Decisions for Quarter One and Quarterly Business Review

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Content

TO:

General Manager FROM:

Stall Brick (Manufacturing Manager)

Production Report - Variable Costs

VARIABLE COST TO PRODUCE:

The 2019 Lean Six Sigma investment was $68,000; 2020 Lean Six Sigma investment was $121,000. This chart shows how the variable cost per unit has declined in response to that investment and learning about the process.

The graph shows the variable cost to produce, per unit, on quarterly basis, from Q1 2019 through Q4 2020. The quarterly unit variable costs to produce over that period of time, starting with Q1 2019, was $307.91, $295.77, $299.49, $264.89, $261.90, $275.74, $265.67, and $225.77.

The learning curve theory suggests significant additional reductions in cost are possible. Increased Lean Six Sigma benefits will be achieved if greater amounts of money are invested. Expect some lag between the spending and reduction in costs, and expect little or no savings if the investment is erratic. At current levels, we will be lucky to hold our own. Most of the money will have to go into cost avoidance efforts. A new item, Planned Time, has been added to the Quarterly Operations Report to make it easier to see what's happening. Planned Time shows in days/unit how much labor is required to make one unit of product at 100% labor effectiveness.

Quarter

D o

ll a r

$203

$237

$271

$305

$339

Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q4'20

$307.91

$295.77

$299.49

$264.89 $261.9

$275.74

$265.67

$225.77

Variable Cost To Produce