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Lean Thi Nki NG: Activity Based Costing Value Stream Mapping
Lean Thi Nki NG: Activity Based Costing Value Stream Mapping
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ABSTRACT KEYWORDS
Lean manufacturing,
This paper attempts to integrate Value Stream Map (VSM) Value stream map,
Activity based costing,
with the cost aspects. A value stream map provides a blueprint for Target costing.
1. Introduction
Success in modern manufacturing industry directly correlates to how a company handles global
competition. Cost effective solutions and practices are essential to stay competitive in the market.
Many manufacturing facilities have experienced the drastic changes and are in a process of
undergoing physical and cultural transformation to adopt the concept of lean thinking.
Lean has been originally created and defined as the process of eliminating waste
(Womack et al. 1990) Toyota along with the support a system to reduce or eliminate
waste and non-value added activities from the various process (Ohno, 1988; Shingo
and Dillon, 1988).
________________________________
* Corresponding Author
S. S. ABUTHAKEER, P. V. MOHANRAM, G. M. KUMAR /International Journal of Lean Thinking Volume 1, Issue 2 (December 2010)
The conceptual framework for categorizing all of the tools and practices of lean production
in five basic areas:
Value: Define value from the standpoint of the customer. However, in reality, the
final customer is th e o nly o ne w ho can s pecify the val ue of a specific pr oduct or
service by paying a price for it.
Value stream: View your product delivery sy stem as a con tinuous flow of
processes that add value to the product.
Flow: The product should constantly be moving through the value stream towards
the customer at the pace of demand.
Pull: Product should be pulled through the value stream at th e customers demand
rather than being pushed on to the customer
Perfection: The never-ending pursuit of eliminating waste in the system such that
the products can flow seamlessly through the value stream at the rate of demand.
2. Literature Survey
VSM can serv e a s a go od starting p oint for any enterprise tha t want s t o be le an and
describe value st ream as a collection of all value added a nd non-value added activities
which are required to bring a product or a g roup of products using th e sam e resources
through the main flows, from raw material to the hands of customers (Chandandeep, 2006).
Researchers define the VSM as the process of visually mapping the flow of information
and m aterial. It he lps to visualize the station cycle tim es, inve ntory a t each sta ge,
manpower a nd information f low a cross t he s upply c hain ( Womack a nd J ones, 1996). A
value s tream map provides a blueprint f or im plementing lean m anufacturing c oncepts by
illustration how the flow of information and materials should operate.
Balkema a nd Rotterdam (2 004) have c reated curr ent sta te map fo r a ste el producer, a
steel service center and first-tier component supplier. The current state map identifies huge
piled of inventory and long lead-time. In the future state map target areas were subjected to
different lean tools including kanban, supermarket, and continuous flow.
Ballard and Howell (1994) suggest that, the value stream mapping can serve as a good
starting point for any enterprise that wants to be lean. It prov ides a common language for
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S. S. ABUTHAKEER, P. V. MOHANRAM, G. M. KUMAR /International Journal of Lean Thinking Volume 1, Issue 2 (December 2010)
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S. S. ABUTHAKEER, P. V. MOHANRAM, G. M. KUMAR /International Journal of Lean Thinking Volume 1, Issue 2 (December 2010)
3. Methodology
The various steps in implementation of VSM are shown in Figure 1 and are discussed in
the following sections. The process analyses is carried out by collecting data from various
enquiries with shop floor experts and directly participates in measuring the time involved in
various processes (Sahoo et al, 2008).
The new con cept in troduced in the autho rs rese arch i s to ma p/measure th e cost
involved i n the va lue s tream. T he stu dy re searches led us t o i nvolve various costing
systems and inventory management systems. A case study of a small motor manufacturing
company participated in LEAN project has also been presented. The current and future state
drawings are mapped for the shaft manufacturing. Future state maps were developed with
the objective of reducing lead time and cost according to customer requirement.
The cost analysis is carried out b y adding the es sence of ac tivity based costing and
target costing. In this paper, while gen erating the VSM, the main processes are identified
and the processing costs are calculated for individual processes, now these individual costs
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S. S. ABUTHAKEER, P. V. MOHANRAM, G. M. KUMAR /International Journal of Lean Thinking Volume 1, Issue 2 (December 2010)
are the a ctivity cost .The summation of th e activity costs gives the manufacturing cost of
the product. The calculations of the activity cost are elaborated in methodology.
The conce pts o f ABC inv entory management sy stem is u sed to classify the handling
cost of the work i n process i nventory. S o t he c lassification of th e i nventory helps us t o
differentiate the various cos ts inc urred i n handling the different w ork i n p rocess between
different stations. The redesigned VSM is shown in Figure 2.
