WHITE CELLS ARE ADJUSTABLE

Kristoffer Burnett - Certified Management Accountant, 2009-2012

Resource Utilization Example

Sample Process Map
1

Procurement

Manufacturing

Distribution

Machining 1 Generate PO Receive Raw Materials

Assembly Load Truck Ship to Distribution Center

Work in Process

Inventory

Machining 2 Unload Truck

Inventory

WIP

WIP

Inventory

Quality Control

Packaging Load Truck Ship to Customer

WIP

Notes: 1 A process map is created to serve as an illustration and reference for a resource utilization analysis.

WHITE CELLS ARE ADJUSTABLE

Kristoffer Burnett - Certified Management Accountant, 2009 -2012

Resource Utilization Example

Process Utilization
1 2 3

Item1 Item2 Item3 Item4 Item5 Process Step/Department

Unit Demand Unit Demand Per Year Per Hour 14,811 7.1 12,864 6.2 24,253 11.7 12,412 6.0 31,255 15.0

Unit Flow Rate 7.1 6.2 11.7 6.0 15.0

4

Item1 Machining 1 Assembly Machining 2 Quality Control Packaging Total Process Step/Department Item1 Machining 1 Assembly Machining 2 Quality Control Packaging Total Process Step/Department Item1 Machining 1 Assembly Machining 2 Quality Control Packaging Total 8.2 8.3 8.1 8.1 9.2 6.4 5.0 1.3 0.9 0.7 2.9

Activity Time Per Unit in Hours Item2 Item3 Item4 0.6 0.5 1.0 0.4 0.5 0.7 0.9 0.6 0.4 0.7 1.0 1.4 2.9 3.0
5

Item5 0.6

Item1 10.7 7.5 5.7 23.9

Item2

0.6 0.9 2.1

3.6 6.4 10.0

Employee Allocation Item3 Item4 8.1 3.5 13.6 2.8 4.9 8.0 2.7 9.5 6.9 39.2 20.8

Item5 10.4

Total 22 27 16 33 32 130

10.2 15.6 36.2

Item2

3.1 5.6

Requested Capacity Item3 Item4 7.0 3.0 11.7 2.4 4.2 7.0 2.4 8.2 6.0
6

Item5 9.0

9.0 13.5

Total 19.0 23.3 13.7 29.0 27.7 112.7

Implied Total Requested Capacity / Total Employee Allocation. Represents the mismatch between demand and supply Utilization 86.4% 86.3% 85.6% 87.9% 86.6% 86.7%
7

Item2

7.2 7.1 7.1

Available Capacity Item3 Item4 13.5 7.0 13.6 7.0 7.0 13.3 6.8 13.6 6.9 13.3 6.8

Item5 17.3

17.0 17.3 17.0

Total 37.8 28.8 22.5 52.3 37.8 179.2

Item1 7.1 7.1 7.1

Item2

6.2 6.2

Actual Production Item3 Item4 11.7 6.0 11.7 6.0 6.0 11.7 6.0 11.7 6.0

Item5 15.0

15.0 15.0

Total 32.7 24.8 19.3 46.0 32.7 155.5

Utilization Actual Production / Available Capacity. Represents the mismatch between usage and capacity of Resource 86.5% 86.1% 85.8% 88.0% 86.5% 86.8%

88.5%

Process Utilization

88.0%

87.5%

87.0%

86.5%

86.0%

85.5%

85.0%

84.5%

84.0% Machining 1 Assembly Machining 2 Quality Control Packaging Total

Implied Utilization

Utilization of Resource

Notes: 1 2 3 4 5 6 On this worksheet items are assumed to run continuously and are not batched. Demand per hour assumes a 2,080 hour work year (40 hours * 52 weeks). Flow rate is the throughput (units per hour) for each individual item. It is the minimum of demand and capacity. Employees in each department are allocated to particular items based requested capacity. Fractional amounts are due to averaging. Requested capacity represents the number of man-hours (employees) per work-hour required to fulfill demand. Capacity in units/hour based on Employee Allocation and Activity Time. Item Totals represent the maximum number of units that can be manufactured in one hour and will be the same as the bottleneck for that item. The Process Step Total is used to determine the overall utilization of the resources and the process in whole 7 Actual Production is equal to the Unit Flow Rate.

