Quality Decision Making In Manufacturing

Apr 11, 2016

While typically thought of as being analytical, I can prove to be spontaneous is given situations. At times, I have made significant decisions on a moment’s notice. For example, several years ago needed to retitle my car, which meant refinancing my loan. I determined the value of my car was equal to my loan balance. Thus, I considered trading in my car for a new one. In only a few hours, I purchased a new car. For some people, such quick decision making can be scary while others find it exhilarating. Regardless of your personality, having the ability to make swift decisions is critical to operating any business.

You may be presented with an opportunity to quote on a particular project and have a very short turnaround time. If such scenario were to occur, do you have the necessary information to make quality decisions in a short period of time? What about your resources, are they accurate? Do you know how much it will cost you to produce the product in question? Do you know how much it would cost to buy such product?

A good cost system will provide accurate data regarding the cost of producing a product. One of the most important decisions related to determining the production of a product is that of make versus buy. Can you extrapolate the necessary data from your current system to determine what it would look like to make or buy the product? All too often, these types of forward-thinking scenarios are not considered and therefore cost systems are not set up to consider such data.

In a make vs. buy scenario, one would consider it to be straightforward to determine what it costs to buy, meaning whatever an outside manufacturer would charge then that is what it cost to buy. Unfortunately, that is only part of the equation. There is overhead in a factory which must be recovered. If you stop making a certain product, you may no longer be fully recovering your overhead. You may also reduce costs if you stop producing a product but others will remain regardless as to if you produce anything at all.

A well-built cost system will segregate this information so you can easily extrapolate what is necessary to make an accurate determination. If you are currently looking to revise your system or create a new one, now is the best time to make sure it is structured in a way which best guides you in these type of decisions. If you are at this stage, then at the very least you must do your best to perform such an analysis.

Categories: Cost Accounting