Effective cost modeling on the factory floor: Taking simulation to the bottom line

Abstract

STATEMENT OF PURPOSEThe purpose of this panel is to discuss the effective implementation of cost modeling methodologies on the factory floor. Our target audience is industrial and manufacturing engineers that are experienced in simulation modeling and are familiar with manufacturing cost issues. MANUFACTURING COST ACCOUNTING -THE ARENAIn todays competitive manufacturing environment, engineers are often required to provide performance analysis memcs in terms of actual dollarsthe bottom line. No longer can the engineer provide simulation results in terms of reduced work-in-process (WIP) or increased capacity; managers are demanding that quantitative (dollar) calculations on factory performance be provided before projects are approved. This requirement is further complicated, as recent studies have demonstrated that the financial information maintained by accounting personnel is inadequate or even incomect in properly evaluating these systems. Outdated accounting principles that were developed during the industrial revolution are being improperly applied in the evaluation of today's complex manufacturing systems. Thus, engineers are required to develop their own techniques and tools to accurately evaluate the financial impact of such technologies as Total Quality Control (TQC) and Just in Time (JIT) manufacturing. COST MEASUREMENT VERSUS COST MODELINGyield, etc. On-line accounting systems can measure the costs associated with a certain product or processalthough they require the maintenance of copius quantities of data. Modeled systems, by comparison, are effective for performing what-if analysis on a simulated system. A verifidvalidated model may be used to accurately assess the benefits of an additional machine, or quantify the impact of process variability on throughput. These systems also involve large amounts of performance databut are easily maintained and manipulated as they are typically not directly associated with on-line information systems. A number of manufacturing and service f m s have successfully developed simulation models that include economic analysis. In addition, a number of simulation software packages provide constructs for economic modeling. COST MANAGEMENT -SOME CURRENT ISSUESFinancial information has traditionally been associated solely with accounting personnel; hence, manufacturing cost management is a relatively new concept. The development of new costing philosophies based on logical management rules as opposed to general accounting principles is still a novel idea to many people.Just as any novel methodology (JIT, TQC) needs to be accepted by all members of the manufacturing environment before benefits are fully realized, manufacturing cost accounting must be accepted by engineers, operators, managers and accountants before it can truly impact performance. A p a t deal of research and development work has been performed by such noted academicians as Robert S . Kaplan (Harvard Business School) and Peter B. B. Tumey (Portland State). Although their work has successfully explored cost t...

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