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Costing - The Future!

This research overview by Rob Pease explores the urgent need to innovate manufacturing cost systems in light of today's fast-paced, digital world. It challenges the inadequacies of traditional models focused solely on continuous improvement and lean methodologies. Pease presents a four-stage cost system development model and highlights pressing questions regarding waste and inefficiencies in current practices. By embracing new paradigms like agility, data warehousing, and reverse auctions, organizations can better navigate a rapidly evolving market landscape and enhance their profitability.

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Costing - The Future!

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  1. Costing - The Future! A Research Overview By Rob Pease

  2. Aims • Project Background • The Need for change in manufacturing cost systems • Addressing the Inadequacy

  3. Paradigm Shift Vision for Manufacturing! Global World: acceptance of high speed communication. A world of : Agility, Pseudo Companies, Data Warehouses and Reverse Auctions. Traditional vision: Continue in same form with strategy for competition based solely on CI and Kaizen etc.

  4. Cost System Development A Four Stage Model 4. Integrated 3. Specialised 2. External 1. Broken

  5. Some Questions • Why do we allow so much obvious waste? • Why don’t we successfully undertake TPM? • Why don’t we always see benefits of CI activities?

  6. Reason THE COST SYSTEM IS INADEQUATE!

  7. Example 1 of Cost Issue: Compare: Tool Room vs. Buy In! • Lost Flexibility • Lost know-how • Lost I/P • Lost Skill base • Cost of machinery • Cost of manpower • Cost of consumables

  8. Lost Sales Impact? Example 2 of Cost Issue: Compare: Cost Cutting! • Cut Advertising Budget by 30% • Delay R&D Projects • Stop Employee Travel

  9. Changing Market Place Price = Cost + Profit Profit = Price - Cost

  10. Non-value add but required (include sustaining costs?) Market-Defined Price Barrier Value adding core of activities Waste Profit Squeeze Profit Adapted from C.J.McNair - Taking the Profit Potential

  11. 300 Cumulative Profit (%) 250 200 150 100 Total Profit Margin (%) 50 0 -50 -100 -150 Products Product Profitability- Whale Curve Effect

  12. Information Cost and Value vs.Time + Value of information £ Cost of maintaining and gathering information 0 1925 2000 Time

  13. Plant 1 Throughput 1 million per year Product : Blue Pens (1000K) Plant 2 Throughput 1 million per year Product : Blue Pens (100K) Black Pens (60K) Red Pens (12K) 1000 variants of Speciality Pens (100K to 500) The Pen Manufacturer

  14. Overhead • Scheduling • Expediting • Set-Ups Consider: Plant 1 vs. Plant 2 • Inspections • Material Movement • B.O.M’s to Maintain

  15. Overhead Allocation By Unit level bases: Assume all products consume the same labour, material and machine hours Cost Distortion • Direct Labour Hours • Machine Hours • Material unit Costs Blue Pens will be allocated the same overhead as lilac (low volume) pens!

  16. Examples of Cost Management Tools • Target Costing • Constraint costing • Lean costing

  17. Product A 6 2 Product B 6 6 6 6 Total 24 mins 3 1 Total 12 mins Lean Costing

  18. Conclusion • The Business environment is changing at an accelerating pace • The future holds challenges to the way we do Business • There are new methodologies for cost Management • Those who fully understand their costs have the best chance of success

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