Early Equipment Management – Launching Costs

The effect of the major losses during a start up

Launching Costs = Category “A” + Category “B”

Launching Costs: Operating Losses-Category “A”

Components of Category “A”:

• Costs per shift
  • Depreciation cost per shift;
  • Labor cost per shift;
  • Utility cost per shift;
  • Maintenance cost per shift.

Calculation of  Category “A” Losses

• Cs=Costs per shift
• Pr=Cases produced
• Pl=Cases planned
• Sh=Number of shifts in production

Launching Costs: Production Losses-Category “B”

Production Quantity Losses:

• PQL=Production Quality Losses
• Cs=Cases Supplied
• Pr=Cases Produced
• Pl=Cases Planned

PQL=(Cs-Pr)Cost per unit

Yield%=Pr/Pl

Production Losses Example

Production Losses

Production Loss Quantity

Quantity Loss=(Cases Supplied/Cases Produced) X Cost Per Unit

100 oz. Cases Produced  185824

100 oz. COB’s Supplied  196833

Yield                                   94.41%

Total Production Quantity Losses        $24,404.03

Quality Losses

• Warehousing Costs includes cost of storage and handling charges while awaiting hold determination.
• Repack Costs include scrapping costs per case and pallet handling charges.
• Packing Material Losses include cost of packing material and cost of disposal.
• Formulation Losses include cost of raw materials and cost of disposal.
• If product is sold to a off quality customer, the cost under normal cost is a loss

Quality Cost Example

Repack Costs

Reason  POC     No Code  Leakers

# of cases  1771     1511                   756

#of pallets  #of Cases/50  $35.42       $30.22  $15.12

Warehousing  $1.25/pallet/14days  $88.55       $75.55   $37.80

Repack Costs  $2.70/case  $4,781.70    $4,079.70   $2,041.20

Pallet Handling  $3.75/pallet  $132.83       $113.33   $56.70

Packing Mat’l Losses$2.23/Case(AVG)  $3,949.33    $3,369.53   $1,685.88  

$8,987.83    $7,668.33   $3,836.70

Changeover Losses

Changeover losses occur when there is a size change or a product change.

$COTL=Changeover Time Loss

COTL= Time to complete changeover-Time expected

(If COT<0 do not continue

(If COT>0 then

$COTL=(COTL)(Operating Costs per hour)

$COPL=Changeover Production Loss

COP%=Cases Produced/Cases Planned

(If COP%<=1 for one hour do not continue)

(If COP%> 1then

$COPL=(#of hours of COP% <1)(1-COP%))(Operating Cost per hour)

$COL=$COTL + $COPL

Changeover Loss Example

A change over takes 5 1/2 hours. It is planned for 4 hours. When the line starts up, it is expected to run 1000 cases per hour.  It runs 400 the first hour and 800 the second hour and 1000 the third hour. What are the Changeover losses?

$COTL=(COT)(Operating Costs per hour)

$COTL= (5.5-4)($162/hr)=$243

$COPL=(#of hours of COP% <1)(1-COP%))(Operating Cost per hour)

$COPL=2(1-(1200/2000)($162)=$129

$COL=$COTL + $COPL=$369

Customer Service Losses

If there is a loss of business due to missed shipment, this cost is a customer service loss. If the product is sold at a cost less than is customary, the difference between customary and cost recovered is a loss.