Dupont Process Analysis and Kpi Tree

KPI Tree and Process Analysis

The Annapolis Sail Company has many processes in place that it thinks need improving or changing. However, the budget for process changes is limited, thus Annapolis Sail Company is considering only one process improvement option, which is listed below.  The company uses ROIC as a measure of corporate success, however it is also concerned about utilization, productivity, and meeting customer demand.  

A DuPont Model using Annapolis Sail Company’s 10K (balance sheet and income statement) is provided. You will need to complete a KPI Tree, extending the DuPont Model.

Scenario: The production group of Annapolis Sail Company has determined that its assembly of small watercraft wind sails might need to be overhauled.  An analyst has put together the following table showing activities and activity times.  You are to determine if the process needs overhauled and if so, where and how will it be overhauled.

Production and assembly operate 5 days per week for 8 hours per day (250 days per year, 2000 hours per year). With the increased sales efforts expressed during its monthly Sales and Operations Planning (S&OP) meetings, weekly demand is expected to be 140 sails per week. This appears to be major growth for the company, about a 45% increase in sales.  Wages for production and assembly employees are $35 per hour per employee, revenue per sail is $300, COGS is $150 per sail.  

Assume that inventory, accounts receivables, and other current assets will grow at the same ratio of revenue as before the process improvement.

1. What is the current RIOC?

11.28%

2. What is the ROIC with your process change?

20.5% (although I’m sure that number may be off. Manipulating in information in the provided excel sheet proved difficult and I was unable to calculate the new ROIC which, I’m aware is the most important piece of information since it determines if any change is needed or worth pursuing.)

3. How do you intend to improve the process? Consider only these two options: either add or reallocate employees.

Process capacity is currently at 2.4 sails per hour and needs to be at 3.5 sails per hour to meet the expected demand increase. They could move the employee in station 3 to station 2 and have station 4 do the work that station 3 was doing, but the new combined station becomes the bottleneck and process capacity only goes up to 3.2 sails per hour. If you add the employee from station 3 to station 2, combine stations 3 and 4, then add one extra employee to stations 2 and 3, the process capacity goes up to 4 sails per hour (which offers some negatives of its own).