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Cost Savings

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  • #46822

    Ron
    Member

    Would appreciate some help on an issue. I am doing a cost savings but can’t figure out where, if any, actual savings will occur. Or even how to calculate. A little background. We have operators assembling a product. Currently if they receive a bad part they have to wait to receive a new part. The project will reduce and or eliminate this wait time. First problem is that it doesn’t save anything as far as the opeator is concerned as we would just give the operator a new part to work on in the meantime. If anything it’s just cost avoidance? I was thinking of something along the lines of inventory. Does it make sense that the part, due to the new project initiative, would get to inventory quicker in turn reaching the customer quicker? Or reducing inventory?  I need to get a savings in terms of $$$ Help!

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    #155294

    LB
    Participant

    First, you mentioned “bad part” at assembly.  If the part that was bad was manufactured in-house the direct labor hours expended on the part and at some point during assembly (when the part was found defective) is a productivity loss which equates to $$ loss.   If it is a purchased part, there would be an inventory cost increase as a result of additional material needed to fill an order—this is a $$ loss.  In addition, there may be costs (in-house administration) associated with processing, shipping etc. back to the supplier for consideration or replacement of the bad part.  This is still a $$ loss, again as far as productivity, throughput yield etc. The time spent on defects, repairs, scrap definitely has an impact on the bottom line.  The actual throughput yield would be lower which can impact customer delivery schedules which would in turn generate overtime requirements resulting in increased labor hours or $$ losses. You mention cost avoidance,  cost avoidance to me is a very real savings.  If your project can prevent your company from losing money it is a savings.  It is like taking preventative measures to save on your home energy bills or buying a car with better gas mileage—your not going to spend as much (next month or next year) therefore your saving.  I would apply a $$ rate to the total time, and material wasted on the bad part(s) using some qty. over time regardless if the person is given something else to do because what needed to be done wasn’t—that is a loss of throughput.  

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    #155305

    Ron
    Member

    Thanks for the reply. Being able to use cost avoidance would be a real time saver. It’s just that there are a couple of differing opinions on this. I will definitely take all the things you mentioned into consideration.

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    #155306

    Ron
    Member

    Thanks for the reply. Being able to use cost avoidance would be a real time saver. It’s just that there are a couple of differing opinions on this. I will definitely take all the things you mentioned into consideration.

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    #155307

    LB
    Participant

    We also have different opinions on “Cost Avaidance here” however looking at it from a budgeting point of view, as everything is in the Fed. government, if we can reduce our projected operating expense for the up coming fiscal year then we have a cost avoidance.  The only difference , in the gov. anyway, is that real savings is based current funds on-hand and cost avoidance is savings on a projected budget requirement given status quo.  I think you need to change the ways some others perceive what savings are.  Cost avoidances lead to lower overhead costs.  It

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    #155308

    LB
    Participant

    We also have different opinions on “Cost Avaidance here” however looking at it from a budgeting point of view, as everything is in the Fed. government, if we can reduce our projected operating expense for the up coming fiscal year then we have a cost avoidance.  The only difference , in the gov. anyway, is that real savings is based current funds on-hand and cost avoidance is savings on a projected budget requirement given status quo.  I think you need to change the ways some others perceive what savings are.  Cost avoidances lead to lower overhead costs.  It me

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