will keep them competitive in the marketplace.
▪It may mean a complete change in concept or methodology that offers the best possibilities for real changes in a manufacturing process.
▪This approach is the most difficult to justify by a dollar-and-cents formula, however, it may be the only way to generate new revenue and increase the competitive position of the company.
COSTING METHODS
There are two different types of costing methods: traditional and advanced manufacturing technology, Fig. 1-2-4.
Traditional Costing
Traditional costs are those that have always been recognized as permanent or essential to the process.
▪The purchase prices of the machine, process, and tooling
▪The cost of expendable tools and equipment
▪Labor and overhead costs per part
▪The setup and tool-change time
▪The number of parts produced in a cycle
▪The life of the machine, process, or tooling
Fig. 1-2-4 The two types of costing methods commonly used to justify expenditures. (Courtesy Kelmar Associates)
Advanced Manufacturing Technology Costing
Advanced Manufacturing Technology (AMT) costs are those that become important as a result of the effect they have on the entire company.
▪The reduced cost of storing and delivering tools to the workstation because of their extended life
▪Fewer tools required in inventory to meet the production schedule that reduces JIT (Just in Time) and inventory costs
▪Because of the quality of the machines and tools, there is less maintenance and therefore lower labor costs
▪Less scrap and rework resulting from the reliability of the machines and tools
▪The accuracy and repeatability of the machines increasing the productivity and the product quality
▪Greater customer satisfaction with the product quality that results in increased sales
JUSTIFYING THE INVESTMENT
The following look at justification is based on a realistic assessment of the impact that advanced manufacturing technology has on the manufacturing operation, the organization, and the corporate strategies.
Investment management should be seen as more than a budgeting process for capital outlays on new machines and manufacturing processes. The common thread that binds all successful automation implementation is careful planning that considers the long-range benefits and the risks involved. New technological investments that involve greater productivity potential must be evaluated on their projected competitive advantage and related benefits such as:
▪improved and/or more consistent product quality
▪greater flexibility
▪shorter throughput and lead time
▪reduced inventory
▪less floor space required – A new technology machine or process generally out-produces two or more machines.
▪Reduced indirect manufacturing costs that could include:
•material handling equipment and personnel material handling equipment and personnel
•the number of machines required
•scrap, rework, and warranty claims
•maintenance and disposable tooling costs
•QC (quality control) personnel
•light, heat, taxes, and insurance
An effective business plan, Fig. 1-2-5 should be a three-tiered approach based upon:
▪A global or strategic plan that considers the requirements for competing in the world marketplace
▪The business plan that develops strategies to compete around the world
▪A detailed manufacturing plan that identifies activities in support of the business and strategic plans to become a low-cost, high-quality producer.
•This plan must deal with components such as product cost, product quality and reliability, delivery lead times, and frequency of new products.
Fig. 1-2-5 An effective business plan includes three factors. (Courtesy Kelmar Associates)
By examining the non-technical concepts of a manufacturing plan, such as GT (Group Technology) or JIT (Just-In-Time) manufacturing, can become more productive with very little capital investment. These two factors provide the greatest savings, representing a large down payment on new technology, yielding benefits such as:
▪90% reduction in inventory
▪90% decrease in lead time
▪75% reduction in setup time
▪50% more efficient use of floor space
A well-planned manufacturing installation can dramatically improve product quality, reduce scrap and rework, and increase the company’s flexibility to respond to the changes in production requirements and the marketplace. The goal of new technology should never be to eliminate labor but to increase the flow of product through a plant, improve the product quality, and be able to quickly respond to customer’s needs.
COMMON JUSTIFICATION PITFALLS
Technology has dramatically changed manufacturing cost behavior patterns. The direct labor and inventory costs are decreasing, while depreciation, engineering, and data processing costs are increasing. Traditional financial systems focus on labor and inventory, and do not consider the benefits of flexibility, product quality, and customer service.
Major Pitfalls
▪Using traditional cost accounting/performance measuring systems that rely on labor, and price per part
▪Setting high ROI (Return On Investment) hurdle rates and applying the same rate to new and strategic product lines
▪Little or no consideration of alternative methods of improving productivity and product quality
▪Resistance to identify the benefits of advanced technology properly
▪Failure to consider the effects that not introducing new technology may have on the
