just-In-Time Systems
Jay Raval
History and Philosophy of Just-In-Time
bull A philosophy that seeks to eliminate all types of waste including carrying excessive levels of inventory and long lead times
bull Takes its name from the idea of replenishing material buffers just when they are needed and not before or after
bull Developed by Toyota Motor Company in mid-1970sbull Best applied to a production system such as
automobile assembly that would be considered repetitive such as a flow shop
Jay Raval
Characteristics of Lean Systems Just-in-Timemiddot Pull method of materials flowmiddot Consistently high qualitymiddot Small lot sizesmiddot Uniform workstation loadsmiddot Close supplier tiesmiddot Flexible workforcemiddot Line flowsmiddot Automated productionmiddot Preventive maintenance
Jay Raval
JIT Means hellip
bull Keeping work flows movingbull Eliminating inventoriesbull Reducing travel distancesbull Eliminating defects and scrapbull Maximizing usage of space
Jay Raval
JIT Demand-Pull Logic
Customers
Sub
Sub
Fab
Fab
Fab
Fab
Vendor
Vendor
Vendor
Vendor
Final Assembly
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Then sub-assembly work is pulled forward by that demandhellip
Then sub-assembly work is pulled forward by that demandhellip
The process continues throughout the entire production process and supply chain
The process continues throughout the entire production process and supply chain
Jay Raval
Just-In-Time Production
bull Management philosophybull ldquoPullrdquo system though the plant
WHAT IT IS
bull Employee participationbull Industrial engineeringbasicsbull Continuing improvementbull Total quality controlbull Small lot sizes
WHAT IT REQUIRES
bull Attacks wastebull Exposes problems and bottlenecksbull Achieves streamlined production
WHAT IT DOES
bull Stable environment
WHAT IT ASSUMES
Jay Raval
Traditional Systems Compared to JIT
Jay Raval
Priorities
bull Traditionallyndash Accept all customer ordersndash Provide a large number of options from which
customers may orderbull JIT
ndash low costhigh quality within limited market
Jay Raval
Engineering
bull Traditionalndash design custom outputs
bull JITndash design standard outputsndash incremental
improvementsndash design for
manufacturability (DFM)
Jay Raval
Capacity
bull Traditionalndash excess capacity designed into system just-in-case
problem arisesndash highly utilizedndash inflexible
bull JITndash minimize waste of having extra capacityndash flexible capacityndash moderately utilized
Jay Raval
Transformation System
bull Traditionalndash job shopndash materials handling equipmentndash lots of space to store inventory
bull JITndash mostly used in repetitive production situationsndash job shops often converted to cellular
manufacturing
Jay Raval
Transformation System continued
bull Traditional-long lead times are often thought to allow more time to make decisions and get work performed
bull JITndash short lead times mean easier more accurate forecasting and planning
ndash If lead times are reduced there is less time for things go awry to get lost or to be changed
Jay Raval
Transformation System continued
bull JIT
ndash Employing Kanban (Toyotarsquos materials management system)ndash Pull system System for moving work where a workstation
pulls output from the preceding station as needed (control-based systems that signals the requirement for parts as they are needed in reality)
ndash Push system System for moving work where output is pushed to the next station as it is completed (planning-based systems that determine when workstations will probably need parts if everything goes according to plan)
Jay Raval
Sequential Production System with Two Machines
Jay Raval
Layoutbull Traditional
ndash job shop approach of using widely spread-out equipment with space for stockrooms tool cribs and work-in-process inventories between the equipment
ndash To handle and move all this inventory automated or semi automated materials handling equipment (conveyors forklifts) is required which takes even more space
bull JITndash Equipment is moved as close together as possible so that parts can be
actually handed from one worker or machine to the next ndash Use of cells and flow lines dictates small lots of parts with minimal
work-in-process and material-moving equipmentndash manual transfer
Jay Raval
Workforcebull Traditional
ndash competitive attitude between workers and managersndash status symbols and privilegesndash much of the employeesrsquo time is nonworking time looking for parts
moving materials setting up machines getting instructions and so on When actually working they tend to work fast
bull JITndash broadly skilled flexible workers who can uncover and solve problemsndash workteamsndash cooperative attitudes
Jay Raval
Inventories
bull Traditionalndash used to buffer
operationsndash large WIP buffers
bull JITndash inventory is seen as an
evilndash small WIP buffers
Jay Raval
Scrap Unreliable suppliers
Capacity imbalance
Inventory Hides Problems
Jay Raval
Lowering Inventory Investment to Expose Problems
Jay Raval
Suppliers
bull Traditionalndash suppliers treated as
adversariesndash multiple sourcing
bull JITndash supplier considered part
of teamndash single-sourcing
agreementsndash supplier certification
programs
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
LIMITATION
Effective implementation and use requires the development of detailed cost data
its implementation requires willingness to cooperate
Requires many meetings for coordination
May reduce the quality of products due to the use of cheep components which may be of inferior quality
Jay Raval
Jay Raval
CUSTOMER VALUE
Jay Raval
STANDARD COSTING VS KAIZEN COSTING
1 Cost reduction targets are set and applied monthly
2 Variance analysis involves target Kaizen costs versus actual cost reduction amounts3 Investigation occurs when target reductions are not attained
1 Standards are set annually or semi- annually2 Variance analysis involves comparing actual to standard costs3 Investigation occurs when standards are not met
Jay Raval
CONCERNS
Often viewed as reactionary not value addingThe system places enormous pressure on employees to reduce every conceivable costThe product is already in the manufacturing process thus it is difficult and costly to make large changes to reduce costsThe cost of disruptions to production may be greater than the savings
Jay Raval
RULES FOR IMPLEMENTATION OF KAIZEN COSTING
1048707List your own Problems1048707Grade problems as to minor difficult and major1048707Start with the smallest minor problem1048707Move on to next graded problem and so on1048707Remember improvement is part of daily routine1048707Never accept status quo1048707Never reject any idea before trying1048707Eliminate tried but failed experiments1048707Highlight problems rather than hiding
Jay Raval
Just-In-Time Systems
Jay Raval
History and Philosophy of Just-In-Time
bull A philosophy that seeks to eliminate all types of waste including carrying excessive levels of inventory and long lead times
bull Takes its name from the idea of replenishing material buffers just when they are needed and not before or after
bull Developed by Toyota Motor Company in mid-1970sbull Best applied to a production system such as
automobile assembly that would be considered repetitive such as a flow shop
Jay Raval
Characteristics of Lean Systems Just-in-Timemiddot Pull method of materials flowmiddot Consistently high qualitymiddot Small lot sizesmiddot Uniform workstation loadsmiddot Close supplier tiesmiddot Flexible workforcemiddot Line flowsmiddot Automated productionmiddot Preventive maintenance
Jay Raval
JIT Means hellip
bull Keeping work flows movingbull Eliminating inventoriesbull Reducing travel distancesbull Eliminating defects and scrapbull Maximizing usage of space
Jay Raval
JIT Demand-Pull Logic
Customers
Sub
Sub
Fab
Fab
Fab
Fab
Vendor
Vendor
Vendor
Vendor
Final Assembly
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Then sub-assembly work is pulled forward by that demandhellip
Then sub-assembly work is pulled forward by that demandhellip
The process continues throughout the entire production process and supply chain
The process continues throughout the entire production process and supply chain
Jay Raval
Just-In-Time Production
bull Management philosophybull ldquoPullrdquo system though the plant
WHAT IT IS
bull Employee participationbull Industrial engineeringbasicsbull Continuing improvementbull Total quality controlbull Small lot sizes
WHAT IT REQUIRES
bull Attacks wastebull Exposes problems and bottlenecksbull Achieves streamlined production
WHAT IT DOES
bull Stable environment
WHAT IT ASSUMES
Jay Raval
Traditional Systems Compared to JIT
Jay Raval
Priorities
bull Traditionallyndash Accept all customer ordersndash Provide a large number of options from which
customers may orderbull JIT
ndash low costhigh quality within limited market
Jay Raval
Engineering
bull Traditionalndash design custom outputs
bull JITndash design standard outputsndash incremental
improvementsndash design for
manufacturability (DFM)
Jay Raval
Capacity
bull Traditionalndash excess capacity designed into system just-in-case
problem arisesndash highly utilizedndash inflexible
bull JITndash minimize waste of having extra capacityndash flexible capacityndash moderately utilized
Jay Raval
Transformation System
bull Traditionalndash job shopndash materials handling equipmentndash lots of space to store inventory
bull JITndash mostly used in repetitive production situationsndash job shops often converted to cellular
manufacturing
Jay Raval
Transformation System continued
bull Traditional-long lead times are often thought to allow more time to make decisions and get work performed
bull JITndash short lead times mean easier more accurate forecasting and planning
ndash If lead times are reduced there is less time for things go awry to get lost or to be changed
Jay Raval
Transformation System continued
bull JIT
ndash Employing Kanban (Toyotarsquos materials management system)ndash Pull system System for moving work where a workstation
pulls output from the preceding station as needed (control-based systems that signals the requirement for parts as they are needed in reality)
ndash Push system System for moving work where output is pushed to the next station as it is completed (planning-based systems that determine when workstations will probably need parts if everything goes according to plan)
Jay Raval
Sequential Production System with Two Machines
Jay Raval
Layoutbull Traditional
ndash job shop approach of using widely spread-out equipment with space for stockrooms tool cribs and work-in-process inventories between the equipment
ndash To handle and move all this inventory automated or semi automated materials handling equipment (conveyors forklifts) is required which takes even more space
bull JITndash Equipment is moved as close together as possible so that parts can be
actually handed from one worker or machine to the next ndash Use of cells and flow lines dictates small lots of parts with minimal
work-in-process and material-moving equipmentndash manual transfer
Jay Raval
Workforcebull Traditional
ndash competitive attitude between workers and managersndash status symbols and privilegesndash much of the employeesrsquo time is nonworking time looking for parts
moving materials setting up machines getting instructions and so on When actually working they tend to work fast
bull JITndash broadly skilled flexible workers who can uncover and solve problemsndash workteamsndash cooperative attitudes
Jay Raval
Inventories
bull Traditionalndash used to buffer
operationsndash large WIP buffers
bull JITndash inventory is seen as an
evilndash small WIP buffers
Jay Raval
Scrap Unreliable suppliers
Capacity imbalance
Inventory Hides Problems
Jay Raval
Lowering Inventory Investment to Expose Problems
Jay Raval
Suppliers
bull Traditionalndash suppliers treated as
adversariesndash multiple sourcing
bull JITndash supplier considered part
of teamndash single-sourcing
agreementsndash supplier certification
programs
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
Jay Raval
CUSTOMER VALUE
Jay Raval
STANDARD COSTING VS KAIZEN COSTING
1 Cost reduction targets are set and applied monthly
2 Variance analysis involves target Kaizen costs versus actual cost reduction amounts3 Investigation occurs when target reductions are not attained
1 Standards are set annually or semi- annually2 Variance analysis involves comparing actual to standard costs3 Investigation occurs when standards are not met
Jay Raval
CONCERNS
Often viewed as reactionary not value addingThe system places enormous pressure on employees to reduce every conceivable costThe product is already in the manufacturing process thus it is difficult and costly to make large changes to reduce costsThe cost of disruptions to production may be greater than the savings
