Textbook Problem

Merkley Company, a manufacturer of machine parts, implemented lean manufacturing at the end of 20X1. Three value streams were established: one for new product development and two order fulfillment value streams. One of the value streams set a goal to increase its ROS to 45% of sales by the end of the year. During the year, the value stream made significant improvements in several areas. The Box Scorecard below was prepared, with performance measures for the beginning of the year, midyear, and end of year. Although the members of the value stream were pleased with their progress, they were disappointed in the financial results. They were still far from the targeted ROS of 45%. They were also puzzled as to why the improvements made did not translate into significantly improved financial performance.

Required:

1. 1. From the scorecard, what was the focus of the value-stream team for the first 6 months? The second 6 months? What are the implications of these changes?
2. 2. Using information from the scorecard, offer an explanation for why the financial results were not as good as expected.