Measuring the financial impact of equipment performance improvement: ISB and IEB metrics

Luis Alejandro, Gólcher-Barguil, Nadeem, Simon Peter, Garza-Reyes, Jose Arturo, Samadhiya, Ashutosh and Kumar, Anil (2022) Measuring the financial impact of equipment performance improvement: ISB and IEB metrics. Benchmarking: an International Journal. ISSN 1463-5771 (In Press)

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Abstract / Description

Purpose:
Equipment performance helps the manufacturing sector achieve operational and financial improvements despite process variations. However, the literature lacks a clear index or metric to quantify the monetary advantages of enhanced equipment performance. Thus, the paper presents two innovative monetary performance measures to estimate the financial advantages of enhancing equipment performance by isolating the effect of manufacturing fluctuations such as product mix price, direct and indirect characteristics, and cost changes.

Design/methodology/approach:
The research provides two measures, ISB (Improvement Saving Benefits) and IEB (Improvement Earning Benefits), to assess equipment performance improvements. The effectiveness of the metrics is validated through a three stages approach, namely: (1) experts' binary opinion, (2) sample, and (3) actual cases. The relevant data may be collected through accounting systems, purpose-built software, or electronic spreadsheets.

Findings:
The findings suggest that both measures provide an effective cost-benefit analysis of equipment performance enhancement. The measure ISB indicates savings from performance increases when equipment capacity is greater than product demand. IEB is utilised when equipment capacity is less than product demand. Both measurements may replace the unitary cost variation, which is subject to manufacturing changes.

Practical implications:
Manufacturing businesses may utilise the ISB and IEB metrics to conduct a systematic analysis of equipment performance and to appreciate the financial savings perspective in order to emphasise profitability in the short and long term.

Originality:
The study introduces two novel financial equipment performance improvement indicators that distinguish the effects of manufacturing variations. Manufacturing variations cause cost advantages from operational improvements to be misrepresented. There is currently no approach for manufacturing organisations to calculate the financial advantages of enhancing equipment performance while isolating production irregularities.

Item Type: Article
Uncontrolled Keywords: operational excellence; equipment performance; monetary benefit; equipment; improvement; financial impact
Subjects: 300 Social sciences > 330 Economics
600 Technology > 650 Management & auxiliary services
Department: Guildhall School of Business and Law
Depositing User: Anil Kumar
Date Deposited: 30 May 2022 07:58
Last Modified: 30 May 2022 07:58
URI: http://repository.londonmet.ac.uk/id/eprint/7691

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