Jay Raval
RULES FOR IMPLEMENTATION OF KAIZEN COSTING
1048707List your own Problems1048707Grade problems as to minor difficult and major1048707Start with the smallest minor problem1048707Move on to next graded problem and so on1048707Remember improvement is part of daily routine1048707Never accept status quo1048707Never reject any idea before trying1048707Eliminate tried but failed experiments1048707Highlight problems rather than hiding
Jay Raval
Just-In-Time Systems
Jay Raval
History and Philosophy of Just-In-Time
bull A philosophy that seeks to eliminate all types of waste including carrying excessive levels of inventory and long lead times
bull Takes its name from the idea of replenishing material buffers just when they are needed and not before or after
bull Developed by Toyota Motor Company in mid-1970sbull Best applied to a production system such as
automobile assembly that would be considered repetitive such as a flow shop
Jay Raval
Characteristics of Lean Systems Just-in-Timemiddot Pull method of materials flowmiddot Consistently high qualitymiddot Small lot sizesmiddot Uniform workstation loadsmiddot Close supplier tiesmiddot Flexible workforcemiddot Line flowsmiddot Automated productionmiddot Preventive maintenance
Jay Raval
JIT Means hellip
bull Keeping work flows movingbull Eliminating inventoriesbull Reducing travel distancesbull Eliminating defects and scrapbull Maximizing usage of space
Jay Raval
JIT Demand-Pull Logic
Customers
Sub
Sub
Fab
Fab
Fab
Fab
Vendor
Vendor
Vendor
Vendor
Final Assembly
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Then sub-assembly work is pulled forward by that demandhellip
Then sub-assembly work is pulled forward by that demandhellip
The process continues throughout the entire production process and supply chain
The process continues throughout the entire production process and supply chain
Jay Raval
Just-In-Time Production
bull Management philosophybull ldquoPullrdquo system though the plant
WHAT IT IS
bull Employee participationbull Industrial engineeringbasicsbull Continuing improvementbull Total quality controlbull Small lot sizes
WHAT IT REQUIRES
bull Attacks wastebull Exposes problems and bottlenecksbull Achieves streamlined production
WHAT IT DOES
bull Stable environment
WHAT IT ASSUMES
Jay Raval
Traditional Systems Compared to JIT
Jay Raval
Priorities
bull Traditionallyndash Accept all customer ordersndash Provide a large number of options from which
customers may orderbull JIT
ndash low costhigh quality within limited market
Jay Raval
Engineering
bull Traditionalndash design custom outputs
bull JITndash design standard outputsndash incremental
improvementsndash design for
manufacturability (DFM)
Jay Raval
Capacity
bull Traditionalndash excess capacity designed into system just-in-case
problem arisesndash highly utilizedndash inflexible
bull JITndash minimize waste of having extra capacityndash flexible capacityndash moderately utilized
Jay Raval
Transformation System
bull Traditionalndash job shopndash materials handling equipmentndash lots of space to store inventory
bull JITndash mostly used in repetitive production situationsndash job shops often converted to cellular
manufacturing
Jay Raval
Transformation System continued
bull Traditional-long lead times are often thought to allow more time to make decisions and get work performed
bull JITndash short lead times mean easier more accurate forecasting and planning
ndash If lead times are reduced there is less time for things go awry to get lost or to be changed
Jay Raval
Transformation System continued
bull JIT
ndash Employing Kanban (Toyotarsquos materials management system)ndash Pull system System for moving work where a workstation
pulls output from the preceding station as needed (control-based systems that signals the requirement for parts as they are needed in reality)
ndash Push system System for moving work where output is pushed to the next station as it is completed (planning-based systems that determine when workstations will probably need parts if everything goes according to plan)
Jay Raval
Sequential Production System with Two Machines
Jay Raval
Layoutbull Traditional
ndash job shop approach of using widely spread-out equipment with space for stockrooms tool cribs and work-in-process inventories between the equipment
ndash To handle and move all this inventory automated or semi automated materials handling equipment (conveyors forklifts) is required which takes even more space
bull JITndash Equipment is moved as close together as possible so that parts can be
actually handed from one worker or machine to the next ndash Use of cells and flow lines dictates small lots of parts with minimal
work-in-process and material-moving equipmentndash manual transfer
Jay Raval
Workforcebull Traditional
ndash competitive attitude between workers and managersndash status symbols and privilegesndash much of the employeesrsquo time is nonworking time looking for parts
moving materials setting up machines getting instructions and so on When actually working they tend to work fast
bull JITndash broadly skilled flexible workers who can uncover and solve problemsndash workteamsndash cooperative attitudes
Jay Raval
Inventories
bull Traditionalndash used to buffer
operationsndash large WIP buffers
bull JITndash inventory is seen as an
evilndash small WIP buffers
Jay Raval
Scrap Unreliable suppliers
Capacity imbalance
Inventory Hides Problems
Jay Raval
Lowering Inventory Investment to Expose Problems
Jay Raval
Suppliers
bull Traditionalndash suppliers treated as
adversariesndash multiple sourcing
bull JITndash supplier considered part
of teamndash single-sourcing
agreementsndash supplier certification
programs
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
CUSTOMER VALUE
Jay Raval
STANDARD COSTING VS KAIZEN COSTING
1 Cost reduction targets are set and applied monthly
2 Variance analysis involves target Kaizen costs versus actual cost reduction amounts3 Investigation occurs when target reductions are not attained
1 Standards are set annually or semi- annually2 Variance analysis involves comparing actual to standard costs3 Investigation occurs when standards are not met
Jay Raval
CONCERNS
Often viewed as reactionary not value addingThe system places enormous pressure on employees to reduce every conceivable costThe product is already in the manufacturing process thus it is difficult and costly to make large changes to reduce costsThe cost of disruptions to production may be greater than the savings
Jay Raval
RULES FOR IMPLEMENTATION OF KAIZEN COSTING
1048707List your own Problems1048707Grade problems as to minor difficult and major1048707Start with the smallest minor problem1048707Move on to next graded problem and so on1048707Remember improvement is part of daily routine1048707Never accept status quo1048707Never reject any idea before trying1048707Eliminate tried but failed experiments1048707Highlight problems rather than hiding
Jay Raval
Just-In-Time Systems
Jay Raval
History and Philosophy of Just-In-Time
bull A philosophy that seeks to eliminate all types of waste including carrying excessive levels of inventory and long lead times
bull Takes its name from the idea of replenishing material buffers just when they are needed and not before or after
bull Developed by Toyota Motor Company in mid-1970sbull Best applied to a production system such as
automobile assembly that would be considered repetitive such as a flow shop
Jay Raval
Characteristics of Lean Systems Just-in-Timemiddot Pull method of materials flowmiddot Consistently high qualitymiddot Small lot sizesmiddot Uniform workstation loadsmiddot Close supplier tiesmiddot Flexible workforcemiddot Line flowsmiddot Automated productionmiddot Preventive maintenance
Jay Raval
JIT Means hellip
bull Keeping work flows movingbull Eliminating inventoriesbull Reducing travel distancesbull Eliminating defects and scrapbull Maximizing usage of space
Jay Raval
JIT Demand-Pull Logic
Customers
Sub
Sub
Fab
Fab
Fab
Fab
Vendor
Vendor
Vendor
Vendor
Final Assembly
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Then sub-assembly work is pulled forward by that demandhellip
Then sub-assembly work is pulled forward by that demandhellip
The process continues throughout the entire production process and supply chain
The process continues throughout the entire production process and supply chain
Jay Raval
Just-In-Time Production
bull Management philosophybull ldquoPullrdquo system though the plant
WHAT IT IS
bull Employee participationbull Industrial engineeringbasicsbull Continuing improvementbull Total quality controlbull Small lot sizes
WHAT IT REQUIRES
bull Attacks wastebull Exposes problems and bottlenecksbull Achieves streamlined production
WHAT IT DOES
bull Stable environment
WHAT IT ASSUMES
Jay Raval
Traditional Systems Compared to JIT
Jay Raval
Priorities
bull Traditionallyndash Accept all customer ordersndash Provide a large number of options from which
customers may orderbull JIT
ndash low costhigh quality within limited market
Jay Raval
Engineering
bull Traditionalndash design custom outputs
bull JITndash design standard outputsndash incremental
improvementsndash design for
manufacturability (DFM)
Jay Raval
Capacity
bull Traditionalndash excess capacity designed into system just-in-case
problem arisesndash highly utilizedndash inflexible
bull JITndash minimize waste of having extra capacityndash flexible capacityndash moderately utilized
Jay Raval
Transformation System
bull Traditionalndash job shopndash materials handling equipmentndash lots of space to store inventory
bull JITndash mostly used in repetitive production situationsndash job shops often converted to cellular
manufacturing
Jay Raval
Transformation System continued
bull Traditional-long lead times are often thought to allow more time to make decisions and get work performed
bull JITndash short lead times mean easier more accurate forecasting and planning
ndash If lead times are reduced there is less time for things go awry to get lost or to be changed
Jay Raval
Transformation System continued
bull JIT
ndash Employing Kanban (Toyotarsquos materials management system)ndash Pull system System for moving work where a workstation
pulls output from the preceding station as needed (control-based systems that signals the requirement for parts as they are needed in reality)
ndash Push system System for moving work where output is pushed to the next station as it is completed (planning-based systems that determine when workstations will probably need parts if everything goes according to plan)
Jay Raval
Sequential Production System with Two Machines
Jay Raval
Layoutbull Traditional
ndash job shop approach of using widely spread-out equipment with space for stockrooms tool cribs and work-in-process inventories between the equipment
ndash To handle and move all this inventory automated or semi automated materials handling equipment (conveyors forklifts) is required which takes even more space
bull JITndash Equipment is moved as close together as possible so that parts can be
actually handed from one worker or machine to the next ndash Use of cells and flow lines dictates small lots of parts with minimal
work-in-process and material-moving equipmentndash manual transfer
Jay Raval
Workforcebull Traditional
ndash competitive attitude between workers and managersndash status symbols and privilegesndash much of the employeesrsquo time is nonworking time looking for parts
moving materials setting up machines getting instructions and so on When actually working they tend to work fast
bull JITndash broadly skilled flexible workers who can uncover and solve problemsndash workteamsndash cooperative attitudes
Jay Raval
Inventories
bull Traditionalndash used to buffer
operationsndash large WIP buffers
bull JITndash inventory is seen as an
evilndash small WIP buffers
Jay Raval
Scrap Unreliable suppliers
Capacity imbalance
Inventory Hides Problems
Jay Raval
Lowering Inventory Investment to Expose Problems
Jay Raval
Suppliers
bull Traditionalndash suppliers treated as
adversariesndash multiple sourcing
bull JITndash supplier considered part
of teamndash single-sourcing
agreementsndash supplier certification
programs
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
STANDARD COSTING VS KAIZEN COSTING
1 Cost reduction targets are set and applied monthly
2 Variance analysis involves target Kaizen costs versus actual cost reduction amounts3 Investigation occurs when target reductions are not attained
1 Standards are set annually or semi- annually2 Variance analysis involves comparing actual to standard costs3 Investigation occurs when standards are not met
Jay Raval
CONCERNS
Often viewed as reactionary not value addingThe system places enormous pressure on employees to reduce every conceivable costThe product is already in the manufacturing process thus it is difficult and costly to make large changes to reduce costsThe cost of disruptions to production may be greater than the savings
