Robotics and Computer-Integrated Manufacturing 23 (2007) 684–689
Measuring the impact of Lean tools on the cost–time investment
of a product using cost–time profiles
Leonardo Rivera
a,
, F. Frank Chen
b
a
Departamento de Ingenierı
´
a Industrial, Universidad Icesi, Calle 18 # 122-135, Cali, Colombia
b
Department of Mechanical Engineering, The University of Texas at San Antonio, San Antonio, TX 78249-0670, USA
Abstract
Traditional costing systems consider the accumulation of costs, but not their timing. Value stream mapping presents a good picture of
the time consumed and operations performed for the production of a product within a manufacturing facility, but it does not track the
accumulation of costs. The cost–time profile (CTP) is a tool that follows the accumulation of cost in the manufacturing of a product
through time; and it finds the cost–time investment (CTI), which is an indicator of the use of resources in the manufacturing of a product
through quantities and timing. In this paper, the expected impact of Lean implementations on the CTP and CTI is discussed. The CTP is
proposed as a useful tool for the evaluation of the improvements achieved by the implementation of Lean tools and techniques.
r 2007 Elsevier Ltd. All rights reserved.
Keywords: Lean manufacturing; Cost–time profile; Cost; Investment
1. Introduction
The determination of the cost of a product by evaluating
the use of resources in its manufacturing, has always been a
matter of great importance for companies. Traditionally,
two approaches have been used. The first one is the
‘‘accounting’’ approach, in which the costs of a product are
accumulated through different costing systems. This
approach has been used especially for financial reporting
purposes, but it has been criticized by different authors
[1,2] for its lack of usefulness in decision making. The
second approach, which has seen widespread adoption in
the last 15 years, is the construction and use of value
stream mapping (VSM) to visualize the production process
and its associated usage of resources.
Both approaches have been useful in the evaluation of a
production process and in the control of its performance.
However, they are almost mutually exclusive in their focus.
Traditional cost accumulation is only concerned with the
monetary aspect of manufacturing, whereas VSM high-
lights operating procedures and use of different resources,
mainly time, but it ignores costs and monetary data.
In response to this lack of a simple tool that accounts for
money (costs) and time simultaneously, we propose the use
of cost–time profiles (CTPs). A CTP is the graphical
presentation of the accumulated cost in the manufacturing
of a product, followed through every time unit. The CTP
focuses on direct costs, since the discussion about the right
way to allocate overhead to products is far from settled.
The main concepts of CTP were developed in the late
Westinghouse Corporation [3], as a way to simultaneously
monitor their manufacturing process es in the use of money
and time. It will be explained how this CTP can be built
and used.
In this paper, we briefly present the procedure followed
for the construction of the CTP, focusi ng on its uses and
applications. It especially emphasized the study of the
expected impact that the impl ementation of Lean tools and
techniques might have on the CTP. Also, how this tool can
be used to economically evaluate and justify the necessary
investments that occur in Lean implementations.
2. What is a CTP?
A CTP is a graph that depicts the accumulated costs that
have been expended during the manufacturing of a product
ARTICLE IN PRESS
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doi:10.1016/j.rcim.2007.02.013
Corresponding author. Tel.: +57 2 555 2334x384; fax: +57 2 555 1745.
E-mail address: leonardo@icesi.edu.co (L. Rivera).
at every time unit during the process. This way of
presenting the information follows the use of resources
through time, from the moment the production process
begins until the company recovers those invested resources
through the sale of the product. The area under the CTP is
called the cost–time investment (CTI), because it presents
how much money has be en tied up in the manufacturing
process and for how long before being recovered through
sales. The reader will recognize the term investment
because the CTI shares the two common components of
any financial investment: money and time. Fig. 1 gives a
simple illustration of a CTP.
The graph of the CTP has several distinct elements that
must be mentioned and described.
Activities: There are two assumptions regarding activ-
ities. The first one is that their costs (except for
materials) are incurred continuously, from the beginning
of the activity until its end. The second assumption has
to do with the use of materials. Materials have to be
ready for their use before the activity can begin;
therefore, it is assumed that they must be released prior
to the beginning of the activity (more details in the next
bullet point). Activities are represented in the CTP as
line segments with positive slope.
