Re: FOD Costs -- BPCS-L

Thanks Jim

We only know what we have manufactured because someone reports the quantity 
involved or tries to ship it to a customer, and some people make mistakes, so 
there needs to be some checks & balances.  We are in a highly competitive 
business where the customer expects to give us 7 days notice of what they 
need & if we cannot deliver, they will take that business to someone else.  
Our lead times on raw materials is often 60 days, so we have to rely on the 
customer forecasts & estimated annual usage, then have precision in our 
inventory consumption to avoid any surprises on the eve of a shipment that 
needs some raw material whose usage was under-reported.

We know what our total labor costs are ... payroll totals, but we want to 
find out what our costs are by individual part that we make for our 
customers.  In our business the parts go through a variety of different types 
of operations & there is the suspicion that we are very competitive on some 
types & not so hot on other types, so there is a need to drill down to how 
well we are doing at a departmental or even work center level.  However, we 
do not want to obtain this data at the cost of burdening the shop floor with 
a level of paperwork that would impede their productivity.

Nor do we want excessive burden on the analysts to mine the BPCS data 
warehouse for the explanatory treasures.

We have been flirting with B2B Auctions where we compete with other 
manufacturers to quote the production of some new part.  In some cases the 
winner of the auction has been some outfit in which their quoted price is for 
less than our cost for the materials, in which our management has speculated 
that those people do not have as good a costing system as we do.

But ours could stand improvement.  I found a part a few days ago in which the 
standard material cost is $ 91 & the actual material cost is $ 147 which is a 
deviation considerably in excess of what I normally see.  So I was looking at 
various tools & reports to try to find out which of the several hundred 
sub-components was contributing the most to that difference, such as running 
CST280 one time standard, one time actual, then highlighting different costs 
& checking times BOM units used.

Well I saw some odd stuff like same item 2 different costs (two different for 
same combination bucket set facility etc. ... which was caused by global 
contamination) and a purchased item with negative previous level cost (a 
recurring nightmare that is always a hassle to resolve) & a few other pieces 
of garbage, but not enough to explain the $ 56.00 variance.  We only roll up 
our standard costs.  We never roll up our actual costs, except whatever is 
done by CST500 called within CST600.  I am now suspecting that some human 
cost maintenance might be a factor, but we have done CST600 for all items in 
problem facility twice since I noticed this curiosity & the numbers have not 
changed.

We have also had B2B auctions where we have lost the battle by ONE CENT unit 
price so management has reacted by taking a closer look at the calculation of 
overhead rates.  Traitor me is wondering if one percent less profit might be 
constructive.

Al Macintyre  ���

> And on a broader philosophical note....
>  Why do we still need to enter Actual Hours per operation? Many companies 
> have gone to backflushing labor as well as material. As one CFO asked "Why 
> are we spending money to track the cost of labor ? Don't we know what our 
> labor costs are ??"


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