Jay Raval
RULES FOR IMPLEMENTATION OF KAIZEN COSTING
1048707List your own Problems1048707Grade problems as to minor difficult and major1048707Start with the smallest minor problem1048707Move on to next graded problem and so on1048707Remember improvement is part of daily routine1048707Never accept status quo1048707Never reject any idea before trying1048707Eliminate tried but failed experiments1048707Highlight problems rather than hiding
Jay Raval
Just-In-Time Systems
Jay Raval
History and Philosophy of Just-In-Time
bull A philosophy that seeks to eliminate all types of waste including carrying excessive levels of inventory and long lead times
bull Takes its name from the idea of replenishing material buffers just when they are needed and not before or after
bull Developed by Toyota Motor Company in mid-1970sbull Best applied to a production system such as
automobile assembly that would be considered repetitive such as a flow shop
Jay Raval
Characteristics of Lean Systems Just-in-Timemiddot Pull method of materials flowmiddot Consistently high qualitymiddot Small lot sizesmiddot Uniform workstation loadsmiddot Close supplier tiesmiddot Flexible workforcemiddot Line flowsmiddot Automated productionmiddot Preventive maintenance
Jay Raval
JIT Means hellip
bull Keeping work flows movingbull Eliminating inventoriesbull Reducing travel distancesbull Eliminating defects and scrapbull Maximizing usage of space
Jay Raval
JIT Demand-Pull Logic
Customers
Sub
Sub
Fab
Fab
Fab
Fab
Vendor
Vendor
Vendor
Vendor
Final Assembly
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Then sub-assembly work is pulled forward by that demandhellip
Then sub-assembly work is pulled forward by that demandhellip
The process continues throughout the entire production process and supply chain
The process continues throughout the entire production process and supply chain
Jay Raval
Just-In-Time Production
bull Management philosophybull ldquoPullrdquo system though the plant
WHAT IT IS
bull Employee participationbull Industrial engineeringbasicsbull Continuing improvementbull Total quality controlbull Small lot sizes
WHAT IT REQUIRES
bull Attacks wastebull Exposes problems and bottlenecksbull Achieves streamlined production
WHAT IT DOES
bull Stable environment
WHAT IT ASSUMES
Jay Raval
Traditional Systems Compared to JIT
Jay Raval
Priorities
bull Traditionallyndash Accept all customer ordersndash Provide a large number of options from which
customers may orderbull JIT
ndash low costhigh quality within limited market
Jay Raval
Engineering
bull Traditionalndash design custom outputs
bull JITndash design standard outputsndash incremental
improvementsndash design for
manufacturability (DFM)
Jay Raval
Capacity
bull Traditionalndash excess capacity designed into system just-in-case
problem arisesndash highly utilizedndash inflexible
bull JITndash minimize waste of having extra capacityndash flexible capacityndash moderately utilized
Jay Raval
Transformation System
bull Traditionalndash job shopndash materials handling equipmentndash lots of space to store inventory
bull JITndash mostly used in repetitive production situationsndash job shops often converted to cellular
manufacturing
Jay Raval
Transformation System continued
bull Traditional-long lead times are often thought to allow more time to make decisions and get work performed
bull JITndash short lead times mean easier more accurate forecasting and planning
ndash If lead times are reduced there is less time for things go awry to get lost or to be changed
Jay Raval
Transformation System continued
bull JIT
ndash Employing Kanban (Toyotarsquos materials management system)ndash Pull system System for moving work where a workstation
pulls output from the preceding station as needed (control-based systems that signals the requirement for parts as they are needed in reality)
ndash Push system System for moving work where output is pushed to the next station as it is completed (planning-based systems that determine when workstations will probably need parts if everything goes according to plan)
Jay Raval
Sequential Production System with Two Machines
Jay Raval
Layoutbull Traditional
ndash job shop approach of using widely spread-out equipment with space for stockrooms tool cribs and work-in-process inventories between the equipment
ndash To handle and move all this inventory automated or semi automated materials handling equipment (conveyors forklifts) is required which takes even more space
bull JITndash Equipment is moved as close together as possible so that parts can be
actually handed from one worker or machine to the next ndash Use of cells and flow lines dictates small lots of parts with minimal
work-in-process and material-moving equipmentndash manual transfer
Jay Raval
Workforcebull Traditional
ndash competitive attitude between workers and managersndash status symbols and privilegesndash much of the employeesrsquo time is nonworking time looking for parts
moving materials setting up machines getting instructions and so on When actually working they tend to work fast
bull JITndash broadly skilled flexible workers who can uncover and solve problemsndash workteamsndash cooperative attitudes
Jay Raval
Inventories
bull Traditionalndash used to buffer
operationsndash large WIP buffers
bull JITndash inventory is seen as an
evilndash small WIP buffers
Jay Raval
Scrap Unreliable suppliers
Capacity imbalance
Inventory Hides Problems
Jay Raval
Lowering Inventory Investment to Expose Problems
Jay Raval
Suppliers
bull Traditionalndash suppliers treated as
adversariesndash multiple sourcing
bull JITndash supplier considered part
of teamndash single-sourcing
agreementsndash supplier certification
programs
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
CONCERNS
Often viewed as reactionary not value addingThe system places enormous pressure on employees to reduce every conceivable costThe product is already in the manufacturing process thus it is difficult and costly to make large changes to reduce costsThe cost of disruptions to production may be greater than the savings
Jay Raval
RULES FOR IMPLEMENTATION OF KAIZEN COSTING
1048707List your own Problems1048707Grade problems as to minor difficult and major1048707Start with the smallest minor problem1048707Move on to next graded problem and so on1048707Remember improvement is part of daily routine1048707Never accept status quo1048707Never reject any idea before trying1048707Eliminate tried but failed experiments1048707Highlight problems rather than hiding
Jay Raval
Just-In-Time Systems
Jay Raval
History and Philosophy of Just-In-Time
bull A philosophy that seeks to eliminate all types of waste including carrying excessive levels of inventory and long lead times
bull Takes its name from the idea of replenishing material buffers just when they are needed and not before or after
bull Developed by Toyota Motor Company in mid-1970sbull Best applied to a production system such as
automobile assembly that would be considered repetitive such as a flow shop
Jay Raval
Characteristics of Lean Systems Just-in-Timemiddot Pull method of materials flowmiddot Consistently high qualitymiddot Small lot sizesmiddot Uniform workstation loadsmiddot Close supplier tiesmiddot Flexible workforcemiddot Line flowsmiddot Automated productionmiddot Preventive maintenance
Jay Raval
JIT Means hellip
bull Keeping work flows movingbull Eliminating inventoriesbull Reducing travel distancesbull Eliminating defects and scrapbull Maximizing usage of space
Jay Raval
JIT Demand-Pull Logic
Customers
Sub
Sub
Fab
Fab
Fab
Fab
Vendor
Vendor
Vendor
Vendor
Final Assembly
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Then sub-assembly work is pulled forward by that demandhellip
Then sub-assembly work is pulled forward by that demandhellip
The process continues throughout the entire production process and supply chain
The process continues throughout the entire production process and supply chain
Jay Raval
Just-In-Time Production
bull Management philosophybull ldquoPullrdquo system though the plant
WHAT IT IS
bull Employee participationbull Industrial engineeringbasicsbull Continuing improvementbull Total quality controlbull Small lot sizes
WHAT IT REQUIRES
bull Attacks wastebull Exposes problems and bottlenecksbull Achieves streamlined production
WHAT IT DOES
bull Stable environment
WHAT IT ASSUMES
Jay Raval
Traditional Systems Compared to JIT
Jay Raval
Priorities
bull Traditionallyndash Accept all customer ordersndash Provide a large number of options from which
customers may orderbull JIT
ndash low costhigh quality within limited market
Jay Raval
Engineering
bull Traditionalndash design custom outputs
bull JITndash design standard outputsndash incremental
improvementsndash design for
manufacturability (DFM)
Jay Raval
Capacity
bull Traditionalndash excess capacity designed into system just-in-case
problem arisesndash highly utilizedndash inflexible
bull JITndash minimize waste of having extra capacityndash flexible capacityndash moderately utilized
Jay Raval
Transformation System
bull Traditionalndash job shopndash materials handling equipmentndash lots of space to store inventory
bull JITndash mostly used in repetitive production situationsndash job shops often converted to cellular
manufacturing
Jay Raval
Transformation System continued
bull Traditional-long lead times are often thought to allow more time to make decisions and get work performed
bull JITndash short lead times mean easier more accurate forecasting and planning
ndash If lead times are reduced there is less time for things go awry to get lost or to be changed
Jay Raval
Transformation System continued
bull JIT
ndash Employing Kanban (Toyotarsquos materials management system)ndash Pull system System for moving work where a workstation
pulls output from the preceding station as needed (control-based systems that signals the requirement for parts as they are needed in reality)
ndash Push system System for moving work where output is pushed to the next station as it is completed (planning-based systems that determine when workstations will probably need parts if everything goes according to plan)
Jay Raval
Sequential Production System with Two Machines
Jay Raval
Layoutbull Traditional
ndash job shop approach of using widely spread-out equipment with space for stockrooms tool cribs and work-in-process inventories between the equipment
ndash To handle and move all this inventory automated or semi automated materials handling equipment (conveyors forklifts) is required which takes even more space
bull JITndash Equipment is moved as close together as possible so that parts can be
actually handed from one worker or machine to the next ndash Use of cells and flow lines dictates small lots of parts with minimal
work-in-process and material-moving equipmentndash manual transfer
Jay Raval
Workforcebull Traditional
ndash competitive attitude between workers and managersndash status symbols and privilegesndash much of the employeesrsquo time is nonworking time looking for parts
moving materials setting up machines getting instructions and so on When actually working they tend to work fast
bull JITndash broadly skilled flexible workers who can uncover and solve problemsndash workteamsndash cooperative attitudes
Jay Raval
Inventories
bull Traditionalndash used to buffer
operationsndash large WIP buffers
bull JITndash inventory is seen as an
evilndash small WIP buffers
Jay Raval
Scrap Unreliable suppliers
Capacity imbalance
Inventory Hides Problems
Jay Raval
Lowering Inventory Investment to Expose Problems
Jay Raval
Suppliers
bull Traditionalndash suppliers treated as
adversariesndash multiple sourcing
bull JITndash supplier considered part
of teamndash single-sourcing
agreementsndash supplier certification
programs
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
RULES FOR IMPLEMENTATION OF KAIZEN COSTING
1048707List your own Problems1048707Grade problems as to minor difficult and major1048707Start with the smallest minor problem1048707Move on to next graded problem and so on1048707Remember improvement is part of daily routine1048707Never accept status quo1048707Never reject any idea before trying1048707Eliminate tried but failed experiments1048707Highlight problems rather than hiding
Jay Raval
Just-In-Time Systems
Jay Raval
History and Philosophy of Just-In-Time
bull A philosophy that seeks to eliminate all types of waste including carrying excessive levels of inventory and long lead times
bull Takes its name from the idea of replenishing material buffers just when they are needed and not before or after
bull Developed by Toyota Motor Company in mid-1970sbull Best applied to a production system such as
automobile assembly that would be considered repetitive such as a flow shop
