Case
Teaching Notes
Supplementary Resources
Abstract
Aero Gear, Inc. was undergoing a transition to lean business practices to improve its competitive position. Its accounting and reporting system had not changed in tandem with the changes taking place on the shop floor and its managers no longer trusted the measures they used to monitor productivity and product profitability. They were seeking measures that would help their employees improve operations as well as measures they could use to set goals, to motivate their employees, and to monitor the impact of ongoing improvement efforts. In this case, students are challenged to present alternative performance measurement systems that are consistent with lean business practices and a continuous improvement culture.
This case was prepared for inclusion in SAGE Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.
2023 Sage Publications, Inc. All Rights Reserved
Resources
Exhibit 1: Sample Products
Exhibit 2: The Bohica Flow Line
(Showing the path of a representative product)
Exhibit 3: Aero Gear Inc. Department Performance Report (Mm/dd/year – Mm/dd/year)
| Emp.# | Name | Date | Shift | Code | Dept. | AG# | Job# | Run# | Operation | Pieces | Hours | Actual Pcs/Hr | Est. Pcs/Hr | D.L. Factor | Budget Rate | Actual Rate | Dollars Earned | Efficiency Percentage |
| 1234 | Smith | mdy | 2 | 24 | 2271 | 121 | 22 | 120 | 10 | 5.10 | 1.96 | 1.41 | 1.38 | 75.90 | 105.55 | 538.31 | 139.1% | |
| 1234 | Smith | mdy | 2 | SU | 24 | 2271 | 121 | 22 | 120 | 0 | 5.20 | 4.46 | 1.38 | 75.90 | 65.12 | 338.62 | 85.8% | |
| 1234 | Smith | mdy | 2 | 24 | 2271 | 121 | 22 | 120 | 15 | 8.60 | 1.74 | 1.41 | 1.38 | 75.90 | 93.89 | 807.45 | 123.7% | |
| *Employee totals | 18.90 | 84.64 | 1,684.38 | 117.4% | ||||||||||||||
| **Shift totals | 184.00 | 80.91 | 14,886.94 | 88.0% | ||||||||||||||
| ***Department totals | 539.40 | 84.28 | 45,461.46 | 90.4% | ||||||||||||||
*(Inside tooling hours + Setup hours + Processing hours)
For example, suppose a job had the following information:
| Selling price | $11,080 |
| Material cost | $ 4,000 |
| Outside tooling | $ 800 |
| Outside processing | $ 1,000 |
| Estimated inside tooling hours | 16 |
| Estimated setup hours | 4 |
| Estimated processing hours | 40 |
The D.L. factor for the job would be 1.6, as shown below:
The budgeted rate for dollars earned per direct labor hour on the job would be $88.00 (11,080 – 4,000 – 800 – 1,000/(16 + 4 + 40), or $55 times the D.L. factor.
A worker completing a setup for this job in 24 minutes that was estimated to take 30 minutes would have an efficiency percentage of 125%, and an actual rate for dollars earned of $110.00 (125% of $88.00) per hour.
A worker completing 9 parts per hour for this job in a process that was estimated to complete 10 parts per hour would have an efficiency percentage of 90%, and an actual rate for dollars earned of $79.20 (90% of $88.00) per hour.
Exhibit 4: Aero Gear, Inc. Summary Hours Report
| Week 1 | Week 2 | Week 3 | … Week 12 | |||
| Area Employee | Type | mdy – mdy | mdy – mdy | mdy – mdy | mdy – mdy | Total |
| Blue Jones | Dir. Labor | 45 | 50 | 57 | 33 | 429 |
| 1235 Setup | 9 (20%) | 10 (20%) | 12 (20%) | 9 (27%) | 97 (23%) | |
| 1235 Indirect | 12 (21%) | 12 (20%) | 6 (10%) | 20 (38%) | 221 (34%) | |
| 1235 Total | 56 | 61 | 63 | 53 | 650 | |
| 1235 Eff. % | 50.20% | 124.60% | 143.60% | 101.50% | 95.10% | |
| Area Direct hours | 719 | 705 | 727 | 571 | 7,472 | |
| Area Setup hours | 185 (26%) | 119 (17%) | 117 (16%) | 118 (21%) | 1,673 (22%) | |
| Area Indirect hours | 236 (25%) | 269 (28%) | 258 (26%) | 332 (37%) | 3,908 (34%) | |
| Area Total hours | 956 | 974 | 985 | 902 | 11,381 | |
| Area Efficiency % | 68.60% | 86.40% | 94.90% | 141.40% | 91.80% | |
| Company Direct hours | 1,707 | 1,657 | 1,775 | 1,282 | 17,915 | |
| Company Setup hours | 326 (19%) | 264 (16%) | 281 (16%) | 225 (18%) | 3,250 | |
| Company Indirect hours | 1,103 (39%) | 1,136 (41%) | 1,106 (38%) | 1,390 (52%) | 3,908 (18%) | |
| Company Total hours | 2,809 | 2,794 | 2,881 | 2,672 | 15,207 (46%) | |
| Company Efficiency % | 79.90% | 96.50% | 103.10% | 142.90% | 89.20% | |
Exhibit 5: Aero Gear’s Performance Measurement Charts*
*Data are for the months January 2000 – August 2001. Y axis labels have been removed from the Sales and Total Sales per Employee Charts, and altered on the Inventory Turns Chart at the request of Aero Gear’s management.
This case was prepared for inclusion in SAGE Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.
2023 Sage Publications, Inc. All Rights Reserved
