Understanding Manufacturing Costs

Duration: 5 Days

Overview

Outline

Understanding how manufacturing costs accumulate during the conversion of raw materials into the finished goods, and how each stage of production adds value, is crucial to the management of those costs.

 

The sourcing of the various materials and other costs that feed into the production process is dependent on, and influenced by, the supply chain strategies. Therefore, how a company evaluates and manages the supply chain will have a direct impact on the costs.

Business cycle and the manufacturing process

  • Understanding the relationship between the long-term corporate strategy and short-term operational goals

  • Insight into the business cycle and product value creation

  • How manufacturing, supply chain and maintenance functions impact, and contribute to, the business outcomes

  • Factors that affect manufacturing capacity and capability

  • Demand and supply alignment

  • The impact of market and economic conditions on manufacturing costs

Overview of the Manufacturing Process

  • An insight into the end-to-end manufacturing input and output lifecycle

  • Types of Products: Primary, Co-Products and By-Products

  • Inter-relationship of products

  • Focus on company-specific products

  • Sources of costs: RM (feedstock), Labour, Overheads etc.

  • Product, Plant and Affiliate Profitability

  • Understanding the concept of netback

Nature and behaviour of costs

  • Fixed & Variable costs

  • Direct & Indirect costs

  • Capital & Operating costs

  • Depreciation & Amortization

  • Scheduled & Unscheduled Maintenance costs

Operational cost elements

  • Supply Chain & Feedstock costs

  • Other Material costs: Chemicals, Additives, Spare parts etc.

  • Maintenance costs (Scheduled, Preventative, Unplanned etc.)

  • Turnaround costs

  • Manpower costs

  • Energy and Utility costs

  • Logistics: Storage & Transportation costs

  • Outage and Shutdown costs

  • Depreciation

  • Cost-effectiveness of Insourced and outsourced services

  • By-product credits

Cost allocation and profitability

  • Product break-even analysis

  • Cost re-allocation: The types and challenges of cost re-allocation methodologies for indirect overheads

  • Deriving the unit cost

  • Marginal & Absorption costing

Impact of Supply Chain

  • How the sourcing and procuring feedstock and services affects the unit cost

  • Viewing costs from a TCO perspective: Purchase price + Logistics Costs + Conversion Costs + Selling or Disposal/Write off costs

  • Seeking efficiencies in the supply chain

Maintenance Costs and plant reliability

  • Financial planning for turnaround projects

  • Financial planning for plant upgrades and new capacity

  • Feasibility techniques: ROI, Payback, DCF, NPV, IRR, EVA

  • Effect of turnarounds on product inventory

  • Opex Vs. Capex