Materials: Materials are presented in the CTP as vertical
line segments. The reason for this is that materials are
received ‘‘instantaneously’’ and their costs are added to
the product cost in this manner. Materials have to be
ready before the beginning of an activity, but they can
be released to the process (and added to the cost) just in
time (the materials used by each activity are released
right before the beginning of the activity) or at the
beginning of the process (all the materials required for
the product are released together before starting the first
activity). Once materials are released into the process
and added to the product cost, they continue as part of
the accumulated cost because they will not be recovered
until the pro duct is sold.
Waits: These are moments in the process at which there
are no activities happening. The underlying assumption
is that when a product is waiting, no cost is accumulated
onto it. Although this assumption might be easily
challenged, it must be remembered that the CTP only
focuses on ‘‘direct’’ costs, and not on overhead. Costs
that are incurred while waiting will probably fall under
the category of overhead. Waits are presented in the
graph as horizontal lines (zero slope). However, they are
very important because it is commonly known that there
is a considerable amount of non-value-adding time in
manufacturing processes. Waits underscore the impor-
tance of the time element, because even though they do
not actively add cost, they prolong the time the
investment is made on the product before recovering
costs through sales.
Total cost: Total cost is the addition of all the direct
costs that are incurred in the manufacturing of the
product, without yet considering the impact of CTI and
the time value of money. Tot al cost is the height of the
graph at the moment the cycle finishes and the costs are
recovered through sales.
CTI: The area under the CTP profi le represents how
much and for how long costs have been accumulated
during the man ufacturing process. It is the composition
of the cost and time dimensions. The CTI has
implications on the direct cost of the product and the
budgeting of working capital for the compan y that will
be discussed in subsequent sections.
Direct cost: Since the CTI is an actual investment, its
cost can be determined multiplying it by the appropriate
interest rate (IRR, cost of capital, cost of lost
opportunities). The direct cost would then be the total
cost plus the investment cost:
direct cost ¼ total cost þðcost2time investment
n cost
of
money
rateÞ. ð1Þ
3. How to build a CTP?
To build a CTP, we need to know several things. First,
we need to know when is each element of the CTP
happening (activities, waits and materials releases). We also
need to know how much does each of these elements cost.
Putting the two previous points together we can determine
how much money is being spent as cost at every time unit in
the process. Finally, we tally the costs and build the CTP
with the accumulated cost at every time unit, and present
this information in graphical form. The area under the
curve (obtained adding the accumulated cost at each time
unit for all the time units) represents the CTI. In the
following subsections, a brief discussion on how to
complete these steps for the construction of the CTP will
be presented.
3.1. When do the CTP elements happen?
The company should ha ve a map of their production
process, specifying when activities, material releases and
waits are happening. If this is not available, it will be
ARTICLE IN PRESS
time
(hours)
Accumulated
Cost (dollars)
2 6 10 14 17 19
200
100
Materials
Activity A
Wait 1 Activity B
Wait 2
Activity C
Wait 3
Total
Cost
Cost-Time Investment
Fig. 1. Example of a cost–time profile.
L. Rivera, F. Frank Chen / Robotics and Computer-Integrated Manufacturing 23 (2007) 684 –689 685
necessary to document the process, much in the way it
would be done to construct a VSM.
At this point, the process that the company has does not
necessarily guarantee that the best possible CTI will
be attained. To ensure that this is the case, it is possible
to employ the project management type of network
graphs and their associated solution methods. These
solution methods usually focus on finishing the project
in the shortest possible time, but the objective function
can be modified to achieve the best configuration for a
smaller CTI [4]. We will not go into the details of these
methods in this paper, as they will be made available
elsewhere. Finishing this phase, we should have a defined
schedule that shows when the elements of the CTP are
happening.
3.2. How much does each element of the CTP cost?
Material releases: The cost of a materials release will be
its full cost for the company.
Activities: The cost of activities includes the costs of the
operators and resources that are utilized to perform the
activity. The per time unit cost rate of operators and
resources must be known to the company and be
determined by the preferred company method. Again,
overhead is excluded from these calculations.
Waits: Waits do not add cost to the accumulated cost.
