of the capital input. The capital or machine rates for both alternatives are given. However, neither includes maintenance cost. Thus, the maintenance cost, spread over the 100,000 parts, will be added to the hourly machine rate. To proceed, calculate the number of hours it would take to produce 100,000 parts for each method, then divide the maintenance cost by this number.
For the current method,
hrscurr = (100,000 parts/yr)/(100 parts/hr) = 1000 hr
(PI maint)curr = $8000/1000 hr = $8/hr.
For the proposed method,
hrsprop = (100,000 parts/yr)/(165 parts/hr) = 606.1 hr
(PI maint)prop = $16,000/606.1 hr = $26.40/hr.
Add these values to the capital hourly rates for both current and proposed methods:
(PI capital)curr = $25/hr + $8/hr = $33.00/hr
(PI capital)prop = $45.50/hr + $26.40/hr = $71.90/hr.
Substituting these values into a productivity analysis spreadsheet yields the following:
Thus, the proposed method is 126% as productive as the current method. The quantity breakeven point indicates the production quantity after which the proposed method becomes more productive. These calculations are shown in the following spreadsheet:
The quantity breakeven point occurs at 16,837 parts. The annual cost savings of the new method will be $39,515 (from $194,000 − $154,485).
2.7 Productivity and the USA Principle
The benefits of productivity analysis in justifying automation of manufacturing processes have been extensively highlighted throughout this chapter. Additionally, we hint at how productivity analysis can be used to identify other enhancements or improvements to the proposed automation. In this section, we discuss using the USA automation strategy in conjunction with a productivity analysis as the starting point for productivity improvements through automation. Thus, instead of performing the productivity analysis after an automated method has been proposed, the analysis will be used during the development of the automated method.
Groover outlined the basic tenets of the USA principle in Automation, Production Systems and Computer-Integrated Manufacturing. It is a simple, common sense approach to developing an automation strategy. “USA” is an acronym for the method’s steps:
Understand the process. This is the crucial first step. There is no better way to understand an existing process than to calculate its productivity. It compels the determination of cycle times, production rates, material costs, and so on. These data can be assembled through time studies, video analysis, and through other data collection techniques. Once all the data are assembled, a preliminary productivity analysis is performed, one that uses the spreadsheet presented in Section 2.6. Data collection and productivity analysis give one a thorough grasp and deep understanding of the existing process.
Simplify the process. It is likely that a process under consideration has never been as extensively evaluated as it will be with these methods. Thus, simple improvements or modifications identified in step 1 may greatly enhance the performance of the existing process. Wasted movements, actions, or procedures can be eliminated and the process reevaluated, the idea being that the new process should be as streamlined as possible and have every opportunity to succeed. Once the new process has stabilized, another productivity analysis using the new data is performed.
Automate the process. Armed with extensive, in-depth knowledge of the simplified existing process, one begins identifying ways to improve productivity through automation, using the automation strategies identified in Section 1.6 as a starting point. Once a general strategy has been selected, a productivity analysis is done, one that compares the existing process and the proposed automated one. The productivity analysis spreadsheet is used and the automated method’s performance adjusted until the desired productivity improvement is achieved.
After the USA principle is applied, data from the productivity analysis in step 3 are the specifications for the new, automated process; these data are used for cost quoting purposes. Once quotations are received, the productivity analysis can be reevaluated. Thus, when it comes time to submit a proposal to upper management for the automation project, justification will have already been completed. Using the USA principle in conjunction with productivity analysis greatly enhances the probability of a successful automation project.
Productivity calculations provide a very effective means for identifying, evaluating, and justifying the use of automation in a manufacturing facility. Productivity of a manufacturing system is determined by the ratio of the process outputs divided to the process inputs. If only one input (such as labor) is considered in the calculation, then the calculation is called a partial productivity (PP) calculation. When two or more inputs are included, the calculation is called a combined productivity (PC) calculation.
Process measures are used to quantify manufacturing processes. These measures then fill the role of outputs in productivity calculations. The most important process measure in terms of productivity calculations is production rate—the measure of how many parts are produced over a specific time frame, typically expressed in parts per hour. Production rate is calculated from the operational cycle time that includes all time element activities involved in producing one part.
Other important mathematical quantifying concepts include production capacity (the maximum rate of output of a particular product for a manufacturing system over a specified time period), utilization (the ratio of the actual number of products divided by production capacity, expressed in percent), and availability (how often a machine is actually available to perform processing). Manufacturing lead-time is the total time it takes to convert the raw material into the finished product.
Input of the productivity calculation (PI) is the amount of money into the process over the same time frame used in the output measurement. Inputs to the process are typically broken down into categories consisting of capital, energy, labor, and material. All of these inputs need to be expressed in terms of dollars per hour. For energy, labor, and material the calculations are straightforward. Capital costs of automation are determined by breaking initial cost of equipment into annual cost spread over annual hours the machine is estimated to run, the result added to factory overhead expenses.
Productivity calculations are a very effective method of comparing automation alternatives. Productivity index is then calculated, giving a clear and concise method for comparing partial and combined productivity measures of the two options being evaluated. One of the options, typically the current method, is assigned a baseline productivity index of 1. If a proposed option has a combined productivity index greater than 1, it can be said that it is more productive than the current method. A combined productivity comparison can serve as a starting point or roadmap for identifying the type and quantity of improvements necessary to justify automation.
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