ERP Software Helps You Manage Overhead Costs
A major part of manufacturing costs are overhead costs. Broadly defined, overhead costs are costs related to manufacturing which do not add intrinsic value to the product. Some processes are value added and some are not. Some examples using production of balls are used as follows;
Taking raw rubber and manufacturing a ball is value added. Adding a team logo to the ball is value added. Packing the ball in an attractive display box is value added. Packing a dozen balls in a shipping crate is not value added. Inspecting the balls for flaws does not add value. Counting production at the end of a shift does not add value and adds overhead. In the office, printing, signing, and faxing a purchase order is non-value added. Holding a meeting to figure out a production schedule is non-value added. Anything that does not contribute to the manufacture of a product from one material state to another (Raw to WIP or WIP to Finished Goods) is non-value added. Rework, while it may save costs of making the item again from scratch is non-value added. Excess inventory, while not normally considered overhead may incur carrying costs, which are non-value added and therefore overhead. (The accountants my take issue on this one)
Now that we are through that long-winded explanation, how can ERP or Enterprise Resource Planning software reduce or eliminate overhead? The answer should be obvious; by eliminating or reducing the small mundane and expensive tasks that do not add value. (more…)