However, they have an impact on the CTI because they
enlarge the area under the CTP curve, delaying the
recovery of costs through sales and therefore making the
CTI bigger. This in turn increases the direct cost of the
product.
3.3. How much accumulated cost is there at each time unit?
In Section 3.1 we determined when CTP elements
happened, and in Section 3.2 we found out how much do
these elements cost. Combining these two sets of data we
can now calculate how much cost are we add ing at each
time unit. For this purpose, we treat time units as discrete
entities. We then present the accumulated cost at each time
unit in graphical form, thus building the CTP. The CTI is
determined by adding the accumulated cost in each time
unit over all the duration of the manufacturing cycle of the
product. The total cost is the value of the accumulated cost
at the last time unit of the process. Finally, the direct cost
can be calculated using Eq. (1). For an example of the
finished CTP please refer to Fig. 1.
4. Scenarios for the reduction of the CTI
From all the information presented above, it should
be obvious that the reduction of the CTI (and the direct
cost) in the manufacturing process of a product is a
desirable improvement path. In this section, we will
present some common generic scenarios for the reduction
of the area under the CTP curve. In the next section these
generic scenarios will be used to present the foreseen
impact of Lean tools and techniques on the CTI and direct
cost.
4.1. Reduce the cost of materials
If we are capable of manufacturing the same product
(maintaining its performance and quality constant) by
using either a smaller amount of the same materials,
replacing materials with cheaper alternati ves or buying the
same materials from a cheaper source, then the area under
the curve would be reduced and both the CTI and the
direct cost would be decreased, as shown in Fig. 2.
4.2. Release materials just in time
The example of CTP presented in Fig. 1 assum es that the
delivery of all the mate rials necessary for the manufactur-
ing process occurs at the same time before the beginni ng of
the first activity. Instead, we might consider the partial
release of materials to the process right before each activity
that requires them. This would reduce the CTI because
of the timing of the material expenses as it can be observed
in Fig. 3.
4.3. Reduce waiting
The original CTP presented in Fig. 1 has three waits:
Wait 1, Wait 2, and Wait 3. If we assume that all the waits
ARTICLE IN PRESS
time (hours)
Accumulated
Cost (dollars)
2 6 10 14 17 19
200
100
Materials
New
Total
Cost
Fig. 2. Reduce the cost of materials.
time (hours)
Accumulated
Cost (dollars)
2 6 10 14 17 19
200
100
Materials
Total
Cost
Fig. 3. Release materials just in time.
L. Rivera, F. Frank Chen / Robotics and Computer-Integrated Manufacturing 23 (2007) 684 –689686
will be cut in half (not an uncommon improvement in the
Lean literature), the result will be a smaller area under the
CTP and therefore a smaller value of the CTI. This
scenario is presented in Fig. 4.
4.4. Reduce the cost of activities
If the cost of activities is reduced, the slope of the
diagonal lines will decrease, finishing in the same total time
but with a smaller total cost and therefore smaller CTI.
This scenario is presented in Fig. 5.
4.5. Reduce the duration of activities
If activities are performed faster, the area under the CTP
curve (CTI) will be reduced. Even if activities have the
same total cost (and therefore, the total cost stays
constant), their earlier completion will reduce the CTI.
This scenario is presented in Fig. 6.
After presenting the generic scenarios for the reduction
of the area under the CTP curve (CTI) and the direct cost,
we will discuss how a typical implementation of Lean tools
and techniques might have an impact on the CTI and direct
cost of a product. To this end, we will discuss an
improvement framework and then we will match the effect
of the different Lean tools and techniques to the generic
scenarios presented in this section.
5. Impact of Lean implementations on the CTP and the CTI
Most of the Lean tools and techniques are good
industrial engineering practices that can be applied to
companies in many contexts and without a lot of difficulty.
However, the real impact that can be obtained from these
tools and techniques is realized when they are implemented
as part of a Lean improvement effort. In this way,
improvements have a better chance of being sustained.
In this paper, a particular improvement framework will
be employed, with the observation that there are many
feasible and valid approaches to Lean implementations.
This is one that is logical and easy to understand [5]. Its
basic structure is illustrated in Fig. 7.
