Cost Savings of reduced Queue times

[bellx1]

Hi,
I'm a new IE/ME engineer and I've been asked to do some justifications for new machines. Some of the savings I can easily quantify, for example reduced run times, reduced scrap, but I'm having issues with quantifying the cost of excessive lead time.

For example one of the new machines could save 3 days on a process, one that we would otherwise have to send outside.

Being new to this I am asking for any all advice and opinions. How have you provided a cost justification on white space for senior management? Are there any texts I should read to familiarize myself on this subject?

Many thanks in advance!

http://www.compositescentral.net

 

[BillPSU]

The cost savings would generally be in the differential from doing the work inside versus the outside cost. The cost of carrying the inventory for the extended period of time. The additional handling cost for shipping the part to and from the outside supplier. Packaging the part for shipment. The additional space when holding the part for the extended time period. The cost of handling the purchase order, packing slip, and invoice for the outside process.

Make sure you properly calculate the inside cost versus the outside cost. Do not include any of your fixed overhead cost. These cost will be present if you make or buy the process being performed.

Those are the typically cost savings calculation for such a case.

Bill

 

[MikeHalloran]

My billionaire friend estimated the cost of being late to market at about a million dollars a month, so he was always in a hurry.

Nevertheless, his MBAs (he was apparently drunk when he hired the first one) sold off our in-house machine shop and outsourced all the work, to vendors who eventually and inevitably screwed us over because they had other customers who were less penurious, so we missed some important dates, by a _lot_. ... by much more than those damn MBAs ever 'saved' in their entire damn careers.

My friend has since died, and the company has shrunk and changed hands a couple of times. I expect to see it on the block again shortly.



Mike Halloran
Pembroke Pines, FL, USA

 

[IRstuff]

In-house vs. outsource is a nontrivial analysis.

> In order to fully justify in-house capability, the in-house capability must be able to generate sufficient revenue for its required return on investment (ROI).
> Is there a sufficient market advantage for quick turnaround? Can you charge a premium, or can you show that your market share would increase because your turn times are quicker?
> Is there sufficient evidence to show that your outsourced work is not as efficient or cost effective as doing it in-house, i.e., the turn times are never as quoted, or workmanship is poor, or cost is not as required?

Generally, the load analysis on in-house is the killer; you must have sufficient in-house volume to adequately sustain the machinery, or the turn times are sufficiently lower enough to allow you to accept contracts that you might not otherwise be able to fulfill.

TTFN
faq731-376

 

[MortenA]

This is one of the oldest areas within statistics and statispics applied for production optimizations. I used to like statistics a lot when in univercity, but once an engineer i only for a brief period (as a production chemists in a pharma plant) had any use of it. I think its specialists work unless you just wanna refer to "gut feeling", and you would be surprised to learn how often your gut is wrong - and how stubbornly lots of people just wont admit it...

Best regards

Morten