Enhance your costing software system.
A costing software system's ability to supply accurate casting costs and measure actual costs against those costs is a priority in today's foundry industry. Today's competitive pricing environment provides little margin for error in costing a product. Once the price is set, a foundry's ability to increase prices based on unforseen cost increases or costing errors is virtually nil.
While the principles of reliable, activity-based costing are universally applicable, costing system implementation must satisfy the unique characteristics and managerial needs of the foundry industry. For example, a foundry costing system must develop a central costing formula that accounts for cores per corebox and casting and the core weight. It must apply overhead rates to base hours, machine hours, casting pouring weights and net casting weights. The system must calculate costs at various quantity breaks to recognize the impact of corebox and pattern change costs.
Despite the enormous technical advances in software development coupled with the proliferation of fully integrated software systems, the costing and cost control modules of these systems are Third World orphans compared to state-of-the-art costing. State-of-the-art costing requires the application of indirect materials and supplies (small tools and welding equipment), nondirect labor activities (rework, specific quality inspection plans and quality tests) and additional pattern changes required to produce castings to the specific project. Most software systems do not have the capability to apply these costs to specific part numbers and therefore require that these costs be listed as overhead rates. This results in the incorrect application of these costs to all castings produced.
Software systems also cling to the traditional distinction between manufacturing costs and non-manufacturing costs (selling, marketing and administration) when applying costs to specific castings. Therefore, the full profitability of each part number is not known because only manufacturing costs are unitized in the part cost and measured against the revenue of an individual casting, With the foundry industry's current emphasis on marketing, these nonmanufacturing costs are an integral part of each casting produced. The result is that, in addition to the inability to report profitability on both a variable (revenue less all variable costs including non-manufacturing variable costs) and full (revenue less variable and fixed costs including non-manufacturing fixed costs) cost basis, the software isn't able to measure the true profitability of individual castings or customers.
When foundries select software, the lead often is taken by employees interested in the system's ability to satisfy needs other than costing, such as order entry, billing, material requirements planning, shop loading and inventory control. The irony is that the system to price castings, measure profitability and control costs is an afterthought in the software selection and design process. Therefore, the investment of up to hundreds of thousands of dollars in software and hardware doesn't fulfill its potential as it cannot cost castings or monitor costs accurately and sufficiently.
In the early days of computer software selection, a preliminary design of each system that carefully defined the foundry's unique processing and information requirements was completed before any software was evaluated. Today, this preliminary design often is ignored as foundries accept what software vendors say as the gospel, never questioning the software's ability to adapt to their unique requirements. This omission is risky in costing because the costing module is designed by system analysts that aren't experienced in the implementation of a state-of-the-art foundry costing system. Before selecting costing software, a preliminary design of the system to meet the foundry's requirements must be made.
Points that should be addressed in this preliminary design include:
* mold yield calculation and metal costing;
* core material costing;
* mold sand cost calculation;
* corebox and pattern change costing;
* core and casting scrap;
* outside service costing;
* separation of variable and fixed costs;
* breakdown of costs into individual cost elements;
* application of selling and administrative costs to castings;
* quantity break pricing;
* variable contribution costing capability;
* ability to handle piece rate, day rate and incentive systems;
* labor efficiency measurements;
* core sand, mold sand, and metal mix and yield calculations;
* job estimating.
These requirements must match the software's processing capabilities. If the software cannot meet a specific requirement, the foundry must determine if it can compromise and eliminate the requirement or the cost of modifying the software.
Foundries with existing costing software systems must approach their situation through software modification. Although it is easy to purchase a new system and adapt it to your foundry, this capital expense is usually not part of the foundry's budget. Often, an existing costing system can be modified in six basic areas to achieve accurate costing. These modifications, which drive an accurate foundry costing system (new or old) are: fixed vs. variable costs, mold yield calculations, mold sand calculations, casting routing, casting scrap provision and surcharges.
In the competitive foundry industry, casting pricing decisions must be based on fixed costs vs. variable costs. A foundry must determine how far in the casting pricing process it can pursue a part before it is cutting into profitability. These numbers only reflect the casting costs if they are broken down and allocated by foundry departments (coremaking, melting, molding, etc.).
Mold yield calculations are based on metal cost, casting pouring weight, casting net weight and riser value. Whether the casting is 20 oz or 20 lb, the software system must take the parameters it is given and calculate the net metal cost of each individual casting.