From this structure, a subset of techniques was
extracted, trying to highlight those tools that have a more
visible impact on the investment. These tools are those that
reduce the waiting time, the processing time, the cost rates
and deliver the materials JIT at the moment and place
where they are needed. This subset is presented in Fig. 8.
These techniques are grouped in ‘‘Waves’’, according to
the type of savings they help realize. In the following
subsections a brief discussion of each Wave will be presented.
5.1. First Wave of a Lean implementation
The first Wave will be aimed at reducing the waiting time
by dedicating groups of equipment to the production of
specific families and coupling them more closely together.
Ideas such as group technology, cellular manufacturing
and focused factories will be applied to achieve this
coupling.
Also, the application of 5S will decrease the waiting
related to finding the tools for processing, straightening the
equipment and supplies and in general being ready for
work in a quicker manner, thus reducing the waiting time.
In this first wave, the typical improvements expected
correspond to those outlined in Section 4.3.
5.2. Second Wave
The second Wave will be implemented after first Wave,
using it as a base point to improve further. In this case the
ARTICLE IN PRESS
time (hours)
Accumulated
Cost (dollars)
2 6 10 14 17 19
200
100
Total
Cost
New CTI
(smaller area)
Fig. 4. Reduce waiting.
time (hours)
Accumulated
Cost (dollars)
2 6 10 14 17 19
200
100
New
Total
Cost
Fig. 5. Reduce the cost of activities.
time (hours)
Accumulated
Cost (dollars)
2 6 10 14 17 19
200
100
Total
Cost
New CTI
(smaller area)
Fig. 6. Reduce the duration of activities.
L. Rivera, F. Frank Chen / Robotics and Computer-Integrated Manufacturing 23 (2007) 684 –689 687
improvement and standardization of internal processes is
the main focus. Tools such as Standard Work (finding,
documenting, disseminating and implementing best prac-
tices in the job), SMED (dramatically reducing the time
consumed by changeovers and setups), Jidoka (a set of
practices including autonomation and mistake-proofing
designed to improve the quality of the process and the
resulting products) and TPM (which increases the avail-
ability of machines therefore reducing the cost of main-
tenance) will be used to improve the processing times and
practices, therefore reducing processing times and cost rates.
The expected improvements correspond to the scenarios
of Sections 4.4 and 4.5, with final improvements probably
found in both cost and duration of activities.
5.3. Third Wave
In the third Wave, another reduction on the waiting time
is realized. The implementation of Pull Systems in the
company should promote a further reduction on the
waiting time. Now, there will be much less inventory lying
around in the company between operations, and those WIP
piles removed are exactly equivalent to the elimination of
waiting time. Therefore, the impacts again are analogous to
those presented in Se ction 4.3.
5.4. Fourth Wave
Once all the previous steps have been applied, the
introduction of JIT practices will distribute the delivery of
materials to the process more efficiently. Now, instead of
receiving (and charging) all the materials together before
the beginning of the production process, only the necessa ry
materials are received immediately before the beginning of
each activity. The foreseen impacts will be analogous to
those presented in Se ction 4.2.
5.5. Individual tools and techniques
Lastly, Table 1 presents a proposed impact of individual
Lean tools and techniques [6,7]. This does not mean that
individual implementation of techniques is proposed.
ARTICLE IN PRESS
Value
Stream
Mapping
5S
SMED
Jidoka
Organize the
house
Design and implement
improved internal processes
Connect with supply
and demand
Flexible
Work
Systems
Standard
Work
JIT
Total
Productive
Maintenance
Heijunka
See the
process
Fig. 7. Typical process for a Lean implementation (modified from [5]).
Flexible Work
Systems
Group Technology
Cellular Manufacturing
Focused Factories
5S
Visual Control Systems
Improve Visibility
Improve the Workplace
Internal Pull
Kanbans
Stock Buffers
Rapid Replenishment
External Pull
JIT Supply
JIT Shipping
First wave: Save
on waiting time
Second wave: Save on
processing time and
cost rates
Third wave: Save
on waiting time
Fourth wave:
Deliver materials JIT
Internal Processes
Standard Work
SMED
Jidokaand TPM
Fig. 8. ‘‘Waves’’ of Lean implementation.
L. Rivera, F. Frank Chen / Robotics and Computer-Integrated Manufacturing 23 (2007) 684 –689688