Jay Raval
Characteristics of Lean Systems Just-in-Timemiddot Pull method of materials flowmiddot Consistently high qualitymiddot Small lot sizesmiddot Uniform workstation loadsmiddot Close supplier tiesmiddot Flexible workforcemiddot Line flowsmiddot Automated productionmiddot Preventive maintenance
Jay Raval
JIT Means hellip
bull Keeping work flows movingbull Eliminating inventoriesbull Reducing travel distancesbull Eliminating defects and scrapbull Maximizing usage of space
Jay Raval
JIT Demand-Pull Logic
Customers
Sub
Sub
Fab
Fab
Fab
Fab
Vendor
Vendor
Vendor
Vendor
Final Assembly
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Then sub-assembly work is pulled forward by that demandhellip
Then sub-assembly work is pulled forward by that demandhellip
The process continues throughout the entire production process and supply chain
The process continues throughout the entire production process and supply chain
Jay Raval
Just-In-Time Production
bull Management philosophybull ldquoPullrdquo system though the plant
WHAT IT IS
bull Employee participationbull Industrial engineeringbasicsbull Continuing improvementbull Total quality controlbull Small lot sizes
WHAT IT REQUIRES
bull Attacks wastebull Exposes problems and bottlenecksbull Achieves streamlined production
WHAT IT DOES
bull Stable environment
WHAT IT ASSUMES
Jay Raval
Traditional Systems Compared to JIT
Jay Raval
Priorities
bull Traditionallyndash Accept all customer ordersndash Provide a large number of options from which
customers may orderbull JIT
ndash low costhigh quality within limited market
Jay Raval
Engineering
bull Traditionalndash design custom outputs
bull JITndash design standard outputsndash incremental
improvementsndash design for
manufacturability (DFM)
Jay Raval
Capacity
bull Traditionalndash excess capacity designed into system just-in-case
problem arisesndash highly utilizedndash inflexible
bull JITndash minimize waste of having extra capacityndash flexible capacityndash moderately utilized
Jay Raval
Transformation System
bull Traditionalndash job shopndash materials handling equipmentndash lots of space to store inventory
bull JITndash mostly used in repetitive production situationsndash job shops often converted to cellular
manufacturing
Jay Raval
Transformation System continued
bull Traditional-long lead times are often thought to allow more time to make decisions and get work performed
bull JITndash short lead times mean easier more accurate forecasting and planning
ndash If lead times are reduced there is less time for things go awry to get lost or to be changed
Jay Raval
Transformation System continued
bull JIT
ndash Employing Kanban (Toyotarsquos materials management system)ndash Pull system System for moving work where a workstation
pulls output from the preceding station as needed (control-based systems that signals the requirement for parts as they are needed in reality)
ndash Push system System for moving work where output is pushed to the next station as it is completed (planning-based systems that determine when workstations will probably need parts if everything goes according to plan)
Jay Raval
Sequential Production System with Two Machines
Jay Raval
Layoutbull Traditional
ndash job shop approach of using widely spread-out equipment with space for stockrooms tool cribs and work-in-process inventories between the equipment
ndash To handle and move all this inventory automated or semi automated materials handling equipment (conveyors forklifts) is required which takes even more space
bull JITndash Equipment is moved as close together as possible so that parts can be
actually handed from one worker or machine to the next ndash Use of cells and flow lines dictates small lots of parts with minimal
work-in-process and material-moving equipmentndash manual transfer
Jay Raval
Workforcebull Traditional
ndash competitive attitude between workers and managersndash status symbols and privilegesndash much of the employeesrsquo time is nonworking time looking for parts
moving materials setting up machines getting instructions and so on When actually working they tend to work fast
bull JITndash broadly skilled flexible workers who can uncover and solve problemsndash workteamsndash cooperative attitudes
Jay Raval
Inventories
bull Traditionalndash used to buffer
operationsndash large WIP buffers
bull JITndash inventory is seen as an
evilndash small WIP buffers
Jay Raval
Scrap Unreliable suppliers
Capacity imbalance
Inventory Hides Problems
Jay Raval
Lowering Inventory Investment to Expose Problems
Jay Raval
Suppliers
bull Traditionalndash suppliers treated as
adversariesndash multiple sourcing
bull JITndash supplier considered part
of teamndash single-sourcing
agreementsndash supplier certification
programs
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
Just-In-Time Systems
Jay Raval
History and Philosophy of Just-In-Time
bull A philosophy that seeks to eliminate all types of waste including carrying excessive levels of inventory and long lead times
bull Takes its name from the idea of replenishing material buffers just when they are needed and not before or after
bull Developed by Toyota Motor Company in mid-1970sbull Best applied to a production system such as
automobile assembly that would be considered repetitive such as a flow shop
Jay Raval
Characteristics of Lean Systems Just-in-Timemiddot Pull method of materials flowmiddot Consistently high qualitymiddot Small lot sizesmiddot Uniform workstation loadsmiddot Close supplier tiesmiddot Flexible workforcemiddot Line flowsmiddot Automated productionmiddot Preventive maintenance
Jay Raval
JIT Means hellip
bull Keeping work flows movingbull Eliminating inventoriesbull Reducing travel distancesbull Eliminating defects and scrapbull Maximizing usage of space
Jay Raval
JIT Demand-Pull Logic
Customers
Sub
Sub
Fab
Fab
Fab
Fab
Vendor
Vendor
Vendor
Vendor
Final Assembly
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Then sub-assembly work is pulled forward by that demandhellip
Then sub-assembly work is pulled forward by that demandhellip
The process continues throughout the entire production process and supply chain
The process continues throughout the entire production process and supply chain
Jay Raval
Just-In-Time Production
bull Management philosophybull ldquoPullrdquo system though the plant
WHAT IT IS
bull Employee participationbull Industrial engineeringbasicsbull Continuing improvementbull Total quality controlbull Small lot sizes
WHAT IT REQUIRES
bull Attacks wastebull Exposes problems and bottlenecksbull Achieves streamlined production
WHAT IT DOES
bull Stable environment
WHAT IT ASSUMES
Jay Raval
Traditional Systems Compared to JIT
Jay Raval
Priorities
bull Traditionallyndash Accept all customer ordersndash Provide a large number of options from which
customers may orderbull JIT
ndash low costhigh quality within limited market
Jay Raval
Engineering
bull Traditionalndash design custom outputs
bull JITndash design standard outputsndash incremental
improvementsndash design for
manufacturability (DFM)
Jay Raval
Capacity
bull Traditionalndash excess capacity designed into system just-in-case
problem arisesndash highly utilizedndash inflexible
bull JITndash minimize waste of having extra capacityndash flexible capacityndash moderately utilized
Jay Raval
Transformation System
bull Traditionalndash job shopndash materials handling equipmentndash lots of space to store inventory
bull JITndash mostly used in repetitive production situationsndash job shops often converted to cellular
manufacturing
Jay Raval
Transformation System continued
bull Traditional-long lead times are often thought to allow more time to make decisions and get work performed
bull JITndash short lead times mean easier more accurate forecasting and planning
ndash If lead times are reduced there is less time for things go awry to get lost or to be changed
Jay Raval
Transformation System continued
bull JIT
ndash Employing Kanban (Toyotarsquos materials management system)ndash Pull system System for moving work where a workstation
pulls output from the preceding station as needed (control-based systems that signals the requirement for parts as they are needed in reality)
ndash Push system System for moving work where output is pushed to the next station as it is completed (planning-based systems that determine when workstations will probably need parts if everything goes according to plan)
Jay Raval
Sequential Production System with Two Machines
Jay Raval
Layoutbull Traditional
ndash job shop approach of using widely spread-out equipment with space for stockrooms tool cribs and work-in-process inventories between the equipment
ndash To handle and move all this inventory automated or semi automated materials handling equipment (conveyors forklifts) is required which takes even more space
bull JITndash Equipment is moved as close together as possible so that parts can be
actually handed from one worker or machine to the next ndash Use of cells and flow lines dictates small lots of parts with minimal
work-in-process and material-moving equipmentndash manual transfer
Jay Raval
Workforcebull Traditional
ndash competitive attitude between workers and managersndash status symbols and privilegesndash much of the employeesrsquo time is nonworking time looking for parts
moving materials setting up machines getting instructions and so on When actually working they tend to work fast
bull JITndash broadly skilled flexible workers who can uncover and solve problemsndash workteamsndash cooperative attitudes
Jay Raval
Inventories
bull Traditionalndash used to buffer
operationsndash large WIP buffers
bull JITndash inventory is seen as an
evilndash small WIP buffers
Jay Raval
Scrap Unreliable suppliers
Capacity imbalance
Inventory Hides Problems
Jay Raval
Lowering Inventory Investment to Expose Problems
Jay Raval
Suppliers
bull Traditionalndash suppliers treated as
adversariesndash multiple sourcing
bull JITndash supplier considered part
of teamndash single-sourcing
agreementsndash supplier certification
programs
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
History and Philosophy of Just-In-Time
bull A philosophy that seeks to eliminate all types of waste including carrying excessive levels of inventory and long lead times
bull Takes its name from the idea of replenishing material buffers just when they are needed and not before or after
bull Developed by Toyota Motor Company in mid-1970sbull Best applied to a production system such as
automobile assembly that would be considered repetitive such as a flow shop
Jay Raval
Characteristics of Lean Systems Just-in-Timemiddot Pull method of materials flowmiddot Consistently high qualitymiddot Small lot sizesmiddot Uniform workstation loadsmiddot Close supplier tiesmiddot Flexible workforcemiddot Line flowsmiddot Automated productionmiddot Preventive maintenance
Jay Raval
JIT Means hellip
bull Keeping work flows movingbull Eliminating inventoriesbull Reducing travel distancesbull Eliminating defects and scrapbull Maximizing usage of space
Jay Raval
JIT Demand-Pull Logic
Customers
Sub
Sub
Fab
Fab
Fab
Fab
Vendor
Vendor
Vendor
Vendor
Final Assembly
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Then sub-assembly work is pulled forward by that demandhellip
Then sub-assembly work is pulled forward by that demandhellip
The process continues throughout the entire production process and supply chain
The process continues throughout the entire production process and supply chain
Jay Raval
Just-In-Time Production
bull Management philosophybull ldquoPullrdquo system though the plant
WHAT IT IS
bull Employee participationbull Industrial engineeringbasicsbull Continuing improvementbull Total quality controlbull Small lot sizes
WHAT IT REQUIRES
bull Attacks wastebull Exposes problems and bottlenecksbull Achieves streamlined production
WHAT IT DOES
bull Stable environment
WHAT IT ASSUMES
Jay Raval
Traditional Systems Compared to JIT
Jay Raval
Priorities
bull Traditionallyndash Accept all customer ordersndash Provide a large number of options from which
customers may orderbull JIT
ndash low costhigh quality within limited market
Jay Raval
Engineering
bull Traditionalndash design custom outputs
bull JITndash design standard outputsndash incremental
improvementsndash design for
manufacturability (DFM)
Jay Raval
Capacity
bull Traditionalndash excess capacity designed into system just-in-case
problem arisesndash highly utilizedndash inflexible
bull JITndash minimize waste of having extra capacityndash flexible capacityndash moderately utilized
Jay Raval
Transformation System
bull Traditionalndash job shopndash materials handling equipmentndash lots of space to store inventory
bull JITndash mostly used in repetitive production situationsndash job shops often converted to cellular
manufacturing
Jay Raval