For mold sand calculations, the system must base its calculations on mold sand cost, flask size, over/under dimensions and sand to metal ratios. As with mold yield, the system must accurately calculate these variables to determine the sand cost required for each casting.
Modifying the software for casting routing also is vital to its success. Within foundry operations, the stable operations for each casting run are patternmaking, melting, molding, pouring and cleaning. Many castings require coremaking, machining or heat treatment, however, and it is the software's requirement to handle the various scenarios that are presented in each individual costing of a casting, rather than applying the costs across the board.
The casting scrap provision is based on historical data from which the standard scrap percent of each individual casting is developed. The software system must recognize the recovery value of metal and calculate the cost of scrap to be recovered in the cost of each good casting.
The costing software also must handle the regular foundry practice of surcharging across the board. This practice takes a factor, such as an increase in metal cost, and recovers it throughout metalcasting operations by applying a surcharge on the end product, which distorts the margins in castings. This cost must be taken out and reported separately.
The cost of these modifications varies depending on the ease of expanding the software's file structure and the system's programming logic. As each software package is evaluated, the cost of modifications and ease of adaptation to a foundry system can be determined, and a selection can be made.
The goal of costing software is to instill confidence in foundry quotes and to help a foundry decide whether it should take a new job or keep current jobs.
The modifications and adaptations in costing software a foundry requires can be performed on many of the existing systems (foundry specific and otherwise) that exist today. The difficulty exists in that, once these modifications are made, each upgraded version of the software will require the same changes. For smaller foundries, these modifications often must be made by an expensive, outside systems analyst who understands the software's programming language.
In addition, although a software selection is made and the system is modified for the foundry environment, it doesn't perform as a plug-and-play costing operation. An effective evaluation and adaptation of software systems will assure that management receives the system it needs to properly cost castings, control costs and measure the profitability of each casting produced. Once a sound costing system is installed, however, management also must assure that accurate data is provided to the system. In the final costing analysis, software systems only manipulate data, and they will manipulate with equal efficiency whether the data is accurate or not.
It is management's task to provide accurate:
* labor estimates for each operation;
* casting pour and net weights;
* casting and core scrap standards;
* metal and core material mixes;
* projections and allocations of overhead costs;
* identification of fixed and variable costs;
* calculations of overhead rates;
* identification of specific production operations performed on each individual casting.
Using this accurate data to calculate costs, the software system measures variances and identifies areas that management can improve the effectiveness and profitability of its company.
Costing software systems are just a tool, not the answer. As with any computerized system, software must be adapted to your environment and rely upon accurate information, in both design and execution, to provide accurate results.
Costing Software Options
The first step in evaluating costing software is the foundry determining what it requires from a system. Once this determination is made, foundries must work with the software supplier to adapt the system to their manufacturing environment.
While there are hundreds of software options available, the following is a sampling of costing software systems that have been adapted for the foundry industry.
American Foundrymen's Society 505 State Street Des Plaines, Illinois 60016-8399 8001537-4237, fax: 847/824-7848 Website: www.afsinc.org Email: email@example.com Contact: AFS customer service
Product description: Developed for AFS by Dewtec Systems, Inc., Solihull, England, AFSynergy covers areas such as price maintenance, commercial documentation, management information, work/quality documentation, planning and scheduling, and advanced order processing. With additional modules, costing & quoting, raw material inventory and test certification tasks are also handled. AFSynergy can link with accounting packages and it can be operated by a single user or as a network system.
Installations: 400+ foundries worldwide.
B&L Information Systems, Inc. 4707 Rambo Road Bridgman, Michigan 49106-9723 616/465-6207, fax: 616/465-6686 Website: www.blinfo.com Contact: Jerry Nagel or Nancy Patterson
Product description: Metalcasting companies in 32 states and 4 countries have selected B&L software to help them transform raw data into meaningful information. BLIS-400 is a foundry industry specific, integrated and interactive system for order processing, shipping/invoicing, production scheduling, production control, inventory control, cost estimating, job costing and labor and machine efficiencies. The system is continuously improved by the vendor with new enhancements every June 1.
Installations: 300+ metalcasting companies.
