UNDERSTANDING THE IMPORTANCE OF CORRECT HOURLY RATES
Majority of job-shops understand the importance of having correctly calculated hourly rates for their individual manufacturing operations. Surprisingly, large percentage of shops don’t calculate hourly rates periodically or at all. The reasons are that they either
- have no tools to do it
- believe it is more important to match prices of their competitors
- use inherited prices they don’t want to change
- are profitable, so they will rather not touch anything
- are just too busy, will do it later…
Without considering the correct hourly rate, it is impossible to setup and monitor productivity and profitability of individual work centers. And without the benchmark it is also impossible to identify which work centers are profitable and which run at loss.
Unfortunately, this gets even more complicated because the workload, machine utilization and productivity are constantly changing. When changes are big enough, company runs out of reserves and starts losing money on some work centers without even knowing.
Analyzing monthly accounts will not identify the problem. Nor will the job cost analysis, which is the most popular form of trying to find out where company makes and loses money. Job costing is good to verify your quotes, but not your productivity or performance!
Once budgeted and actual hourly rates are accurately identified, it is easy to calculate work centre profitability or loss.
ZOOMFAB provides the necessary tools. It also provides “What if?” modeling and simulating solution, which helps user to bring work centers running at loss under control.