Transformation System continued
bull Traditional-long lead times are often thought to allow more time to make decisions and get work performed
bull JITndash short lead times mean easier more accurate forecasting and planning
ndash If lead times are reduced there is less time for things go awry to get lost or to be changed
Jay Raval
Transformation System continued
bull JIT
ndash Employing Kanban (Toyotarsquos materials management system)ndash Pull system System for moving work where a workstation
pulls output from the preceding station as needed (control-based systems that signals the requirement for parts as they are needed in reality)
ndash Push system System for moving work where output is pushed to the next station as it is completed (planning-based systems that determine when workstations will probably need parts if everything goes according to plan)
Jay Raval
Sequential Production System with Two Machines
Jay Raval
Layoutbull Traditional
ndash job shop approach of using widely spread-out equipment with space for stockrooms tool cribs and work-in-process inventories between the equipment
ndash To handle and move all this inventory automated or semi automated materials handling equipment (conveyors forklifts) is required which takes even more space
bull JITndash Equipment is moved as close together as possible so that parts can be
actually handed from one worker or machine to the next ndash Use of cells and flow lines dictates small lots of parts with minimal
work-in-process and material-moving equipmentndash manual transfer
Jay Raval
Workforcebull Traditional
ndash competitive attitude between workers and managersndash status symbols and privilegesndash much of the employeesrsquo time is nonworking time looking for parts
moving materials setting up machines getting instructions and so on When actually working they tend to work fast
bull JITndash broadly skilled flexible workers who can uncover and solve problemsndash workteamsndash cooperative attitudes
Jay Raval
Inventories
bull Traditionalndash used to buffer
operationsndash large WIP buffers
bull JITndash inventory is seen as an
evilndash small WIP buffers
Jay Raval
Scrap Unreliable suppliers
Capacity imbalance
Inventory Hides Problems
Jay Raval
Lowering Inventory Investment to Expose Problems
Jay Raval
Suppliers
bull Traditionalndash suppliers treated as
adversariesndash multiple sourcing
bull JITndash supplier considered part
of teamndash single-sourcing
agreementsndash supplier certification
programs
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
Characteristics of Lean Systems Just-in-Timemiddot Pull method of materials flowmiddot Consistently high qualitymiddot Small lot sizesmiddot Uniform workstation loadsmiddot Close supplier tiesmiddot Flexible workforcemiddot Line flowsmiddot Automated productionmiddot Preventive maintenance
Jay Raval
JIT Means hellip
bull Keeping work flows movingbull Eliminating inventoriesbull Reducing travel distancesbull Eliminating defects and scrapbull Maximizing usage of space
Jay Raval
JIT Demand-Pull Logic
Customers
Sub
Sub
Fab
Fab
Fab
Fab
Vendor
Vendor
Vendor
Vendor
Final Assembly
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Then sub-assembly work is pulled forward by that demandhellip
Then sub-assembly work is pulled forward by that demandhellip
The process continues throughout the entire production process and supply chain
The process continues throughout the entire production process and supply chain
Jay Raval
Just-In-Time Production
bull Management philosophybull ldquoPullrdquo system though the plant
WHAT IT IS
bull Employee participationbull Industrial engineeringbasicsbull Continuing improvementbull Total quality controlbull Small lot sizes
WHAT IT REQUIRES
bull Attacks wastebull Exposes problems and bottlenecksbull Achieves streamlined production
WHAT IT DOES
bull Stable environment
WHAT IT ASSUMES
Jay Raval
Traditional Systems Compared to JIT
Jay Raval
Priorities
bull Traditionallyndash Accept all customer ordersndash Provide a large number of options from which
customers may orderbull JIT
ndash low costhigh quality within limited market
Jay Raval
Engineering
bull Traditionalndash design custom outputs
bull JITndash design standard outputsndash incremental
improvementsndash design for
manufacturability (DFM)
Jay Raval
Capacity
bull Traditionalndash excess capacity designed into system just-in-case
problem arisesndash highly utilizedndash inflexible
bull JITndash minimize waste of having extra capacityndash flexible capacityndash moderately utilized
Jay Raval
Transformation System
bull Traditionalndash job shopndash materials handling equipmentndash lots of space to store inventory
bull JITndash mostly used in repetitive production situationsndash job shops often converted to cellular
manufacturing
Jay Raval
Transformation System continued
bull Traditional-long lead times are often thought to allow more time to make decisions and get work performed
bull JITndash short lead times mean easier more accurate forecasting and planning
ndash If lead times are reduced there is less time for things go awry to get lost or to be changed
Jay Raval
Transformation System continued
bull JIT
ndash Employing Kanban (Toyotarsquos materials management system)ndash Pull system System for moving work where a workstation
pulls output from the preceding station as needed (control-based systems that signals the requirement for parts as they are needed in reality)
ndash Push system System for moving work where output is pushed to the next station as it is completed (planning-based systems that determine when workstations will probably need parts if everything goes according to plan)
Jay Raval
Sequential Production System with Two Machines
Jay Raval
Layoutbull Traditional
ndash job shop approach of using widely spread-out equipment with space for stockrooms tool cribs and work-in-process inventories between the equipment
ndash To handle and move all this inventory automated or semi automated materials handling equipment (conveyors forklifts) is required which takes even more space
bull JITndash Equipment is moved as close together as possible so that parts can be
actually handed from one worker or machine to the next ndash Use of cells and flow lines dictates small lots of parts with minimal
work-in-process and material-moving equipmentndash manual transfer
Jay Raval
Workforcebull Traditional
ndash competitive attitude between workers and managersndash status symbols and privilegesndash much of the employeesrsquo time is nonworking time looking for parts
moving materials setting up machines getting instructions and so on When actually working they tend to work fast
bull JITndash broadly skilled flexible workers who can uncover and solve problemsndash workteamsndash cooperative attitudes
Jay Raval
Inventories
bull Traditionalndash used to buffer
operationsndash large WIP buffers
bull JITndash inventory is seen as an
evilndash small WIP buffers
Jay Raval
Scrap Unreliable suppliers
Capacity imbalance
Inventory Hides Problems
Jay Raval
Lowering Inventory Investment to Expose Problems
Jay Raval
Suppliers
bull Traditionalndash suppliers treated as
adversariesndash multiple sourcing
bull JITndash supplier considered part
of teamndash single-sourcing
agreementsndash supplier certification
programs
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
JIT Means hellip
bull Keeping work flows movingbull Eliminating inventoriesbull Reducing travel distancesbull Eliminating defects and scrapbull Maximizing usage of space
Jay Raval
JIT Demand-Pull Logic
Customers
Sub
Sub
Fab
Fab
Fab
Fab
Vendor
Vendor
Vendor
Vendor
Final Assembly
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Then sub-assembly work is pulled forward by that demandhellip
Then sub-assembly work is pulled forward by that demandhellip
The process continues throughout the entire production process and supply chain
The process continues throughout the entire production process and supply chain
Jay Raval
Just-In-Time Production
bull Management philosophybull ldquoPullrdquo system though the plant
WHAT IT IS
bull Employee participationbull Industrial engineeringbasicsbull Continuing improvementbull Total quality controlbull Small lot sizes
WHAT IT REQUIRES
bull Attacks wastebull Exposes problems and bottlenecksbull Achieves streamlined production
WHAT IT DOES
bull Stable environment
WHAT IT ASSUMES
Jay Raval
Traditional Systems Compared to JIT
Jay Raval
Priorities
bull Traditionallyndash Accept all customer ordersndash Provide a large number of options from which
customers may orderbull JIT
ndash low costhigh quality within limited market
Jay Raval
Engineering
bull Traditionalndash design custom outputs
bull JITndash design standard outputsndash incremental
improvementsndash design for
manufacturability (DFM)
Jay Raval
Capacity
bull Traditionalndash excess capacity designed into system just-in-case
problem arisesndash highly utilizedndash inflexible
bull JITndash minimize waste of having extra capacityndash flexible capacityndash moderately utilized
Jay Raval
Transformation System
bull Traditionalndash job shopndash materials handling equipmentndash lots of space to store inventory
bull JITndash mostly used in repetitive production situationsndash job shops often converted to cellular
manufacturing
Jay Raval
Transformation System continued
bull Traditional-long lead times are often thought to allow more time to make decisions and get work performed
bull JITndash short lead times mean easier more accurate forecasting and planning
ndash If lead times are reduced there is less time for things go awry to get lost or to be changed
Jay Raval
Transformation System continued
bull JIT
ndash Employing Kanban (Toyotarsquos materials management system)ndash Pull system System for moving work where a workstation
pulls output from the preceding station as needed (control-based systems that signals the requirement for parts as they are needed in reality)
ndash Push system System for moving work where output is pushed to the next station as it is completed (planning-based systems that determine when workstations will probably need parts if everything goes according to plan)
Jay Raval
Sequential Production System with Two Machines
Jay Raval
Layoutbull Traditional
ndash job shop approach of using widely spread-out equipment with space for stockrooms tool cribs and work-in-process inventories between the equipment
ndash To handle and move all this inventory automated or semi automated materials handling equipment (conveyors forklifts) is required which takes even more space
bull JITndash Equipment is moved as close together as possible so that parts can be
actually handed from one worker or machine to the next ndash Use of cells and flow lines dictates small lots of parts with minimal
work-in-process and material-moving equipmentndash manual transfer
Jay Raval
Workforcebull Traditional
ndash competitive attitude between workers and managersndash status symbols and privilegesndash much of the employeesrsquo time is nonworking time looking for parts
moving materials setting up machines getting instructions and so on When actually working they tend to work fast
bull JITndash broadly skilled flexible workers who can uncover and solve problemsndash workteamsndash cooperative attitudes
Jay Raval
Inventories
bull Traditionalndash used to buffer
operationsndash large WIP buffers
bull JITndash inventory is seen as an
evilndash small WIP buffers
Jay Raval
Scrap Unreliable suppliers
Capacity imbalance
Inventory Hides Problems
Jay Raval
Lowering Inventory Investment to Expose Problems
Jay Raval
Suppliers
bull Traditionalndash suppliers treated as
adversariesndash multiple sourcing
bull JITndash supplier considered part
of teamndash single-sourcing
agreementsndash supplier certification
programs
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
JIT Demand-Pull Logic
Customers
Sub
Sub
Fab
Fab
Fab
Fab
Vendor
Vendor
Vendor
Vendor
Final Assembly
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Here the customer starts the process pulling an inventory item from Final Assemblyhellip
Then sub-assembly work is pulled forward by that demandhellip
Then sub-assembly work is pulled forward by that demandhellip
The process continues throughout the entire production process and supply chain
The process continues throughout the entire production process and supply chain
Jay Raval
Just-In-Time Production
bull Management philosophybull ldquoPullrdquo system though the plant
WHAT IT IS
bull Employee participationbull Industrial engineeringbasicsbull Continuing improvementbull Total quality controlbull Small lot sizes
WHAT IT REQUIRES
bull Attacks wastebull Exposes problems and bottlenecksbull Achieves streamlined production
WHAT IT DOES
bull Stable environment
WHAT IT ASSUMES
Jay Raval
Traditional Systems Compared to JIT
Jay Raval
Priorities
