PROCESS PRODUCTIVITY, NON VALUE ADDED ACTIVITY
Rework, a non value added activity, is part of Jorgensen Manufacturing’s assembly process. Testing often revealed that one or more components (almost always sourced from outside suppliers) had failed. At the end of 2006, Jorgensen initiated efforts designed to buy higher quality components. Consequently, the demand for the rework activity was expected to decrease. The following data pertain to the reordering activity for the years 2006 and 2007:
|
|
2006 |
2007 |
|
Units assembled |
300,000 |
300,000 |
|
Units reworked |
7,500 |
3,600 |
|
Rework components (number) |
15,000 |
7,200 |
|
Rework labor hours |
12,000 |
6,000 |
|
Labor cost per hour |
$12 |
$15 |
|
Cost per component |
$20 |
$20 |
|
Activity rate |
$59 |
$64 |
Required:
1. Identify the output measure for the assembly process. Calculate the productivity profile and profit linked measure of the assembly process where the output of the rework activity is viewed as a process input. Does this indicate anything about the value of reducing demand for a non value added activity?
2. Calculate the total process productivity change. What does this indicate about the actions taken regarding the non value added activity?