Method and Procedure for Economic Evaluation of Improvement Activities

Abstract

The purpose of this paper is to propose an appropriate evaluation scheme for improvement activities, based on a simple model comprising cash inflow by sales as well as variable and fixed cost expenditures. The paper distinguishes capacity surplus and capacity shortage situations, and examines economic benefits gained by yield increase improvement and capacity increase. The paper then proposes a basic rule of thumb for economic evaluation of improvement activities. The logic is simple but useful in practice, being conducive towards improvement activities under current economic conditions with uncertainties.

Measuring the financial impact of equipment performance improvement: ISB and IEB metrics

“…The ISB and IEB metrics were developed to specifically calculate the actual financial benefits gained due to equipment performance improvement, which other metrics are not able to do (Gr€ unberg, 2004). The ISB and IEB metrics effectively isolate the impact due to manufacturing fluctuations such as prices in raw materials, labour costs, production mix and overhead cost variations, which other metrics such as the economic evaluation scheme (Kono and Ichikizaki, 2015) are not able to do. Calculations are made by comparing the current period with a base time interval.…”

“…Both academics and practitioners are still debating how to properly evaluate the financial influence on managerial outputs (Kono and Ichikizaki, 2015). Improvements in operating procedures result, for example, in a reduction in the number of man-hours, which is essential for efficient everyday operations.…”

“…Manufacturing cost deployment is an instrument to recognise production losses and reduce costs; nonetheless, the framework does not provide metrics that could directly calculate monetary benefits due to equipment performance improvements. Kono and Ichikizaki (2015) presented an economic evaluation scheme focused on yield improvement activities from the perspective of savings and additional sales. This evaluation scheme lacks insights when there is a capacity surplus and it is also sensitive to manufacturing fluctuations.…”