bull Traditionallyndash Accept all customer ordersndash Provide a large number of options from which
customers may orderbull JIT
ndash low costhigh quality within limited market
Jay Raval
Engineering
bull Traditionalndash design custom outputs
bull JITndash design standard outputsndash incremental
improvementsndash design for
manufacturability (DFM)
Jay Raval
Capacity
bull Traditionalndash excess capacity designed into system just-in-case
problem arisesndash highly utilizedndash inflexible
bull JITndash minimize waste of having extra capacityndash flexible capacityndash moderately utilized
Jay Raval
Transformation System
bull Traditionalndash job shopndash materials handling equipmentndash lots of space to store inventory
bull JITndash mostly used in repetitive production situationsndash job shops often converted to cellular
manufacturing
Jay Raval
Transformation System continued
bull Traditional-long lead times are often thought to allow more time to make decisions and get work performed
bull JITndash short lead times mean easier more accurate forecasting and planning
ndash If lead times are reduced there is less time for things go awry to get lost or to be changed
Jay Raval
Transformation System continued
bull JIT
ndash Employing Kanban (Toyotarsquos materials management system)ndash Pull system System for moving work where a workstation
pulls output from the preceding station as needed (control-based systems that signals the requirement for parts as they are needed in reality)
ndash Push system System for moving work where output is pushed to the next station as it is completed (planning-based systems that determine when workstations will probably need parts if everything goes according to plan)
Jay Raval
Sequential Production System with Two Machines
Jay Raval
Layoutbull Traditional
ndash job shop approach of using widely spread-out equipment with space for stockrooms tool cribs and work-in-process inventories between the equipment
ndash To handle and move all this inventory automated or semi automated materials handling equipment (conveyors forklifts) is required which takes even more space
bull JITndash Equipment is moved as close together as possible so that parts can be
actually handed from one worker or machine to the next ndash Use of cells and flow lines dictates small lots of parts with minimal
work-in-process and material-moving equipmentndash manual transfer
Jay Raval
Workforcebull Traditional
ndash competitive attitude between workers and managersndash status symbols and privilegesndash much of the employeesrsquo time is nonworking time looking for parts
moving materials setting up machines getting instructions and so on When actually working they tend to work fast
bull JITndash broadly skilled flexible workers who can uncover and solve problemsndash workteamsndash cooperative attitudes
Jay Raval
Inventories
bull Traditionalndash used to buffer
operationsndash large WIP buffers
bull JITndash inventory is seen as an
evilndash small WIP buffers
Jay Raval
Scrap Unreliable suppliers
Capacity imbalance
Inventory Hides Problems
Jay Raval
Lowering Inventory Investment to Expose Problems
Jay Raval
Suppliers
bull Traditionalndash suppliers treated as
adversariesndash multiple sourcing
bull JITndash supplier considered part
of teamndash single-sourcing
agreementsndash supplier certification
programs
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
Just-In-Time Production
bull Management philosophybull ldquoPullrdquo system though the plant
WHAT IT IS
bull Employee participationbull Industrial engineeringbasicsbull Continuing improvementbull Total quality controlbull Small lot sizes
WHAT IT REQUIRES
bull Attacks wastebull Exposes problems and bottlenecksbull Achieves streamlined production
WHAT IT DOES
bull Stable environment
WHAT IT ASSUMES
Jay Raval
Traditional Systems Compared to JIT
Jay Raval
Priorities
bull Traditionallyndash Accept all customer ordersndash Provide a large number of options from which
customers may orderbull JIT
ndash low costhigh quality within limited market
Jay Raval
Engineering
bull Traditionalndash design custom outputs
bull JITndash design standard outputsndash incremental
improvementsndash design for
manufacturability (DFM)
Jay Raval
Capacity
bull Traditionalndash excess capacity designed into system just-in-case
problem arisesndash highly utilizedndash inflexible
bull JITndash minimize waste of having extra capacityndash flexible capacityndash moderately utilized
Jay Raval
Transformation System
bull Traditionalndash job shopndash materials handling equipmentndash lots of space to store inventory
bull JITndash mostly used in repetitive production situationsndash job shops often converted to cellular
manufacturing
Jay Raval
Transformation System continued
bull Traditional-long lead times are often thought to allow more time to make decisions and get work performed
bull JITndash short lead times mean easier more accurate forecasting and planning
ndash If lead times are reduced there is less time for things go awry to get lost or to be changed
Jay Raval
Transformation System continued
bull JIT
ndash Employing Kanban (Toyotarsquos materials management system)ndash Pull system System for moving work where a workstation
pulls output from the preceding station as needed (control-based systems that signals the requirement for parts as they are needed in reality)
ndash Push system System for moving work where output is pushed to the next station as it is completed (planning-based systems that determine when workstations will probably need parts if everything goes according to plan)
Jay Raval
Sequential Production System with Two Machines
Jay Raval
Layoutbull Traditional
ndash job shop approach of using widely spread-out equipment with space for stockrooms tool cribs and work-in-process inventories between the equipment
ndash To handle and move all this inventory automated or semi automated materials handling equipment (conveyors forklifts) is required which takes even more space
bull JITndash Equipment is moved as close together as possible so that parts can be
actually handed from one worker or machine to the next ndash Use of cells and flow lines dictates small lots of parts with minimal
work-in-process and material-moving equipmentndash manual transfer
Jay Raval
Workforcebull Traditional
ndash competitive attitude between workers and managersndash status symbols and privilegesndash much of the employeesrsquo time is nonworking time looking for parts
moving materials setting up machines getting instructions and so on When actually working they tend to work fast
bull JITndash broadly skilled flexible workers who can uncover and solve problemsndash workteamsndash cooperative attitudes
Jay Raval
Inventories
bull Traditionalndash used to buffer
operationsndash large WIP buffers
bull JITndash inventory is seen as an
evilndash small WIP buffers
Jay Raval
Scrap Unreliable suppliers
Capacity imbalance
Inventory Hides Problems
Jay Raval
Lowering Inventory Investment to Expose Problems
Jay Raval
Suppliers
bull Traditionalndash suppliers treated as
adversariesndash multiple sourcing
bull JITndash supplier considered part
of teamndash single-sourcing
agreementsndash supplier certification
programs
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
Traditional Systems Compared to JIT
Jay Raval
Priorities
bull Traditionallyndash Accept all customer ordersndash Provide a large number of options from which
customers may orderbull JIT
ndash low costhigh quality within limited market
Jay Raval
Engineering
bull Traditionalndash design custom outputs
bull JITndash design standard outputsndash incremental
improvementsndash design for
manufacturability (DFM)
Jay Raval
Capacity
bull Traditionalndash excess capacity designed into system just-in-case
problem arisesndash highly utilizedndash inflexible
bull JITndash minimize waste of having extra capacityndash flexible capacityndash moderately utilized
Jay Raval
Transformation System
bull Traditionalndash job shopndash materials handling equipmentndash lots of space to store inventory
bull JITndash mostly used in repetitive production situationsndash job shops often converted to cellular
manufacturing
Jay Raval
Transformation System continued
bull Traditional-long lead times are often thought to allow more time to make decisions and get work performed
bull JITndash short lead times mean easier more accurate forecasting and planning
ndash If lead times are reduced there is less time for things go awry to get lost or to be changed
Jay Raval
Transformation System continued
bull JIT
ndash Employing Kanban (Toyotarsquos materials management system)ndash Pull system System for moving work where a workstation
pulls output from the preceding station as needed (control-based systems that signals the requirement for parts as they are needed in reality)
ndash Push system System for moving work where output is pushed to the next station as it is completed (planning-based systems that determine when workstations will probably need parts if everything goes according to plan)
Jay Raval
Sequential Production System with Two Machines
Jay Raval
Layoutbull Traditional
ndash job shop approach of using widely spread-out equipment with space for stockrooms tool cribs and work-in-process inventories between the equipment
ndash To handle and move all this inventory automated or semi automated materials handling equipment (conveyors forklifts) is required which takes even more space
bull JITndash Equipment is moved as close together as possible so that parts can be
actually handed from one worker or machine to the next ndash Use of cells and flow lines dictates small lots of parts with minimal
work-in-process and material-moving equipmentndash manual transfer
Jay Raval
Workforcebull Traditional
ndash competitive attitude between workers and managersndash status symbols and privilegesndash much of the employeesrsquo time is nonworking time looking for parts
moving materials setting up machines getting instructions and so on When actually working they tend to work fast
bull JITndash broadly skilled flexible workers who can uncover and solve problemsndash workteamsndash cooperative attitudes
Jay Raval
Inventories
bull Traditionalndash used to buffer
operationsndash large WIP buffers
bull JITndash inventory is seen as an
evilndash small WIP buffers
Jay Raval
Scrap Unreliable suppliers
Capacity imbalance
Inventory Hides Problems
Jay Raval
Lowering Inventory Investment to Expose Problems
Jay Raval
Suppliers
bull Traditionalndash suppliers treated as
adversariesndash multiple sourcing
bull JITndash supplier considered part
of teamndash single-sourcing
agreementsndash supplier certification
programs
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
Priorities
bull Traditionallyndash Accept all customer ordersndash Provide a large number of options from which
customers may orderbull JIT
ndash low costhigh quality within limited market
Jay Raval
Engineering
bull Traditionalndash design custom outputs
bull JITndash design standard outputsndash incremental
improvementsndash design for
manufacturability (DFM)
Jay Raval
Capacity
bull Traditionalndash excess capacity designed into system just-in-case
problem arisesndash highly utilizedndash inflexible
bull JITndash minimize waste of having extra capacityndash flexible capacityndash moderately utilized
Jay Raval
Transformation System
bull Traditionalndash job shopndash materials handling equipmentndash lots of space to store inventory
bull JITndash mostly used in repetitive production situationsndash job shops often converted to cellular
manufacturing
Jay Raval
Transformation System continued
bull Traditional-long lead times are often thought to allow more time to make decisions and get work performed
bull JITndash short lead times mean easier more accurate forecasting and planning
ndash If lead times are reduced there is less time for things go awry to get lost or to be changed
Jay Raval
Transformation System continued
bull JIT
ndash Employing Kanban (Toyotarsquos materials management system)ndash Pull system System for moving work where a workstation
pulls output from the preceding station as needed (control-based systems that signals the requirement for parts as they are needed in reality)
ndash Push system System for moving work where output is pushed to the next station as it is completed (planning-based systems that determine when workstations will probably need parts if everything goes according to plan)
Jay Raval
Sequential Production System with Two Machines
Jay Raval
Layoutbull Traditional
ndash job shop approach of using widely spread-out equipment with space for stockrooms tool cribs and work-in-process inventories between the equipment
ndash To handle and move all this inventory automated or semi automated materials handling equipment (conveyors forklifts) is required which takes even more space
