© BMA Inc All rights reserved. Decision Making

© BMA Inc All rights reserved. Decision Making Methodology 1.Does this decision make sense operationally? –Use the Value Stream Performance Measures to evaluate the effect on the operational measures in the Box Score 2.Do we have the capacity or can we do it? –Value Stream Capacity Analysis Understand the flow of products through the Value Stream Use Value Stream Maps to populate the capacity analysis 3.What is the cash flow impact? –Value Stream costing What costs will actually be impacted?

© BMA Inc All rights reserved. Plant level consolidated value stream costing w/ inventory change We will be focusing on the OEM Value Stream to show the impact of improvements and various decisions within the value stream

© BMA Inc All rights reserved. OEM Value Stream Map SupplierCustomer Kanban Shipping S&OP Demand ForecastsPurchase Forecasts Order SupplierCustomer Shipping Assembly Welding 3,000 per Month Machine Shop Machine Shop Machine Shop Machine Shop Machine Shop Machine Shop Machine Shop Qty = 30,000 C/T = 70s Batch = 1500 Set Up = 10,800s Scrap = 10% Rework = 20% Downtime = 15% Inspection = 10% Insp Time = 120s # cells = 8 Crew Size = 4 # of people = 34 Shifts = 1 Qty = 15,000 C/T = 180s Batch = 600 Set Up = 1200s Scrap = 5% Rework = 10% Downtime = 5% Inspection=100% Insp Time = 30s # cells = 5 Crew Size = 1 # of people = 10 Shifts = 2 Qty = 3,000 C/T = 210s Batch = 20 Set Up = 600s Scrap = 0% Rework = 10% Downtime = 0% Inspection=100% Insp Time = 60s # cells = 2 Crew Size = 5 # of people = 10 Shifts = 1 Qty = 1,000 C/T = 120s Batch = 1 Set Up = 0s Scrap = 0% Rework = 2% Downtime = 0% Inspection=0% Insp Time = 0s # cells = 1 Crew Size = 1 # of people = 1 Shifts = 1 DATA BOXES

© BMA Inc All rights reserved. Value Stream Costing & Box Score Value Stream Performance Measures / Costing & Capacity feed the Box Score OEM BOX SCORE Current State Productivity Units per Person43 On-Time Shipment86% First Time Thru Quality70% Dock-to-Dock Days24.00 VS Average Cost Per Unit£ Machine Shop Capacity (constraint) Productive Capacity46% Non-Productive Capacity47% Available Capacity8% Material Costs£829,835 Conversion Costs£449,796 Total Costs£1,279,631 Overtime Costs£6,948 Inventory Days52 Value Stream Costing OEM Value Stream Materials £829,835 Direct Labor £219,468 Support Labor £87,662 Machines £88,800 Outside process £36,000 Facilities £15,450 Other Costs £2,416 TOTAL COST £1,279,631 Average Cost per Unit £427

© BMA Inc All rights reserved. Scenario: Should the company outsource production vs. improve the value stream? The OEM Value Stream is expecting to receive a 20% production rate increase within the next 2-3 months We have received a quote from a supplier for a group of sub-assemblies we currently produce in-house for £ per unit due to the Machine Shop constraint. We have a Future State Map with planned improvement projects that we have identified. Decision: –Compare the two options

© BMA Inc All rights reserved. Impact of 20% Production Rate Increase to the Machine Shop Current State Rate increase The constraint is overloaded with the projected rate increase

© BMA Inc All rights reserved. Compare the options - Capacity Outsource sub-assembly to handle 20% increase in production rate Outsource sub- assembly Current State Rate increase

© BMA Inc All rights reserved. Look to the Box Score 3 Dimensional view of the impact to the Value Stream OEM BOX SCORE Current State Productivity Units per Person43 On-Time Shipment86% First Time Thru Quality70% Dock-to-Dock Days24.00 VS Average Cost Per Unit£ Machine Shop Capacity (constraint) Productive Capacity46% Non-Productive Capacity47% Available Capacity8% Material Costs£829,835 Conversion Costs£449,796 Total Costs£1,279,631 Overtime Costs£6,948 Inventory Days52 Outsource rate increase 51 87% 67% £ % 48% 8% £1,087,883 £449,580 £1,537,463 £6,732 55

© BMA Inc All rights reserved. Using Value Stream Costing Current State Outsource sub- assembly Decisions using simple Value Stream Costing

© BMA Inc All rights reserved. Another Option: Improve the Value Stream We have calculated the impact to the OEM Value Stream of outsourcing the sub-assemblies Now we will look at the impact of our planned improvements so that we can compare the two options. Value Stream Mapping and Value Stream Performance Measures are key tools used to improve the Value Stream We will target non-productive activities to eliminate waste and generate capacity

© BMA Inc All rights reserved. Understanding the Benefits of Lean Improvement Planned improvement - Did we free-up enough capacity for the production rate increase?

