Hi Phil,
I've seen two extremes. The one extreme was an automotive airbag
manufacture that brought in a new CEO and VP who adopted the Toyota
manufacturing system. When accounting would hand the VP their weekly
report, he would immediately drop it into the trash can. (It took
months before the accountants decided to quit wasting their time with
compiling those accounting reports). His 'new' accounting system was
very simple, stop tracking any of that stuff! If you want to build your
product, you MUST buy the raw material and you MUST pay operating
expenses. At the end of the day, only thing that matters is how much
money was spent, how much money was made from sales, and whether
anything is left over. This is because the selling price is determined
by competition and NOT the cost of building the product. If you want to
make money, the cost of building must be less than the cost of selling,
and TRACKING a component in an MRP system does not reduce it's cost. It
doesn't matter if you expense it or not. You still paid for it, you
can't build without it, and you'll order more when you run out...
The other extreme was at a CMS. CMS implies 'custom', which means the
competition does not determine the selling price. At the CMS, every
fractional penny on the BOM was tracked (as well as every fractional
second of every manufacturing step).
I think most companies still track the cost of each BOM item,
consumables and non-consumables and they are not expensed and written
off; simply because once you have a computerized MRP system, the
information is already there. However, unless you are quoting a bid,
trying to bring accountability to sales team, or trying to determine
whether or not continue building a product, I don't see where the true
cost of your assembly matters. You don't have a choice of whether or
not you can reduce cost by leaving out that component. You can only
reduce cost by reducing the cost of the BOM (through purchasing or
redesign) and/or reducing the operating cost (through manufacturing
improvement and management efficiency). Both are independent of
accounting practices. So at the end of the day, the only thing that
matter is whether your expenses are less than sales.
Regards,
Ryan
-----Original Message-----
From: TechNet [mailto:[log in to unmask]] On Behalf Of Phil Nutting
Sent: Monday, February 05, 2007 7:44 AM
To: [log in to unmask]
Subject: [TN] Costing of Components
Good Morning,
How do other companies handle the cost of the screws, nuts resistors,
etc, that are values in the pennies or fraction of pennies? Is the true
cost maintained in the MRP system or are they expensed (written off) and
given a $0 value?
The argument I'm given is these are so insignificant relative to the
total cost of the assembly that it is not worth worrying about them.
My twisted (non-MBA) logic says this is wrong and I can never know the
true cost of my assembly.
Thanks in advance.
Phil Nutting
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