WHITE CELLS ARE ADJUSTABLE

Kristoffer Burnett - Certified Management Accountant, 2009-2012

Resource Utilization Example

Current Labor Utilization Item1 13.93 22.0 306.46 7.1 $ 43.16 $ $ 0.141 Item2 16.39 27.1 444.17 6.2 $ 71.64 $ $ 0.161 Item3 12.63 16.0 202.08 11.7 $ 17.27 $ $ 0.085 Item4 16.13 33.0 532.29 6.0 $ 88.72 $ $ 0.167 Item5 13.24 32.0 423.68 15.0 $ 28.25 $ $

Direct labor rate Employees allocated Total wages per hour Unit flow rate Cost of direct labor Cycle time

From Employee Allocation on Process Utilization Direct labor rate * Employees allocated From Process Utilization Total wages per hour / Unit flow rate

0.067 Inverse of Unit flow rate. Demonstrates the number of hours between unit production
1

Item1 Machining 1 Assembly Machining 2 Quality Control Packaging Total idle time Total activity time Labor utilization 0.21 0.16 0.10 0.47 2.9 86.1%

Item2

Idle Time Per Unit Item3 Item4 0.09 0.08 0.16 0.07 0.08 0.12 0.13 0.08 0.05 0.11 0.15 0.21 0.44 0.47 2.9 86.8% 3.0 86.5%

Item5 0.10

0.08 0.15 0.33 2.1 86.4% Avg From Process Utilization 86.6% Total Activity Time / ( Total activity time + Total idle time)

1.4 87.0%

Labor Utilization With Line Balancing Process Step/Department

Task Machining 1

Item1 Time

Task

Item2 Time

Task 1 2 3 4

Item3 Time 0.74 0.26 0.13 0.21 0.14

Task 1 2 3

Item4 Time 0.50 0.27 0.08 0.15

Task 1 2 3

Item5 Time 0.60 0.30 0.13 0.17

Direct labor rate Employees allocated New total wages per hour New unit flow rate New cost of direct labor New cycle time

Item1 13.93 21.0 292.53 7.1 $ 41.20 $ $ 0.141

Item2 16.39 22.0 360.58 6.2 $ 58.16 $ $ 0.161

Item3 12.63 14.0 176.82 11.7 $ 15.11 $ $ 0.085

Item4 16.13 29.0 467.77 6.0 $ 77.96 $ $ 0.167

Item5 13.24 28.0 370.72 15.0 $ 24.71 $ $

From above This may change based on the reassigning of tasks and adjustments to staffing levels Direct labor rate * Employees allocated This may change based on the reassigning of tasks and adjustments to staffing levels Total wages per hour / Unit flow rate

0.067 This may change based on the reassigning of tasks and adjustments to staffing levels This may change based on the reassigning of tasks and adjustments to staffing levels Item5 0.01

Item1 Assembly 1 2 3 4 5 6 1.30 0.32 0.07 0.35 0.24 0.21 0.11 0.86 0.08 0.08 0.27 0.17 0.26 0.40 0.10 0.03 0.06 0.09 0.10 0.02 Machining 1 Assembly Machining 2 Quality Control Packaging Total idle time Total activity time New labor utilization Change New total number of employees Change in employees Estimated annual savings 0.01 0.02 0.01 0.04 2.9 98.6% 12.5%

Item2

5 6 7 8 9

4 5 6 7 8 9

Idle Time Per Unit Item3 Item4 0.01 0.01 0.02 0.02 (0.01) 0.01 0.02 0.02 0.02 0.04 2.9 99.3% 12.5% 3.0 98.7% 12.2%

0.01 0.02 2.1 99.1% 12.7% Avg From Process Utilization 98.9% Total Activity Time / ( Total activity time + Total idle time) 12.3% New labor utilization - Labor utilization

1.4 98.6% 11.6%

Machining 2 7 8 9 10

0.90 0.10 0.23 0.32 0.25

1 2 3 4

0.50 0.19 0.05 0.10 0.16

10 11 12 13

0.70 0.18 0.14 0.28 0.10

114 A greater or lesser number of employees may be needed if tasks are reassigned (16) New total number of employees - Employee Allocation Total from Process Utilization $ 488,622 Estimated change in direct labor expense affected by change in employees based on a 2,080 hour work-year