bull JITndash Equipment is moved as close together as possible so that parts can be
actually handed from one worker or machine to the next ndash Use of cells and flow lines dictates small lots of parts with minimal
work-in-process and material-moving equipmentndash manual transfer
Jay Raval
Workforcebull Traditional
ndash competitive attitude between workers and managersndash status symbols and privilegesndash much of the employeesrsquo time is nonworking time looking for parts
moving materials setting up machines getting instructions and so on When actually working they tend to work fast
bull JITndash broadly skilled flexible workers who can uncover and solve problemsndash workteamsndash cooperative attitudes
Jay Raval
Inventories
bull Traditionalndash used to buffer
operationsndash large WIP buffers
bull JITndash inventory is seen as an
evilndash small WIP buffers
Jay Raval
Scrap Unreliable suppliers
Capacity imbalance
Inventory Hides Problems
Jay Raval
Lowering Inventory Investment to Expose Problems
Jay Raval
Suppliers
bull Traditionalndash suppliers treated as
adversariesndash multiple sourcing
bull JITndash supplier considered part
of teamndash single-sourcing
agreementsndash supplier certification
programs
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
Engineering
bull Traditionalndash design custom outputs
bull JITndash design standard outputsndash incremental
improvementsndash design for
manufacturability (DFM)
Jay Raval
Capacity
bull Traditionalndash excess capacity designed into system just-in-case
problem arisesndash highly utilizedndash inflexible
bull JITndash minimize waste of having extra capacityndash flexible capacityndash moderately utilized
Jay Raval
Transformation System
bull Traditionalndash job shopndash materials handling equipmentndash lots of space to store inventory
bull JITndash mostly used in repetitive production situationsndash job shops often converted to cellular
manufacturing
Jay Raval
Transformation System continued
bull Traditional-long lead times are often thought to allow more time to make decisions and get work performed
bull JITndash short lead times mean easier more accurate forecasting and planning
ndash If lead times are reduced there is less time for things go awry to get lost or to be changed
Jay Raval
Transformation System continued
bull JIT
ndash Employing Kanban (Toyotarsquos materials management system)ndash Pull system System for moving work where a workstation
pulls output from the preceding station as needed (control-based systems that signals the requirement for parts as they are needed in reality)
ndash Push system System for moving work where output is pushed to the next station as it is completed (planning-based systems that determine when workstations will probably need parts if everything goes according to plan)
Jay Raval
Sequential Production System with Two Machines
Jay Raval
Layoutbull Traditional
ndash job shop approach of using widely spread-out equipment with space for stockrooms tool cribs and work-in-process inventories between the equipment
ndash To handle and move all this inventory automated or semi automated materials handling equipment (conveyors forklifts) is required which takes even more space
bull JITndash Equipment is moved as close together as possible so that parts can be
actually handed from one worker or machine to the next ndash Use of cells and flow lines dictates small lots of parts with minimal
work-in-process and material-moving equipmentndash manual transfer
Jay Raval
Workforcebull Traditional
ndash competitive attitude between workers and managersndash status symbols and privilegesndash much of the employeesrsquo time is nonworking time looking for parts
moving materials setting up machines getting instructions and so on When actually working they tend to work fast
bull JITndash broadly skilled flexible workers who can uncover and solve problemsndash workteamsndash cooperative attitudes
Jay Raval
Inventories
bull Traditionalndash used to buffer
operationsndash large WIP buffers
bull JITndash inventory is seen as an
evilndash small WIP buffers
Jay Raval
Scrap Unreliable suppliers
Capacity imbalance
Inventory Hides Problems
Jay Raval
Lowering Inventory Investment to Expose Problems
Jay Raval
Suppliers
bull Traditionalndash suppliers treated as
adversariesndash multiple sourcing
bull JITndash supplier considered part
of teamndash single-sourcing
agreementsndash supplier certification
programs
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
Capacity
bull Traditionalndash excess capacity designed into system just-in-case
problem arisesndash highly utilizedndash inflexible
bull JITndash minimize waste of having extra capacityndash flexible capacityndash moderately utilized
Jay Raval
Transformation System
bull Traditionalndash job shopndash materials handling equipmentndash lots of space to store inventory
bull JITndash mostly used in repetitive production situationsndash job shops often converted to cellular
manufacturing
Jay Raval
Transformation System continued
bull Traditional-long lead times are often thought to allow more time to make decisions and get work performed
bull JITndash short lead times mean easier more accurate forecasting and planning
ndash If lead times are reduced there is less time for things go awry to get lost or to be changed
Jay Raval
Transformation System continued
bull JIT
ndash Employing Kanban (Toyotarsquos materials management system)ndash Pull system System for moving work where a workstation
pulls output from the preceding station as needed (control-based systems that signals the requirement for parts as they are needed in reality)
ndash Push system System for moving work where output is pushed to the next station as it is completed (planning-based systems that determine when workstations will probably need parts if everything goes according to plan)
Jay Raval
Sequential Production System with Two Machines
Jay Raval
Layoutbull Traditional
ndash job shop approach of using widely spread-out equipment with space for stockrooms tool cribs and work-in-process inventories between the equipment
ndash To handle and move all this inventory automated or semi automated materials handling equipment (conveyors forklifts) is required which takes even more space
bull JITndash Equipment is moved as close together as possible so that parts can be
actually handed from one worker or machine to the next ndash Use of cells and flow lines dictates small lots of parts with minimal
work-in-process and material-moving equipmentndash manual transfer
Jay Raval
Workforcebull Traditional
ndash competitive attitude between workers and managersndash status symbols and privilegesndash much of the employeesrsquo time is nonworking time looking for parts
moving materials setting up machines getting instructions and so on When actually working they tend to work fast
bull JITndash broadly skilled flexible workers who can uncover and solve problemsndash workteamsndash cooperative attitudes
Jay Raval
Inventories
bull Traditionalndash used to buffer
operationsndash large WIP buffers
bull JITndash inventory is seen as an
evilndash small WIP buffers
Jay Raval
Scrap Unreliable suppliers
Capacity imbalance
Inventory Hides Problems
Jay Raval
Lowering Inventory Investment to Expose Problems
Jay Raval
Suppliers
bull Traditionalndash suppliers treated as
adversariesndash multiple sourcing
bull JITndash supplier considered part
of teamndash single-sourcing
agreementsndash supplier certification
programs
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
Transformation System
bull Traditionalndash job shopndash materials handling equipmentndash lots of space to store inventory
bull JITndash mostly used in repetitive production situationsndash job shops often converted to cellular
manufacturing
Jay Raval
Transformation System continued
bull Traditional-long lead times are often thought to allow more time to make decisions and get work performed
bull JITndash short lead times mean easier more accurate forecasting and planning
ndash If lead times are reduced there is less time for things go awry to get lost or to be changed
Jay Raval
Transformation System continued
bull JIT
ndash Employing Kanban (Toyotarsquos materials management system)ndash Pull system System for moving work where a workstation
pulls output from the preceding station as needed (control-based systems that signals the requirement for parts as they are needed in reality)
ndash Push system System for moving work where output is pushed to the next station as it is completed (planning-based systems that determine when workstations will probably need parts if everything goes according to plan)
Jay Raval
Sequential Production System with Two Machines
Jay Raval
Layoutbull Traditional
ndash job shop approach of using widely spread-out equipment with space for stockrooms tool cribs and work-in-process inventories between the equipment
ndash To handle and move all this inventory automated or semi automated materials handling equipment (conveyors forklifts) is required which takes even more space
bull JITndash Equipment is moved as close together as possible so that parts can be
actually handed from one worker or machine to the next ndash Use of cells and flow lines dictates small lots of parts with minimal
work-in-process and material-moving equipmentndash manual transfer
Jay Raval
Workforcebull Traditional
ndash competitive attitude between workers and managersndash status symbols and privilegesndash much of the employeesrsquo time is nonworking time looking for parts
moving materials setting up machines getting instructions and so on When actually working they tend to work fast
bull JITndash broadly skilled flexible workers who can uncover and solve problemsndash workteamsndash cooperative attitudes
Jay Raval
Inventories
bull Traditionalndash used to buffer
operationsndash large WIP buffers
bull JITndash inventory is seen as an
evilndash small WIP buffers
Jay Raval
Scrap Unreliable suppliers
Capacity imbalance
Inventory Hides Problems
Jay Raval
Lowering Inventory Investment to Expose Problems
Jay Raval
Suppliers
bull Traditionalndash suppliers treated as
adversariesndash multiple sourcing
bull JITndash supplier considered part
of teamndash single-sourcing
agreementsndash supplier certification
programs
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
Transformation System continued
bull Traditional-long lead times are often thought to allow more time to make decisions and get work performed
bull JITndash short lead times mean easier more accurate forecasting and planning
ndash If lead times are reduced there is less time for things go awry to get lost or to be changed
Jay Raval
Transformation System continued
bull JIT
ndash Employing Kanban (Toyotarsquos materials management system)ndash Pull system System for moving work where a workstation
pulls output from the preceding station as needed (control-based systems that signals the requirement for parts as they are needed in reality)
ndash Push system System for moving work where output is pushed to the next station as it is completed (planning-based systems that determine when workstations will probably need parts if everything goes according to plan)
Jay Raval
Sequential Production System with Two Machines
Jay Raval
Layoutbull Traditional
ndash job shop approach of using widely spread-out equipment with space for stockrooms tool cribs and work-in-process inventories between the equipment
ndash To handle and move all this inventory automated or semi automated materials handling equipment (conveyors forklifts) is required which takes even more space
bull JITndash Equipment is moved as close together as possible so that parts can be
actually handed from one worker or machine to the next ndash Use of cells and flow lines dictates small lots of parts with minimal
work-in-process and material-moving equipmentndash manual transfer
Jay Raval
Workforcebull Traditional
ndash competitive attitude between workers and managersndash status symbols and privilegesndash much of the employeesrsquo time is nonworking time looking for parts
moving materials setting up machines getting instructions and so on When actually working they tend to work fast
bull JITndash broadly skilled flexible workers who can uncover and solve problemsndash workteamsndash cooperative attitudes
Jay Raval
Inventories
bull Traditionalndash used to buffer
operationsndash large WIP buffers
bull JITndash inventory is seen as an
evilndash small WIP buffers
Jay Raval
Scrap Unreliable suppliers
Capacity imbalance
Inventory Hides Problems
Jay Raval
Lowering Inventory Investment to Expose Problems
Jay Raval
Suppliers
bull Traditionalndash suppliers treated as
adversariesndash multiple sourcing
bull JITndash supplier considered part
of teamndash single-sourcing
agreementsndash supplier certification
programs
