Module 02- Section 11 – Lego Simulation Day 2 Scrap cost
Calculations
Course notes, Lean 101, Module 2 Section 11
[Link]
In the area of Scrap. We’ve got a customer ordering an airplane.
Airplanes are expensive and must meet the specifications of the customer.
Let us say that the customer only wants a certain type of steel to be used.
This particular type of steel does not conduct lightening as well as other types of steel.
Course notes, Lean 101, Module 2 Section 11
[Link]
In our Lego Simulation we are counting on this steel coming from the supplier.
Our engineers tested this steel regularly because once in a while, the suppliers send the wrong material.
This inspection happens at 2.00 pm. Which is 6 hours into the 8 hour shift.
After inspection, guess what? We got a bad batch of steel, or Lego. Al of the airplanes we have
produced so far in this shift, do not meet the specifications.
Course notes, Lean 101, Module 2 Section 11
[Link]
We ask ourselves the question. How much would it cost us to tear them all apart and do them again?
Because the wrong steel was used, we have little more than a scrap cost.
In essence what we are saying here is, What if the steel was bad? What is our exposure to this
problem?
Our exposure is: the number of assemblies x the cost per assembly.
It makes sense for us to say then, that in order to minimize the potential scrap cost,
The amount of inventory in the plant should be kept as low as possible.
Now lets take a look at what our scrap exposure is for the Sky View Airplane company is. This
table shows all of the scrap cost calculations.
Course notes, Lean 101, Module 2 Section 11
[Link]
The first step is to count the number of assemblies between WS 1 and WS 2. We count all of the
assemblies that are either finished in WS 1 and in the queue of WS 2.
Each piece of Lego in our assembly has a cost. The 16 pin pieces are $10,000.00 ea. The 8 pin
pieces are $5000.00 each and the 4 pin pieces cost $3000.00 each
The number of assemblies between WS1 and WS2 is 22 at 2 -16 pin parts per assembly is equal
to 44 parts. 44 – 16 pin parts cost $440,000.00.
We can do similar calculations for each scenario.
We can see the high cost of the assemblies between the workstations 3 & 4.
At the six minute mark there are no assemblies between work stations 5 & 6 yet.
The total cost for the 16 pin assemblies is $740,000.00
Course notes, Lean 101, Module 2 Section 11
[Link]
The total cost for the 8 pin assemblies is $465,000.00
The total scrap cost is calculated to be $1,205,000.00.
If SVI were to send us the wrong kind of steel, the manner in which we produce airplanes in Day
1 would have cost our company $1,205,000.00 in scrap. It makes sense that we should keep the
number of subassemblies between workstations as low as possible.
Course notes, Lean 101, Module 2 Section 11
[Link]