The present study uses the philosophy of target costing to set the t arget manufacturing
cost. Target cost is the cost that can be incurred while still earning the desired profit. The
target cost is calculated as follows:
Target cost = Selling price Desired profit (1)
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S. S. ABUTHAKEER, P. V. MOHANRAM, G. M. KUMAR /International Journal of Lean Thinking Volume 1, Issue 2 (December 2010)
NVTi = (3)
Processing time =
(4)
(5)
3.2 Cost Analysis
The id ea is to add a cost line alo ng with the e xisting time l ine in VSM. Co st line
enables better vis ualization a nd also improves the cla rity of d ecision m aking. While the
value added cost is brought ou t by th e summation o f the d irect co st invo lved in eac h
process, non value added cost analysis is brought about by classifying the inventory as per
the holding cost. The cost calculations are as follows:
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S. S. ABUTHAKEER, P. V. MOHANRAM, G. M. KUMAR /International Journal of Lean Thinking Volume 1, Issue 2 (December 2010)
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S. S. ABUTHAKEER, P. V. MOHANRAM, G. M. KUMAR /International Journal of Lean Thinking Volume 1, Issue 2 (December 2010)
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S. S. ABUTHAKEER, P. V. MOHANRAM, G. M. KUMAR /International Journal of Lean Thinking Volume 1, Issue 2 (December 2010)
TAKT Time =
TAKT o f 5 83 rep resents that, every shaft has to be co mpleted in e very 582 sec onds.
The current state map sights out that the roughing process consumes 18 seconds more than
takt time. In order t o solve this, fi nishing and roughing processes are carried out in the
CNC machine, thus reducing set-up time and other manual interactions; also the cycle time
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S. S. ABUTHAKEER, P. V. MOHANRAM, G. M. KUMAR /International Journal of Lean Thinking Volume 1, Issue 2 (December 2010)
of th e process i s re duced to 120 seconds. T he old mac hine is dedicated to th read cutting
operation only. Thus, the total line is balanced.
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6. Conclusions
This research carries evidence of genuine advantages of applying lean principles in a
small scale m otor manufacturing. As far as our knowledge is concerne d, it is the first
time cost analysis is integrated with the value stream map. It was evidenced that VSM is
an ideal tool to expos e the waste in value stream an d identify improvement areas. This
paper substantiates the effectiveness of lean principle in a sy stematic mann er with th e
help of va rious t ools, s uch as c ost anal ysis in v alue stream ma pping, single m inute
exchange o f dy es and so on . Availability of inf ormation s uch as m aterial and m oney
flow f acilitates a nd va lidates t he de cisions to im plement lean m anufacturing, fu rther
would a lso m otivate t he or ganization dur ing the actua l im plementation i n or der to
obtain the desired benefits. Eventually it e nables the c ompanies to m ove towards their
ultimate goal leading to, sustainability, profit and profitability.
7. References
Balkema, A.A. and Rotterdam , Lean Construction, International Journal of Production
Economics 2004; pp.111-125.
Ballard, G. and Howe ll, G., Implementing lean construction, Journal of Production and
Inventory management 1994; pp. 37-48.
Grewal, C., An initiative to implement lean manufacturing using value stream mapping
in a small company, Int. J. Manufacturing technology and management 2006; pp
55-61.
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S. S. ABUTHAKEER, P. V. MOHANRAM, G. M. KUMAR /International Journal of Lean Thinking Volume 1, Issue 2 (December 2010)
Halpin, D.W. and Kueckmann, M., Lean Construction & Simulation, Proceedings of the
Winter Simulation Conference 2001; pp 131-139.
Ohno, T., Toyota Production system Bey ond Large-scale produ ction: Produ ctivity
press; 1988.
Sahoo, A.K., Singh, N.K., Shankar, R. and Tiwari, MK., Lean philosophy: implementation
in a forging company, International Journal of Advanced Manufacturing
Technology 2008; pp.125-131.
Shingo, S. and Dillon, A.P., A study of the T oyota produc tion system : Productivity
press; 1988.
Summer, C .R., Th e R ise o f A ctivity-Based co sting. Part One: What Is an Activity-
Based Cost system?, Journal of Cost Management 1998; pp. 45-54.
Womack, J. D., J ones, D.T . a nd R oos, D., The Mac hine th at Ch anged th e Wo rld: Th e
study of Lean Production, Harper Perennial Publishers: New York; 1990.
Womack, J.P. and J ones, D.T., Lean thinking: ba nish w aste and cr eate w ealth in you r
corporation, New York, NY: Simon & Schuster; 1996.
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