Implement a Lean Cost Control Process in a Repetitive Manufacturing Environment to Improve System Performance

  • by Sanjay Wagh, Vice President, Elephanta Technology, Inc.
  • February 22, 2011
Learn how to set up cost control in a repetitive manufacturing environment. The process of repetitive manufacturing differs substantially from the other types of manufacturing and therefore needs a different method of cost control. By using this alternative method — product cost by period — you can simplify your cost control process.
Key Concept
In repetitive manufacturing, it is difficult to establish physical boundaries to define a cost object. The production process is continuous and not divided by a production lot quantity or the sales order quantity. Therefore, to achieve a cost control in repetitive manufacturing, time is used as a boundary and a time period is used as a cost object. Benchmark costs and actual costs for manufacturing a product are compared for a given time period. Use of a time period as a cost object differentiates the process of cost control in repetitive manufacturing from other types of manufacturing.

Repetitive manufacturing — the act of producing the same or similar products without reference to an individually defined lot — uses the process of product cost by period as a cost control method. You can set it up using the functionalities provided in the product costing, materials management, and production planning modules in your SAP system. Before discussing the specifics of this cost control method, it is important that you have a good understanding of the functionality offered by these modules. In addition, business knowledge of the manufacturing process helps you set up an optimal cost control system specific to your environment.

In the SAP ERP system, many concepts and terms used in product cost by period are the same as the ones that are used in production order- or sales order-type manufacturing. Also, screens of many process steps (transactions) are similar and so are many reports. Because of this beneficial design, you can reuse the knowledge gained by use of other cost control methods.

A major benefit of using product cost by period is that shop floor order maintenance is greatly simplified because costs are not managed using production or process orders. This also results in reduced cost data with improved performance for the process of work in process (WIP) and variance calculations.

Sanjay Wagh

Sanjay Wagh has 28 years of professional experience in manufacturing, banking, and consulting in global companies. Sanjay started as a product engineer and corporate finance specialist and seamlessly transitioned to a consultant, assisting other companies in implementing software systems. Sanjay combines his experience in manufacturing and finance with consulting experience to help clients design and implement business processes using best practices in a cost-efficient, risk-free manner with a long-term perspective. Sanjay has 16 years of SAP software implementation experience in the areas of FI and CO along with several end-to-end SAP project life cycles. He has participated in conducting requirements gathering and business blueprinting workshops, realization, testing, end-user training preparation and delivery, and post-implementation support. He is a certified SAP solution consultant.

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