value of all money, savings, and insurance.
4.IN OUR MODERN EXCHANGE ECONOMY, all payroll and employment come from customers, and the only worthwhile job security is customer security; if there are no customers, there can be no payroll and no jobs.
5.CUSTOMER SECURITY can be achieved by workers only when they cooperate with management in doing the things that win and hold customers. Job security, therefore, is a partnership problem that can be solved only in a spirit of understanding and cooperation.
6.BECAUSE WAGES ARE THE PRINCIPAL COST of everything, widespread wage increases, without corresponding increases in production, simply increase the cost of everybody’s living.
7.THE GREATEST GOOD FOR THE GREATEST NUMBER means, in its material sense, the greatest goods for the greatest number that, in turn, means the greatest productivity per worker.
8.ALL PRODUCTIVITY IS BASED on three factors: 1) natural resources, whose form, place, and condition are changed by the expenditure of 2) human energy (both muscular and mental), with the aid of 3) tools.
9.TOOLS ARE THE ONLY ONE of these three factors that people can increase without limit. Tools come into being in a free society only when there is a reward for the temporary self-denial that people must practice in order to channel part of their earnings away from purchases that produce immediate comfort and pleasure, and into new tools of production. Proper payment for the use of tools is essential to their creation.
10.THE PRODUCTIVITY OF THE TOOLS - that is, the efficiency of the human energy applied in connection with their use - has always been highest in a competitive society in which the economic decisions are made by millions of progress-seeking individuals, rather than in a state-planned society in which those decisions are made by a handful of all-powerful people, regardless of how well-meaning, unselfish, sincere, and intelligent those people may be.
For more information on PRODUCING PROSPERITY see the Website: www.mfgtech.org.
ECONOMICS OF ADVANCED MANUFACTURING TECHNOLOGY
The global competition in manufacturing industries has focused on producing quality parts quickly and accurately. This attention to the quality of products, along with the increased productivity necessary to compete globally, has led more and more manufacturers to introduce advanced manufacturing technologies. This appears to be the strategy of companies striving to become world-class competitors; generally it involves the use of the latest machine tools, cutting tools, and manufacturing processes which are expensive and sometimes difficult to justify using the traditional accounting practices.
The major opposition to introducing advanced manufacturing technologies seems to be the fact that many companies are still using traditional cost accounting and justification methods of the past. These methods are too short-term and too bottom-line oriented and do not consider the effects and benefits that advanced technologies can have on the entire company’s competitive position in world trade. What is required is the extension of traditional cost accounting to include a softer relationship that goes beyond purely financial measures. It must consider the sometimes intangible effects that advanced technologies can have on the customer which in turn can affect the entire company. Recent surveys reveal that 92% of those responding believe that the biggest barriers to using new manufacturing technologies are related to management and not to technical problems. Four factors seem to confirm the reasons for their unwillingness to invest:
1.The misconceptions of the past and the present economic conditions.
▪There is an overemphasis on direct labor costs which in the past amounted to as much as 50% of the total product cost.
▪In the 1990s, the approximate division of manufacturing costs is was follows: direct labor – 10%, material – 55%, overhead – 20%, and indirect labor – 15%, Fig. 1-2-1.
2.The bias against capital equipment investment because of the critical errors in the way the theory is applied.
▪A common mistake is only considering the cost of the piece of the technological equipment and not its effect on the entire manufacturing operation.
3.The failure to deal with or understand any of the important factors relating to the company’s business philosophy.
▪Many projects can be justified on direct productivity savings, reduced warranty costs, reductions in scrap, and rework costs, Fig. 1-2-2.
4.Setting high hurdle rates for evaluating new technology, believing this will result in high-return profits, rather than introducing new product and process technology to improve product accuracy and manufacturing productivity.
▪Delaying investments for advanced manufacturing technologies can result in a competitor gaining a market advantage that may be difficult or impossible to reverse.
Fig. 1-2-1 The changing manufacturing costs between the 1920s and the 1990s shows a major reduction in labor costs. (Courtesy Cincinnati Milacron, Inc.)
BASIC JUSTIFICATION APPROACHES
There are three basic approaches on how to justify the replacement of machines, tools, and processes, Fig 1-2-3. Industrial equipment justification is generally a management decision that is critical to the quality and price of the finished product. It often determines whether a company’s product will survive in the marketplace or how long a company will remain in business.
1.The defensive approach is where no capital equipment, major tools, or manufacturing processes are purchased until something wears out and cannot be repaired.
At that time, the equipment is replaced with comparable equipment with no thought given to any changes in the manufacturing method.
▪This approach is relatively easy, however it is generally leads to a loss of the company’s position in the marketplace.
Fig. 1-2-2 Factors that can determine the justification of an advanced manufacturing technology. (Courtesy Kelmar Associates)
Fig. 1-2-3 Types of justification approaches. (Courtesy Kelmar Associates)
2.The cost saving approach is basically a conservative approach that offers some degree of overall progress.
▪A piece of equipment is replaced with a similar kind that offers some manufacturing improvements.
▪There is no concentrated effort to see whether the entire operation, tools, or process should be changed.
▪The investment is made as long as the ROI (return on investment) looks favorable.
3.The aggressive approach takes a critical look at the present
