NIST Technical Note 1890 Inventory and Flow Time in the US Manufacturing Industry Douglas S. Thomas Anand M. Kandaswamy This publication is available free of charge from: http://dx.doi.org/10.6028/NIST.TN.1890 NIST Technical Note 1890 Inventory and Flow Time in the US Manufacturing Industry Douglas S. Thomas Anand M. Kandaswamy Applied Economics Office Engineering Laboratory This publication is available free of charge from: http://dx.doi.org/10.6028/NIST.TN.1890 November 2015 U.S. Department of Commerce Penny Pritzker, Secretary National Institute of Standards and Technology Willie E. May, Under Secretary of Commerce for Standards and Technology and Director of NIST Certain commercial entities, equipment, or materials may be identified in this document in order to describe an experimental procedure or concept adequately. Such identification is not intended to imply recommendation or endorsement by the National Institute of Standards and Technology, nor is it intended to imply that the entities, materials, or equipment are necessarily the best available for the purpose. National Institute of Standards and Technology Technical Note 1890 Natl. Inst. Stand. Technol. Tech. Note 1890, 31 pages (November 2015) CODEN: NTNOEF This publication is available free of charge from: http://dx.doi.org/10.6028/NIST.TN.1890 Abstract Advancements in the efficient use of inputs, such as land and labor, have been a key driver of per capita income growth throughout history. One method for identifying potential efficiency improvements is lean manufacturing or lean production, a set of tools to assist in the identification and elimination of waste. Lean classifies waste into seven categories: overproduction, transportation, rework/defects, over-processing, motion, inventory, and waiting. Utilizing economic data, one can track the inventory and transportation time along with the flow time (i.e., the amount of time a unit spends in process), which reveals some of the categories of waste. This report identifies and reviews data on manufacturing inventory and flow time along with data on inter-industry interactions. It then develops a method for tracking the flow time of US manufactured products. This method is illustrated for automotive and aircraft manufacturing. Keywords: manufacturing; input output; automotive manufacturing; aircraft manufacturing; flow time i ii Preface This study was conducted by the Applied Economics Office in the Engineering Laboratory at the National Institute of Standards and Technology. The study provides a model for tracking manufacturing industry operations activity and illustrates the use of the model in the automotive industry. Disclaimer Certain trade names and company products are mentioned in the text in order to adequately specify the technical procedures and equipment used. In no case does such identification imply recommendation or endorsement by the National Institute of Standards and Technology, nor does it imply that the products are necessarily the best available for the purpose. Cover Photographs Credits Microsoft Clip Art Gallery Images used in compliance with Microsoft Corporation’s non- commercial use policy. iii iv Acknowledgements The authors wish to thank all those who contributed so many excellent ideas and suggestions for this report. Special appreciation is extended to Simon Frechette, Katherine Morris, Joshua Lubell, and Dr. Vijay Srinivasan of the Engineering Laboratory’s Systems Integration Division for their technical guidance, suggestions, and support. Special appreciation is also extended to Dr. Robert Chapman and Dr. Jennifer Helgeson of the Engineering Laboratory’s Applied Economics Office for their thorough reviews and many insights. The authors also wish to thank Dr. Nicos Martys, of the Materials and Structural Systems Division for his review. v vi Table of Contents ABSTRACT .............................................................................................................................................. I PREFACE ............................................................................................................................................... III ACKNOWLEDGEMENTS ........................................................................................................................ V TABLE OF CONTENTS ......................................................................................................................... VII LIST OF FIGURES ................................................................................................................................ VIII LIST OF TABLES .................................................................................................................................. VIII 1 INTRODUCTION ........................................................................................................................... 1 1.1 BACKGROUND ............................................................................................................................... 1 1.2 PURPOSE…………………………………………………………………………………………………………………………………2 1.3 SCOPE AND APPROACH ................................................................................................................... 2 2 GEOGRAPHIC SCOPE AND STANDARD DATA CATEGORIZATION ........................................... 3 2.1 GEOGRAPHIC SCOPE AND IMPORTED GOODS AND SERVICES .................................................................. 3 2.2 STANDARD DATA CATEGORIZATION .................................................................................................. 4 3 DATA AND METHODS .................................................................................................................. 7 3.1 DATA……………………………………………………………………………………………………………………………………..7 3.1.1 BEA Benchmark Input-Output Data ........................................................................................ 7 3.1.2 Inventory Data ........................................................................................................................ 9 3.2 METHODS…………………………………………………………………………………………………………………….……….10 3.2.1 Inter-Industry Linkages ......................................................................................................... 11 3.2.2 Inventory Turns ..................................................................................................................... 11 3.2.3 Industry Reiteration Rate ...................................................................................................... 12 4 TWO CASE STUDIES: AUTOMOBILE AND AIRCRAFT MANUFACTURING .............................. 15 4.1 AUTOMOTIVE MANUFACTURING .................................................................................................... 15 4.2 AIRCRAFT MANUFACTURING.......................................................................................................... 17 5 SUMMARY AND RECOMMENDATIONS FOR FUTURE RESEARCH .......................................... 23 5.1 SUMMARY……………………………………………………………………………………………………………………………..23 5.2 RECOMMENDATIONS FOR FUTURE RESEARCH ................................................................................... 23 APPENDIX A: INVENTORY AND FLOW TIME (DAYS): AUTOMOTIVE MANUFACTURING............. 26 APPENDIX B: INVENTORY AND FLOW TIME (DAYS): AIRCRAFT MANUFACTURING ................... 30 vii List of Figures Figure 2-1: US Manufacturing Supply Chain Value Added ............................................... 3 Figure 3-1: Illustration of Tracking a Material through an Industry ................................ 13 Figure 4-1: Automobile Manufacturing Supply Chain ..................................................... 18 Figure 4-2: Aircraft Manufacturing Supply Chain ........................................................... 19 List of Tables Table 2-1: North American Industry Classification System, Two Digit Codes ................. 5 Table 3-1: Part of a Make Table from the 2007 Benchmark Input-Output Data ................ 8 Table 3-2: Part of a Use Table from the 2007 Benchmark Input-Output Data ................... 8 Table 3-3: Annual Survey of Manufactures and Economic Census Inventory Data Layout ........................................................................................................................................... 10 Table 4-1: Longest Flow Path for Automobile Manufacturing ........................................ 16 Table 4-2: Aggregate Flow by Automotive Supply Chain Category ............................... 17 Table 4-3: Longest Flow Path for Aircraft Manufacturing ............................................... 20 Table 4-4: Aggregate Flow by Aircraft Supply Chain Category ...................................... 21 viii 1 Introduction 1.1 Background Advancements in the efficient use of inputs, such as land and labor, have been a key driver of per capita income growth throughout history. The private sector continuously improves efficiency on its own; however, there are barriers to advancement in some areas that require public resources. These are, typically, instances where the market outcome or allocation of goods and services is not Pareto efficient; that is, it is possible to make one person or entity better off without making another person or entity worse off. One major barrier to advancement is explored in the book Public Goods, Public Gains by the economists Albert N. Link and John T. Scott.1 The basic idea underlying Link and Scott’s thesis is that there are goods and processes where the private hurdle rate, the rate that determines