HarrisData 611 N. Barker Road Brookfield, Wisconsin 53045 414/784-9099, 800/225-0585 fax: 414/784-5994 Email: firstname.lastname@example.org Contact: Diane O'Neill
Product description: The HarrisData MRPII/ERP manufacturing system utilizes an IBM AS/400 hardware platform. Its features include: inventory, order, purchasing and production management, as well as manufacturing planning and costing. The costing feature provides user-defined cost elements that allow costs such as overhead to be allocated to either a specific group of parts or to a specific part. Drilldown cost inquiry and cost simulation allow the user to manipulate costs and view the impact of their changes on net profit.
MSS for OBJECTS
Fourth Shift Corp. 7900 International Drive Minneapolis, Minnesota 55425 800/342-5675, fax: 925/866-0727 Website: www.fs.com Email: email@example.com Contact: Albert Maruggi
Product description: Fourth Shift Corp., a certified Microsoft Solution Provider Partner, develops, licenses and services software solutions for manufacturing enterprises. MSS for OBJECTS is designed for Windows NT and Novell operating systems, running in a client/server, PC LAN environment. MSS integrates production, financial management and customer services; provides easy information access throughout the organization; and can lead to improvements in productivity and profitability.
Installations: 3300+ in 60 countries.
JD Edwards World Solutions Co. One Technology Way Denver, Colorado 80237 800/727-5333 Website: www.jdedwards.com
Product description: Oneworld ERP provides a rigid reporting and cost accounting structure for comprehensive product life-cycling costs and flexibility in reporting financial information. The system manages all order types including quotes, blanket orders, transfers, direct ships and credits. Oneworld allows users to minimize inventories by synchronizing the flow of goods from material source to product end-user. In addition, the system uses pull-down menus and drag-and-drop functionality.
SAP America, Inc. 3999 West Chester Pike Newtown square, Pennsylvania 19073 610/355-2500, fax: 610/355-2501 Website: www.sap.com Contact: Chip Reichhard or Sonny Hathaway
Product description: The SAP R/3 system incorporates programs for accounting and controlling, production and materials management, quality management and plant maintenance, sales and distributions, human resources management and project management. SAP R/3 runs on the hardware platforms of leading international vendors, allows interoperability with third party solutions and services, and is quick and efficient to install. The software can be used by a business of any size to integrate all business operations across departments and functional areas.
RELATED ARTICLE: Bremer Manufacturing Adapts Outdated System to Costing Success
In 1994, Bremer Manufacturing Co., Inc., a 90-employee aluminum green sand caster producing intake manifolds in Elkhart Lake, Wisconsin, had an out-of-date PC-based database system that it used for typing and maintaining its casting quotations for customers. According to President Jerry Bremer, it didn't provide the costing information and control his growing business required.
"Our system was antiquated and didn't provide accurate information," said Bremer. "What we needed was a system that provided for the variable costs in our foundry."
Bremer worked to determine where his current approach to costing and quotations went awry. The determination was that Bremer didn't take into account the overhead costs on a fixed and variable cost basis over the whole plant as well as by department. His cost breakdowns, quotations and resultant casting costs were in line on some parts but not on others.
"Any costing system is going to favor one type of casting over another. Some favor lighter castings while others favor heavier parts because it depends on how the overhead is distributed," said Bremer.
Using basic programming skills and his familiarity with the database, Bremer spent 4 days developing cost rates and 30 hr modifying and adapting his out-of-date database into a modern costing and quotation system. Every year since the initial development of his system, Bremer spends 2 days developing cost rates and 5 hr upgrading and updating the system's variables "to truly reflect the changing costs of each individual department."
"Previously our overhead ratio was distributed across the board," said Bremer. "But now we allocate it to fixed and variable costs, as well as by coremaking, molding, melting and every other department. We end up with the true cost for each casting."
Due to this true cost, Bremer Manufacturing has had to re-price several of its jobs and find new sources for some customers. The foundry determined the castings being produced for these customers weren't profitable. According to Bremer, these are customers it could afford to lose.
"You can take most any costing software program and modify it for your operation," he said. "However, the key is to structure costs across the plant and watch that each cost is allocated properly. This is the difference between profitable and unprofitable castings."
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|Title Annotation:||Computers in the Foundry; includes related articles on costing software options and Bremer Manufacturing Co.|
|Author:||Brockschlager, John F.|
|Date:||Aug 1, 1998|
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