Manufacturing cost is the amount of money to be paid to receive the part at the factory. The manufacturing cost includes parts, process cost, logistical uplift, profit, packaging, transport, ….
Should and Realistic Cost
This total result in the final price. Underneath a lot is hidden by “extra” cost to compensate for the process and part risks. This makes it extremely difficult to see what is going on and how to improve the cost price. For ease of discussion focus only on part, process, package and transport cost. This result of the manufacturing part quality and manufacturing time is directly coupled to the manufacturing cost. To make the discussion on cost transparent all factors of failure rates, test slip, rework, setup time, NRE, manual labor time, machine time, process cost and the agreed hourly rates for manual labor and machine lead to a total technical product cost. By taking all this account a technical should cost and a realistic cost can be calculated. Based on the delta between the should and realistic cost the Value Stream Map again gives insight where the delta’s are coming from. Understanding those delta’s gives the opportunity to solve those by changing the design to avoid the failure rates or improve the process. Testing is never the way forward, it only generates scrap. This methodology visualize the cost drivers so the discussion is on quantitative data which removes the emotions in the discussion with suppliers.
Complex supply chain
It becomes more complicated when the supply chain is consisting of second tiers. This can be solved to see the delivered product as a part with its quality risk and cost. When needed this must be also be seen again as the first tier part.
Conclusion: by making the cost visible with a should and realistic cost a fact based discussion can start.