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Manufacturing Free Costing
As with most corporate initiatives this decade, companies
are looking for better ways to manage and reduce costs. In
many industries, outsourcing has allowed companies to focus
on core competencies and potentially reduce costs.
Semiconductor manufacturers, for example, incur significant
capital expenses to start up and maintain a production
facility. Outsourcing all, or major portions, of the chip
fabrication process is vital for some companies to even open
their doors for business. But the decision to outsource
production does not equate to the decision to outsource
managing the costs of production. With the industry becoming
more competitive, even “manufacturing free” companies
realize the key to staying profitable is in the data.
Why would companies who outsource production care about
tracking manufacturing costs? As many manufacturing free
organizations are learning, understanding costs associated
with outsourcing partners is equally vital to successful
cost management and reduction efforts as the decision to
outsource in the first place. These companies must respond
to the same global changes like shifting product demand,
increased global competition and increasingly shorter
product life cycles. Manufacturing free organizations are
typically at a disadvantage because they have access to a
narrow view of the costs associated with manufacturing.
Important metrics such as tracking lot movements, analyzing
yield losses at each production step, measuring performance
against standard and actual goals and computing
manufacturing costs are paramount to business leaders
looking to make better decisions about product mix, sales
forecasts, budgets, vendor relationships and more. Leaders
in these organizations can respond quickly and effectively
to industry shifts only with immediate access to vital
manufacturing data.
Traditional manufacturers invest in Bill of Materials or
Product Master systems, shop floor control systems, yield
reporting systems and costing systems to track costs and
performance in their facilities. Business leaders control
costs and make decisions with the production information
generated by these systems. But in an outsourced production
scenario, the decision makers have very limited exposure to
true manufacturing costs – making it virtually impossible to
identify potential cost reduction opportunities.
Decisions are based on negotiated pricing deals with
vendors. In many instances, the company has little access to
true production costs when agreeing on terms and conditions
of their outsource partnership. Now manufacturing free
companies need better access to information to create vendor
relationships that are both profitable and transparent.
By implementing a fully-integrated costing solution, cost
managers working with outsourcing vendors can compute and
report yield variances, purchase price variances (including
the price variance related to subcontractor substitution),
expected units out for planning purposes, scrap value and
more. Centralized coordination of Bills of Materials and
Routings for all goods produced allows decision makers to
better plan for subcontractor spending for anticipated
volumes. Manufacturing free organizations can also increase
exposure to vendor information by also integrating data from
the outsourcing partner directly into the costing system. By
creating initiatives that promote transparency with
suppliers, those companies who outsource no longer fall
victim to poor planning due to lack of information. |
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