Measures of CIM
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As stated earlier, the FOF is characterized by three measures: reduced product cost, increased throughput, and improved quality. To evaluate the CIM systems that support the FOF concept, some basic measures must be defined. These can be summarized as follows:
(1)The ability of systems to reduce economic order quantities to approach 1.
(2)The ability of systems to improve inventory turns to approach 1 x theoretical processing time.
(3)The ability of systems to improve key machine utilization
151 (bottleneck machines) to approach 1.
(4) The ability of systems to improve product quality to approach 1.
It is important to understand the definitions of these Thomas Sabo Earrings terms and then the overall metric that they create. First, an economic order quantity is simply the number of parts deemed economical to be produced in a batch. Cost factors involved are the carrying cost of inventory countered by the cost to set up the machine. If the setup time to change from one part type to another can be reduced to almost zero, it becomes much more economical to produce smaller lot sizes and much more feasible to achieve Goldhar’s economies of scope.
A second definition is for inventory turns. This simply means the ratio of the cost of sales for a particular manufacturing unit divided by the average inventory for a time period. For example, if a company sold $ 200 million of product in a year and had an average inventory of $ 20 million, the inventory turn ratio would be 10 per year. As stated earlier, most American companies fall in the 4-to-10 categories. But if our hypothetical company could reduce inventory to $ 1 million, the ratio would be 200 and the factory would approach an inventory turn of 1 each day. The financial ramification is startling. A reduction in inventory from $ 20 million to $ 1 million means a onetime saving of $ 19 million and a recurring saving of ( $ 19 million X 20% carrying cost) = $ 3. 8 million. But tile biggest saving is in productivity. The shop floor becomes clean and streamlined, with fewer lost and damaged parts.
By “key machine utilization” we speak of those few machines on the shop floor that truly dictate how much product will be produced. Only this handful must be fully loaded, and only these really need a planned backlog of parts to ensure no waiting for materials. If the key machines can approach a utilization of 1, the maximum potential will be realized from the factory.
Finally, it is Deming (1970) who made the world aware that a good-quality product will sell and can potentially dominate the world market. As companies begin to look at vendors for parts just in time for assembly, only those vendors that call guarantee 100% good product will allow the assembler to eliminate receiving inspection. These vendors will get the work. Referring back to Gold (1983), it is a question of “What if you can’t make 100% good parts and your competition can?”
If a company is highly skeptical of it own capabilities and uses outside experts to make strategic decisions while internal resources are held in a reactive mode, CIM will not be accepted nor will it work. This is stage 1. As a company begins to identify the importance of CIM and moves up the ladder to stage 3 or 4, a more proactive posture is mandatory, with CIM becoming a cornerstone for strategy.
To be sure, CIM affects every aspect of corporate strategy. Reduced inventory, improved quality, and improved throughput affect cash flow; flexibility of production affects marketing strategy; quick turnaround affects service strategies; and on and on. It is important to quantify these in some manner to address the impact that CIM can have on productivity and profit. For example, cash flow is affected by reduced inventory and improved throughput.
Reduced Inventory: In most American companies inventory turns range from 4 to 10 per year. But if we could substantially improve these turns to 20 or 52 or even 260 per year, there would be a tremendous impact on the balance sheet.
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