Manufacturing costs and Degree of Occupancy Based on the Principle of Characteristic Parts

In making capacity estimates and cost calculations in the manufacturing industry, many products and production systems are often involved, making the data in their totality difficult to grasp. Introducing the concept of the characteristic part, which is a fabricated part seen as representative of all parts produced in terms of demand, setup time, cycle time, average batch size and total number of batches involved, makes the calculations required much more manageable and much less time-consuming. The article takes up how the characteristic part is defined and how it can be used in calculating production capacity, system utilization and manufacturing costs

Proceedings of the 24th International Conference on Flexible Automation & Intelligent Manufacturing; FAIM 2014

Paper presented at the Proceedings of the 24th International Conference on Flexible Automation & Intelligent Manufacturing, held May 20-23, 2014 in San Antonio, Texas, and organized by the Center for Advanced Manufacturing and Lean Systems, University of Texas at San Antonio; Includes bibliographical references; When investigating different location and/or system designs the possible variables to take into consideration can differs between the alternatives. Different production system will have different optimal working conditions and hence should be compared with parameters suitable for the actual production system. When planning production and calculating production costs the batch size is of high interest. Based on a manufacturing part cost model, this paper will present a new model, close connected to the production system, integrating production performance, set-up times, material costs, material handling costs and tied capital, giving the production economic optimal batch size. The aim is to give companies a model for determining the economic optimal batch size in order to use this knowledge to make strategic decisions regarding production planning. Mathematical simulations are performed to analyse the differences in result from the developed model and Wilson's existing standard method for calculating the economic order quantity, hence to verify the importance of making an in-depth analysis, taking the production system into consideration. The advantage of the developed model is the usage of production costs based on variable batch sizes, giving a more accurate outcom

Performance-based costing as decision support for development of discrete part production : Linking performance, production costs and sustainability

In today’s global market, the industry is struggling every day to make the “correct decisions”. Decisions concerning production can range from smaller improvements to choice tool or equipment investments to relocation of entire production facilities. Increasing globalization leads to both opportunities and challenges, driving the need for fact-based decision-support including costs to be able to evaluate the cost outcome of different production development alternatives. For a high cost country, such as Sweden it is important to continuously increase productivity to counterbalance the high cost of labour, taxes and services. A trend, that has existed for several decades, is to relocate manufacturing to countries with lower costs, especially with lower labour costs. Production relocation often results in higher initial costs, which makes it essential to make the correct decision from the beginning.To ensure that the production is in line with manufacturing strategy, performance measurements are commonly used. Measurements/indicators can also be used to make strategy more tangible, facilitating information and knowledge transfer. In other words, they can be used to inform co-workers about how the company is doing and how the system and processes respond to different actions. Interactive use of a performance measurement system and frequent analyses of indicators can be conducted to generate learning about actions leading to higher performance.Recent movements within the industrial sector point towards increasing efforts to take responsibility for the environment. However, cost savings are one of the prominent drivers for sustainability improvements, together with governmental legislation, market advantages, and pressure from shareholders and stakeholders. Prominent obstacles for sustainability improvements have been found to be a lack of understanding and knowledge, unclear and fuzzy decision authorization, and lack of performance measurements are noticeable reported reasons. The traditional cost method, involves direct material, direct labour, and overhead costs. When the costing method was implemented, a large proportion of the production cost consisted of labour costs, but as the equipment complexity and equipment costs increase the need for more detailed cost-models arises. One of the major goals in this thesis is to use knowledge of performance and capability in production operations to support decision on future developments and configurations. Therefore, it is important that the cost-model used captures as many aspects as possible and, especially performance parameters. The cost-model used in this thesis is a time-based technical performance-based cost-model for discrete part manufacturing, incorporating performance parameters such as cycle time, quality rate, process material waste, speed losses, availability losses, set-up times, and degree of capacity occupancy. Research has been conducted within cost-conscious manufacturing addressing cost impact on production decisions such as production location, automation level, product cost consequences of alterative equipment resources, energy consumption, and sustainability. The aim of this thesis is to provide decision-makers with structures for information gathering from the production system in order to make sound short-term and long-term tactical and strategic decisions incorporating production performance. The research contribution can be divided into four parts: 1) Cost-model applications for specific analyses and decisions. 2) Cost model development, adding aspects of material handling and tied-up capital to develop the manufacturing cost-model into a production cost-model. 3) Support location decisions with a cost-based decision framework. 4) Support sustainable production using a production performance-based costing perspective

Costs of inbound logistics – Towards a decision support model for production system design

Global competition forces companies to constantly increase the efficiency in their production systems. One important factor affecting the production performance is the inbound materials handling system. When designing or relocating a manufacturing system, the cost of the material handling system is one of many things to take into consideration. In connection with on-going research a comprehensive decision support for production location, both work procedures and model and tools for strategic and economic analyses are developed. A case study was conducted, at a supplier to the heavy vehicle industry, in order to develop cost models for inbound logistics. The results were two cost models of different accuracy giving the cost per part, where the comprehensive model is taking the process and equipment into consideration. In addition, the study also revealed the proportion between inbound logistics costs and assembly costs at the company studied. The result in this article is part of the development of making models for calculating the total production part cost

Cost assessment of a production system - A method targeting a products aggregated value stream costs

A production system is often complex, involving several production steps with a material flow entering and exiting at different stages throughout the value stream. This article aims to present a method giving the aggregated cost of a product in a production system, were material and components entering the value stream carrying their own capital and handling costs. The article describes an empirical study involving a production system, with high material costs and a process-oriented layout. The findings indicate that increased capacity and decrease in number of active orders enables lead-time reduction whereas decrease in costs mainly depends on operation improvements

Cost-Driven Informed Decisions Using Loss Analyses from Production Monitoring

When embarking a cost reduction strategy, it is important to know what causes the costs, how the costs are connected to value adding and to non-value adding activities, and thereby conduct a knowledge-intensive production development. This paper present a method on how to connect costs to production losses and how they can relate to different cost factor groups. The method uses a digital tool that was designed in collaboration with a medium-sized tool manufacturing company, using several manufacturing operations in sequence. The tool is designed to be used for management monitoring and for strategic decisions. The method uses a performance-based cost model for discrete part manufacturing and incorporates an approximation when dividing the calculated loss costs. To ensure the accuracy of the model a sensitivity analysis was conducted. The result shows that only smaller errors occur due to this approximation and amount to a few percent when extremely high losses are in effect. The novelty of the paper is the variation of the cost model, ensuring that costs can be divided on each of the cost factor groups and investigated performance parameter. In addition, the designed layout of the result presentation in the digital tool, is a further development of the previous presented production performance matrix, which contribute to a comprehensive overview used for production monitoring

Business case as a decision support when relocating manufacturing

Companies are relocating in order to save cost and for strategic reason. In order to reveal in what extent company today use business case studies when making relocation decisions, an interview study was conducted. Throughout the interview study the following paper establish what cost different companies are taking in consideration when relocate and if those are calculated or estimated. The research started with the hypothesis that many relocation decisions are based on a limited set of parameters and that a fraction of these consists of cost parameters. The outcome will later on be used when developing an industrial decision support for relocation, making it applicable for the manufacturing industry of today. The interview results will show that different companies are taking different cost in consideration; only a few ones are consistent, making the future decision support quite extensive