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
Transformation System continued
bull JIT
ndash Employing Kanban (Toyotarsquos materials management system)ndash Pull system System for moving work where a workstation
pulls output from the preceding station as needed (control-based systems that signals the requirement for parts as they are needed in reality)
ndash Push system System for moving work where output is pushed to the next station as it is completed (planning-based systems that determine when workstations will probably need parts if everything goes according to plan)
Jay Raval
Sequential Production System with Two Machines
Jay Raval
Layoutbull Traditional
ndash job shop approach of using widely spread-out equipment with space for stockrooms tool cribs and work-in-process inventories between the equipment
ndash To handle and move all this inventory automated or semi automated materials handling equipment (conveyors forklifts) is required which takes even more space
bull JITndash Equipment is moved as close together as possible so that parts can be
actually handed from one worker or machine to the next ndash Use of cells and flow lines dictates small lots of parts with minimal
work-in-process and material-moving equipmentndash manual transfer
Jay Raval
Workforcebull Traditional
ndash competitive attitude between workers and managersndash status symbols and privilegesndash much of the employeesrsquo time is nonworking time looking for parts
moving materials setting up machines getting instructions and so on When actually working they tend to work fast
bull JITndash broadly skilled flexible workers who can uncover and solve problemsndash workteamsndash cooperative attitudes
Jay Raval
Inventories
bull Traditionalndash used to buffer
operationsndash large WIP buffers
bull JITndash inventory is seen as an
evilndash small WIP buffers
Jay Raval
Scrap Unreliable suppliers
Capacity imbalance
Inventory Hides Problems
Jay Raval
Lowering Inventory Investment to Expose Problems
Jay Raval
Suppliers
bull Traditionalndash suppliers treated as
adversariesndash multiple sourcing
bull JITndash supplier considered part
of teamndash single-sourcing
agreementsndash supplier certification
programs
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
Sequential Production System with Two Machines
Jay Raval
Layoutbull Traditional
ndash job shop approach of using widely spread-out equipment with space for stockrooms tool cribs and work-in-process inventories between the equipment
ndash To handle and move all this inventory automated or semi automated materials handling equipment (conveyors forklifts) is required which takes even more space
bull JITndash Equipment is moved as close together as possible so that parts can be
actually handed from one worker or machine to the next ndash Use of cells and flow lines dictates small lots of parts with minimal
work-in-process and material-moving equipmentndash manual transfer
Jay Raval
Workforcebull Traditional
ndash competitive attitude between workers and managersndash status symbols and privilegesndash much of the employeesrsquo time is nonworking time looking for parts
moving materials setting up machines getting instructions and so on When actually working they tend to work fast
bull JITndash broadly skilled flexible workers who can uncover and solve problemsndash workteamsndash cooperative attitudes
Jay Raval
Inventories
bull Traditionalndash used to buffer
operationsndash large WIP buffers
bull JITndash inventory is seen as an
evilndash small WIP buffers
Jay Raval
Scrap Unreliable suppliers
Capacity imbalance
Inventory Hides Problems
Jay Raval
Lowering Inventory Investment to Expose Problems
Jay Raval
Suppliers
bull Traditionalndash suppliers treated as
adversariesndash multiple sourcing
bull JITndash supplier considered part
of teamndash single-sourcing
agreementsndash supplier certification
programs
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
Layoutbull Traditional
ndash job shop approach of using widely spread-out equipment with space for stockrooms tool cribs and work-in-process inventories between the equipment
ndash To handle and move all this inventory automated or semi automated materials handling equipment (conveyors forklifts) is required which takes even more space
bull JITndash Equipment is moved as close together as possible so that parts can be
actually handed from one worker or machine to the next ndash Use of cells and flow lines dictates small lots of parts with minimal
work-in-process and material-moving equipmentndash manual transfer
Jay Raval
Workforcebull Traditional
ndash competitive attitude between workers and managersndash status symbols and privilegesndash much of the employeesrsquo time is nonworking time looking for parts
moving materials setting up machines getting instructions and so on When actually working they tend to work fast
bull JITndash broadly skilled flexible workers who can uncover and solve problemsndash workteamsndash cooperative attitudes
Jay Raval
Inventories
bull Traditionalndash used to buffer
operationsndash large WIP buffers
bull JITndash inventory is seen as an
evilndash small WIP buffers
Jay Raval
Scrap Unreliable suppliers
Capacity imbalance
Inventory Hides Problems
Jay Raval
Lowering Inventory Investment to Expose Problems
Jay Raval
Suppliers
bull Traditionalndash suppliers treated as
adversariesndash multiple sourcing
bull JITndash supplier considered part
of teamndash single-sourcing
agreementsndash supplier certification
programs
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
Workforcebull Traditional
ndash competitive attitude between workers and managersndash status symbols and privilegesndash much of the employeesrsquo time is nonworking time looking for parts
moving materials setting up machines getting instructions and so on When actually working they tend to work fast
bull JITndash broadly skilled flexible workers who can uncover and solve problemsndash workteamsndash cooperative attitudes
Jay Raval
Inventories
bull Traditionalndash used to buffer
operationsndash large WIP buffers
bull JITndash inventory is seen as an
evilndash small WIP buffers
Jay Raval
Scrap Unreliable suppliers
Capacity imbalance
Inventory Hides Problems
Jay Raval
Lowering Inventory Investment to Expose Problems
Jay Raval
Suppliers
bull Traditionalndash suppliers treated as
adversariesndash multiple sourcing
bull JITndash supplier considered part
of teamndash single-sourcing
agreementsndash supplier certification
programs
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
Inventories
bull Traditionalndash used to buffer
operationsndash large WIP buffers
bull JITndash inventory is seen as an
evilndash small WIP buffers
Jay Raval
Scrap Unreliable suppliers
Capacity imbalance
Inventory Hides Problems
Jay Raval
Lowering Inventory Investment to Expose Problems
Jay Raval
Suppliers
bull Traditionalndash suppliers treated as
adversariesndash multiple sourcing
bull JITndash supplier considered part
of teamndash single-sourcing
agreementsndash supplier certification
programs
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
Scrap Unreliable suppliers
Capacity imbalance
Inventory Hides Problems
Jay Raval
Lowering Inventory Investment to Expose Problems
Jay Raval
Suppliers
bull Traditionalndash suppliers treated as
adversariesndash multiple sourcing
bull JITndash supplier considered part
of teamndash single-sourcing
agreementsndash supplier certification
programs
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
Lowering Inventory Investment to Expose Problems
Jay Raval
Suppliers
bull Traditionalndash suppliers treated as
adversariesndash multiple sourcing
bull JITndash supplier considered part
of teamndash single-sourcing
agreementsndash supplier certification
programs
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
Suppliers
bull Traditionalndash suppliers treated as
adversariesndash multiple sourcing
bull JITndash supplier considered part
of teamndash single-sourcing
agreementsndash supplier certification
programs
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
Planning and Control
bull Traditionalndash focus is on planningndash planning complex and computerized
bull JITndash focus is on controlndash procedures kept simple and visualndash rather than planning and forecasting for an
uncertain future the firm attempts to respond to what actually happens in real time with flexible quick operations
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
Quality
bull Traditionalndash inspect goods at critical pointsndash scrap rates tracked
bull JITndash goal is zero defectsndash workers themselves inspect parts
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
Maintenancebull Traditional
ndash corrective maintenance repairing a machine when it breaks down
ndash done by experts who do nothing but repair broken equipment
ndash equipment run fastbull JIT
ndash preventive maintenance conducting maintenance before the machine is expected to fail or at regular intervals
ndash done by equipment operatorsndash equipment run slow (minimizes their chance of breakdown
while maximizing their output)
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
Typical Benefits of JITbull Cost savings inventory reductions reduced scrap fewer
defects fewer changes due to both customers and engineering less space decreased labor hours les rework
bull Revenue increases better service and quality to the customer bull Investment savings less space reduced inventory increased
the volume of work produced in the same facility bull Workforce improvements more satisfied better trained
employeesbull Uncovering problems greater visibility to problems that JIT
allows if management is willing to capitalize on the opportunity to fix these problems
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
Potential Problems Implementing JIT
bull Applicable primarily to repetitive operationsbull Requires disciplinebull Based on cooperation and trustbull Requires change of philosophy
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
Life cyclecosting
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
Introduction bull At the start of any project it is important to understand the
costs involved
bull Traditional methods simply look at start-up costs cash flow and profit (or loss)
bull With more complicated projects it is necessary to understand costs throughout the life of the project
bull This allows the financial managers tobull Understand when the project will break-evenbull What are the costs and returns during the life of the projectbull Estimate life of the project
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
Definition
bull A life cycle costing estimates a productrsquos revenues and expenses over itrsquos entire life cycle
bull Life Cycle Cost = Initial Cost + (Annual Costs Project Life Discount Factor)
bull Life cycle concept is associated with target costing amp target pricing
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
Advantages
bull important inputs in the decision making process in the product design development and use
bull evaluation of alternativesbull Evaluation of competing options in purchase bull Improved awareness of total costsbull More accurate forecasting of cost profiles
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
Why use LCC
Project managerMaintenance Engineering ProductionAccounting
Shareholders
minimize capital costsminimize repair hoursmaximize operation hours
maximize projectnet present valueIncrease wealth of company
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
Disadvantages
bull The accuracy of LCC analysis reduce as it predicts further into the future
bull LCC is time consuming
bull LCC is an expensive concept not appropriate for all applications
bull The assumption is that the product as known has a finite life-cycle
bull The accuracy of data is often doubtful
bull It has a high sensitivity to changing requirements
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Cost element
bull For an equipment there are TWO cost elements
1) Initial Cost and2) Operation amp Maintenance Cost
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
Company X is considering whether to follow Project A or Project BProject B has an initial cost of pound2000 while Project A has an initial cost of pound3000 However applying the life cycle cost formula will help Company X determine what will select among two projects
PROJECT A PROJECT B
Initial Cost pound3000 pound2000
Annual CostsElectricityMaintenance
pound150pound50
pound250pound150
Project Life(Years)
15 15
Discount Factor(Based on an interest rate of 3)
064 064
Calculationspound3000 + (pound200 x 15 x 064)
pound2000 + (pound400 x 15 x 064)
LIFE CYCLE COST pound4920 pound5840
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
Jay Raval
THANK YOU Please mail your
valuable suggestion at jayraval91gmailcom
