Monday, December 14, 2015
Transparency in Manufacturing Costs
I think it is vitally important that we as a custom manufacturer are prepared to present exactly what our clients are paying for. Equally, there exists a need to be able to explain how a cost comes to be, especially when the buyer views your price as being “high”. The key to this communication is in helping our clients understand where the hidden costs are……those are the ones that consume the cost of sales but do not stand out as value added features when simply looking at the final product.
The absolute number one “non value added” hidden cost in the manufacture of our products is material handling.
Let me try to explain.
We are currently producing a very large stage system that employs 8 scissor blanks, each weighing in at 16,000 pounds. It takes three men and the use of an overhead crane to move each one of these pieces into place for fit up and welding. Those same blanks are then moved another three times in order to complete the full final assembly. So in summary, on this one single system we will use 3 men x 8 blanks x 3 moves @ 25 minutes per move = 1800 minutes or 30 man hours. These 30 hours are included in the estimate that led up to our selling price, but they will not be viewed as value added.
The more non-value added processes employed in a selling price, the more difficult it will become to justify your selling price and the less competitive you will become. This is why our operations group spends many hours planning the production of our projects, looking for ways to minimize that hidden cost of simply moving pieces around.
Also hidden, or rather overlooked is the cost of testing. At Handling Specialty it is common to have a load test of 50 or 60 tons. If that load is made up of 5 ton blocks, we have 10 – 12 separate crane operated moves just for that one test. Then we need to secure the load so it does not cause a safety situation when we begin to move our equipment. Then we have to remove all of the weights again…another 10 – 12 moves. Often a test plan calls for eccentric loads so again we have another 6 or 7 moves on and 6 or 7 moves off… and that is just the test weights!
So the next time you assess the cost and value of a large custom piece, take a moment to break down where you see the hidden cost of simple material handling. You will quickly come to respect the cost of building big things!
HS builds big things to help our customers build big things…..this is our life.