The Costing methodology
The QuoteArchitect costing engine is based on the “Activity Based Costing” model (ABC), a well-known methodology. In the Virtual Factory model all costs, fixed and variable, direct and indirect, are used to automatically calculate the hourly rates of operations, direct labour and supporting departments. All overheads are proportionally allocated to the defined hourly rates.
The costs are divided into the following sections:
Direct compensated costs
o Direct labour costs; the cost of all wages and benefits of the direct labour employees and of the temporary help who work directly on the products.
o Other direct compensated costs; the costs of the supporting departments: production engineering, test engineering, quality control and purchasing, directly allocatable to production*).
*) For many EMS providers, it is not desirable to absorb the entire costs of the mentioned production supporting departments in the overhead costs. It benefits the more complex jobs and disadvantages the more easy ones. QuoteArchitect enables the definition of a percentage of the annual available hours per department as direct hours to allow to allocate the correct costs to a production job. Typical examples are the cost of purchasing for a complex prototype with many BOM items or the test engineering for a particular job. The departmental costs not directly allocated to production are allocated to overhead as “indirect compensated costs”.
o Genuine overhead.
Under genuine overhead all standard overhead costs are collected:
- overall company expenses (commercial, general and administrative)
- manufacturing overhead (facility costs, energy, maintenance, etc)
o Indirect compensated costs are the costs of the supporting departments production engineering, test engineering, quality control and purchasing, not directly allocatable to production.
o Production overhead is the sum of the costs of non-used production capacity**)
**) For many production machines or lines (in QA called “operations”) the occupancy rate is initially or permanently lower or even low. However, putting all the costs of the operation on the few products to be processed is not realistic. The QA rules engine calculates for every operation the costs per hour, based on the standard production hours per annum and multiplies these with the estimated real production hours for the year to get the amount for direct costs. The difference between the total annual costs and the direct costs is “production overhead”.
The user can define in how much detail the costs will be defined. QA accepts for instance for the calculations a lump sum for genuine overhead, but a cost specification in great detail is also possible. The production overhead figure is automatically derived from the virtual factory operation definitions.
Also, certain costs can be left out of the model. For instance (part of) company management costs can be absorbed in the commercial markup when calculating the sales prices. The virtual factory model is flexible to accommodate any thinkable scenario.
The operations definition
The third element in the QA virtual factory model next to the direct and overhead cost elements is the definition of the production elements, the “operations”. Both in-line, as well as stand-alone activities, are called operations, each consisting of one or more processes.
The operation definitions are based on operation type, technology, line occupancy, operator involvement and batch size. The processes are defined for annual costs, operational time elements and process configuration. Together they create the dynamic, rules-driven calculation models for every thinkable manufacturing operation. The intelligent configuration support system assists in de definition and fine tuning of the operations.
The operations definition results in the exact operation hourly rates, the unused capacity costs and all the background checks for product, shape code and process limitations, including component PSL level verifications, feeder allocation limitations or missing tape feeders for a new shape.
The concept of “bottleneck time definition” is used in the operations time calculations to calculate accurate production times.