Quality Control 11 12 13

0.70 0.30 0.30 0.10

5 6 7

0.90 0.17 0.42 0.31

10 11 12

0.60 0.28 0.08 0.24

14 15 16

0.40 0.12 0.15 0.13

4 5 6

0.60 0.22 0.17 0.21

Packaging 13 14 15

0.70 0.16 0.37 0.17

17 18 19

1.00 0.18 0.44 0.38

7 8 9

0.90 0.21 0.47 0.22

Average time per step

0.97

0.70

0.73

0.60

0.70 This figure serves as a goal for line balancing. The closer each step's activity time is to this, the more less idle time should be experienced

105.0%

Labor Utilization

100.0%

95.0%

90.0%

85.0%

80.0%

75.0%
Item1 Item2 Item3 Item4 Item5 Avg

New labor utilization

Labor utilization

Notes: 1 This is the total amount of idle time per every unit produced. It factors in the Activity Time Per Unit, Employee Allocation, and Actual Production Rate. 2 Individual tasks can be moved from one step to another to illustrate the effect of changes. For instance, Item3 was balanced as much as possible. The effect was an increase in labor utilization (individually and overall). Further changes may result in a reduction in headcount and savings on direct labor expenses.

WHITE CELLS ARE ADJUSTABLE

Kristoffer Burnett - Certified Management Accountant, 2009-2012

Resource Utilization Example

Batch Sizing Based On Maintenance Time Current standard batch size Process Step/Department Item1 Machining 1 Assembly Machining 2 Quality Control Packaging Total Optimum batch size 1 Process Step/Department Machining 1 Assembly Machining 2 Quality Control Packaging Total 7.5 7.8 7.7 7.5 45

70

60
2

120

65

160 This is the average batch size by item

3

Capacity Based on Current Batch Size Item2 Item3 Item4 12.8 6.6 12.3 6.4 6.7 6.6 6.7 12.6 6.4 12.3 6.3 6.7 12.3 6.3 27 78 42

Item5 16.4

16.1 15.7 15.7 104

Maintenance Time (Hrs) 0.5 0.9 0.6 0.5 0.9

Item1

Capacity Based on Optimum Batch Size 1 Item2 Item3 Item4 Item5 12.4 6.5 15.9 7.1 11.7 6.1 7.5 6.2 6.4 7.5 6.3 12.3 6.3 15.7 11.7 6.0 15.0 7.1 6.2 11.7 6.0 15.0 Under the default example capacity is equal to demand/flow rate

Batch Sizing Based On Maintenance Costs Annual carrying cost (%) Hourly carrying cost (%) 47.25% This is the percentage of the average inventory amount in costs incurred to hold said inventory. Examples include the cost of capital, storage, and obsolescence 0.023% Assumes a 2,080 hour year Item1 102.62 76.00 214 Item2 182.61 42.00 111 Item3 113.93 107.00 309 Item4 172.47 130.00 198 Item5 80.43 The total value of the individual items including direct material, direct labor and overhead 73.00 These are the fixed costs incurred with every purchase setup. Examples include maintenance, supplies, and scrap 344 4

Total item cost Setup costs per batch Optimum batch size 2 Process Step/Department Machining 1 Assembly Machining 2 Quality Control Packaging Total

Item1

Capacity Based on Optimum Batch Size 2 Item2 Item3 Item4 Item5 13.2 6.9 16.8 8.0 13.0 6.8 8.1 6.9 6.8 8.0 6.9 13.1 6.6 16.5 13.0 6.7 16.5 8.0 6.9 13.0 6.6 16.5

Notes 1 The information in this worksheet assumes that items are produced in batches because of maintenance (setups, changeover, cleaning, etc) that is necessary from time to time. 2 This capacity figure is calculated factoring in batch sizes and maintenance time. 3 Maintenance times are assumed to run concurrently. Therefore the maintenance time used in the capacity equation is the max for the relevant activities 4 It will most likely be noticed that the default optimum batch size 1 differs significantly from 2. There is no definitive answer on which "optimum" batch size to use. These figures will have to be qualified for the individual organization's situation. Things to consider are sunk costs vs. out-of-pocket costs for setups and the rationale behind batching in the first place (time or cost based).