What Is Your True Cost?

Accounting, by its very nature, is a "hindsight" science. It looks backwardand tries to project forward. However, this sometimes seems like looking atwhether a coin landed heads or tails and being able to predict what willcome up next.

More and more customers are attempting to manage a molder's costs. They aredemanding to know price breakdowns, machine rates, material costs, and allthe components that make up the cost of the molded part they arepurchasing. Even worse, many molders who do not have a good handle onoverhead don't know if they're making money or not until the accountantcloses the books at the end of the year. Because of this emphasis on costaccounting, you need to assign as many costs as possible where they belongand as few as possible into the overhead.

Restructuring Quotes

Now is the time to restructure your quoting practices. Factor into yourpart cost the charge for setups, the material lost in purgings, anadministrative fee if the lot size is extremely small, and the net of cycletime - the real pieces per hour produced that can be shipped. As anincrement to the setup cost, add the amount of time required on aproportional basis to do preventive maintenance on the machine. Also addthe proportional cost of doing mold maintenance on this particular mold.

Precise parts, highly loaded materials, high-temperature resins, or exoticmaterials wear out a tool significantly faster than running polyethylenedoes. Keep a materials log of "pounds in" vs. "pounds shipped" for eachjob. The difference between these two numbers is the amount of materiallost in the process due to purgings, contamination, unusable scrap, and soforth. Keep another set of logs tracking when a setup occurred, how long ittook, when the run started, when it was supposed to complete compared towhen it actually did, and how many mid-run shutdowns occurred and why.

While this may seem like a lot of work, there are several companies whosell monitoring equipment that is quite inexpensive that will do the jobfor you. On the newer molding machines, the advanced electronics cangenerate many of these reports.

Knowledge is Power

When you begin a program of true costing, it is usually an eye opener.Those things the setup help and production crew had the luxury of "sweepingunder the rug" now become obvious. It's much more important to fix theproblems, however, than to fix the blame.

Each morning at the production meeting, look at the previous day'sproduction and examine the deviations from the quoted costs. Every secondlost in cycle time, each blocked cavity, every pound of material in thetrash can, and each time the machine had to be shut down loses money.Address each of these issues and eliminate its cause. While many peoplewill tell you they spend their entire work day putting out fires, what theyreally do is simply beat them down. If you take the time to solve theproblem and not simply fix it, the fire you were fighting last week willnot re-ignite.

True costing will show you where you can invest in training and equipmentto more efficiently run your operation. This will enhance your profits. Onthe other hand, it will turn into a very justifiable defense of yourcosting structure. If threatened with the concept that "the other guy cando it cheaper," take comfort in the fact that you'll be shipping him notonly the mold but all its problems along with it. It is always better tolet your competition lose money than for you to do so.