© BMA Inc All rights reserved. Rate Increase after Continuous Improvement Continuous Improvement has generated enough capacity, but what about the Box Score? Kaizen results 20% Increase

© BMA Inc All rights reserved. Box Score - Decisions Using the Box Score to show the impact of lean improvements – What looks best? In-house with Improvements 20% Rate Increase 51 95% 80% £ % 29% 16% £995,802 £445,092 £1,440,894 £2, OEM BOX SCORE Current State Productivity Units per Person43 On-Time Shipment86% First Time Thru Quality70% Dock-to-Dock Days24.00 VS Average Cost Per Unit£ Machine Shop Capacity (constraint) Productive Capacity46% Non-Productive Capacity47% Available Capacity8% Material Costs£829,835 Conversion Costs£449,796 Total Costs£1,279,631 Overtime Costs£6,948 Inventory Days52 Outsource rate increase 51 87% 67% £ % 48% 8% £1,087,883 £449,580 £1,537,463 £6,732 55

© BMA Inc All rights reserved. Targeting More Improvement Value Stream performance measures drive continuous improvement.

© BMA Inc All rights reserved. Box Score showing results of improvement On-going improvement creates more capacity and frees-up people 20% Rate Increase 51 95% 80% £ % 29% 16% £995,802 £445,092 £1,440,894 £2, Continuous Improvement 53 99% 90% 8.00 £ % 16% 26% £984,302 £435,120 £1,419,422 £0 37

© BMA Inc All rights reserved. New Value Stream Capacity Improvements free up 2 people from Machine Shop. 1 person added to Welding

© BMA Inc All rights reserved. Scenario: Should the company insource production that was previously outsourced? Assuming we have the capabilities, now we need to know if we have the capacity We are considering bringing an outside process in-house due to the capacity we have generated in the Machine Shop There are 394 units per month that go for outside processing and the cost is £91.38 / pc. The machine shop has the capacity to handle this increase. Calculate the impact to the Value Stream if we bring this process in-house.

© BMA Inc All rights reserved. Box Score – Impact of Outside Process being brought in-house Current State Future State Outside Proc. / In-house 53 99% 90% 7.87 £ % 15% 26% £994,145 £399,120 £1,393,265 £0 37

© BMA Inc All rights reserved. Value Stream Costing showing Decision to bring in-house What are the costs that will change?

© BMA Inc All rights reserved. Scenario: Should the Value Stream transfer work from Value Stream to Final Assembly? It has been determined that one of the sub-assemblies could be welded directly in Final assembly during installation. This will lead to better quality and less rework Final Assembly is part of the Systems Value Stream

© BMA Inc All rights reserved. Work Transfer to another Value Stream OEM Current State Capacity

© BMA Inc All rights reserved. Two OEM processes to be impacted Production rate was reduced by work transfer from the OEM Value Stream –Welding & Assembly each freed-up 1 employee to be part of the Final Assembly cell in the Systems Value Stream

© BMA Inc All rights reserved. Work Transfer Impact Box Scores / Decisions Current State 51 95% 80% £ % 29% 16% £995,802 £445,092 £1,440,894 £2, Work Transfer 53 95% 80% £ % 29% 16% £895,802 £426,624 £1,322,426 £2,244 49

© BMA Inc All rights reserved. Overall Work Transfer Effect Costs that actually were affected in the OEM Value Stream –2 employees –2 machines Value Stream Costing OEM Value Stream ChangeFuture State # of units 3,600 Materials £995,802(£100,000)£895,802 Conversion Costs £445,092(£18,468)£426,624 TOTAL COST £1,440,894(£118,468)£1,322,426 Average Cost per Unit £400.25£367.34

© BMA Inc All rights reserved. Overall Work Transfer Effect Before and after – no overall cost impact – budget only

© BMA Inc All rights reserved. What have we learned? You must understand the production quantity that can be achieved at each step in the value stream or production process. You must understand the one or two production steps (cells, machines, or work centers) that constrain the flow through the value stream or business unit. To understand the impact of planned changes, you must analyze the impact on flow. Where do you find this? On the Value Stream map.

© BMA Inc All rights reserved. What have we learned? Making the best decisions demands the best possible analysis of value stream Use the value stream maps as your source.