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Costing - The Future!

Costing - The Future!. A Research Overview By Rob Pease. Aims. Project Background The Need for change in manufacturing cost systems Addressing the Inadequacy. Paradigm Shift. Vision for Manufacturing!. Global World: acceptance of high speed communication. A world of :

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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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