How To Calculate Real Time Cost Per Unit
How would one minute of downtime effect your profits? Could you calculate the value of one minute of downtime if necessary? In this post, we’ll show how we can incorporate all of the costs associated with producing products into an overall cost-per-unit. You can also calculate this value in real-time, which can provide a concrete demonstration of how day-to-day actions directly affect your bottom line.
Energy Usage
All manufacturing processes require energy, typically electricity and gas. Depending on your business model, energy usage may also include the cost of heating/cooling the plant, lighting, refrigeration and other requirements that many people may overlook. For example, IKEA saved on the energy needed for lighting by having robots do much of the work in a warehouse. Alternately, an investment in motion controlled sensors for lighting can produce significant savings.
Power Meters
You may want to install power meters to track the overall energy use at your plant. There’s also the option of installing energy monitoring at the equipment level. Either option—or a combination of both approaches will give you better information for your energy cost-per-unit. You can also get the data from these meters directly into your process historian.
If your plant is located in an area without extreme temperature fluctuations, then climate control costs might be reasonably constant. If this is the case, this along with other fixed costs, you have the option of building these directly into your calculation of cost-per-unit. For facilities with significant temperature fluctuations throughout the year, you will likely find as it gets warmer or cooler your cost-per-unit increases due to additional climate control requirements. Some manufacturers use an average cost, some prefer to be more precise. Some of our customers have power purchasing agreements directly with utilities or through an energy aggregator. Depending on your agreement, you might be charged more for peak usage, which adds further cost variability. There are some really interesting ways that we can help save on your energy costs. Monitoring your system and making a few simple changes have produced major cost savings for some customers.
Labor Costs
Another major contribution to cost-per-unit is labor. On a basic level, this can simply be the sum of the total cost of each operator on the line per hour * the number of hours per shift. Depending on the makeup of your production crews, this cost can vary. In an ideal world, you could reduce variability by structuring crews with identical skills. Some manufacturers will average those costs if they have multiple crews. Others facilities calculate it based on actual cost. The interesting part is to see if a specific shift does better and then find the differences.
Maintenance Downtime: Planned and Unplanned
Another possible labor cost is maintenance. Depending on your budget, this may or may not be in the same bucket as operations. Either way, maintenance is included in cost-per-unit, even if indirectly. If maintenance workers are required to resolve a downtime issue, the cost-per-unit will fluctuate based on the amount of lost production. If you're shutting down machines for preventative maintenance, it will also factor into the calculations. Regardless of how you decide to calculate the labor component of cost-per-unit, this data is likely available in an ERP system. It may also be available in a database accessible to your enterprise intelligence system which can calculate downtime and OEE via your MES.
Shipping, Inventory, Miscellaneous Costs
Other costs to include are shipping, inventory, and any other miscellaneous costs incurred in getting raw materials to the plant, processed, and shipped to the customer as your product. Depending on your organization, this information may be available in an ERP system or may need to be entered manually. Either way, it’s helpful to include these costs (especially if they are variable), for a complete picture of your cost-per-unit.
Running The Numbers
Once you've identified the components to calculate the cost-per-unit, you still need a way to calculate the value. Luckily you can use data from your ERP system, process historian, and MES. Then run a query in a database for the result. From there, you can send this value over to management dashboard for tracking costs. You can also add it to reports for the finance department for a greater understanding of your pricing and how different SKUs are performing based on their costs. You’ll also learn about areas of savings opportunities. You can even send the number to your control room and display on HMIs around the facility so the operators know where they stand at any given time. Need help running your numbers? Contact us!
The Value of Knowing Cost-Per-Unit
Cost-per-unit incorporates a lot of data, but it’s extremely valuable information. Your staff, energy consumption, and many other costs factor into it. By using your cost-per-unit value, you can easily see the impact of downtime on profitability, which shifts are more profitable, and what times of year are most profitable. From there, you can optimize any number of processes to maximize your profitability by reducing your cost-per-unit. Please note that important part of calculating cost-per-unit is consistency! Calculate it the same way to learn if you're performing better or worse. Keep reading: Control and Automation for Facilities.
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