A model for linking shop floor improvements to manufacturing cost and profitability

Abstract

Manufacturing units in the so called high-cost countries are struggling under fierce competition on the global market. In order to survive, the factory needs to generate profit to its owners. Profitability can be reached in many different ways apart from only lowering the employees’ salaries. It can be improved through increased profit margins (sales in relation to costs) or with an increased capital turnover rate. Finding ways to free capacity and to improve flexibility in order to increase sales is often more interesting to the manufacturing companies than cutting the direct salary costs. A model for analysing profitability of a manufacturing unit is proposed. It is found on a production system analysis and combines in-depth production engineering analysis with economical accounting analysis of the factory. The manual work tasks are of special interest and the productivity of selected bottleneck work areas are analysed thoroughly. The model is intended for use by two industrial analysts during a one-week study. Simulation of different improvement scenarios is carried out and presented to the factory management at the end of the profitability study. A software implementation is required in order to generate the model, collect data and make simulation within the intended time. The implementation is made in spread sheet software using Visual Basic to program interfaces and automatic functions. The primary area of application is the electronics industry in Sweden where the model is used in a research project to strengthen the competitiveness of that industry.

Keywords:

• productivity analysis
• profitability analysis
• manufacturing cost model