Customer driven manufacturing industries often increase their product variety to raise sales. An unwanted effect however is the resulting increase of the costs of complexity within the organisation and the supply chain, and in the end profitability suffers. A method to take into account these hidden costs of complexity is presented, giving the opportunity to improve the productportfolio

1. Customers love companies hate product variety … complexity … But..

2. Your productportfolio grows … More products… More parts… But... Not more profits!? Even more sales …

3. How come? The typical cost breakdown For manufactured products Looks like this… Note:purchased items ≠ material! Purchased items Labor Overhead

4. But according to lean principles only a small part of these costs represent Not only for labor… added value Value added Non-Value added

5. But also for (the cost of) overhead … Value added Non-Value added Purchased items Labor Overhead

6. the non added value within the overhead increases when the complexity … of the production system grows Purchased items Labor Overhead Value added Non-Value added

7. And an indicator the number of articles necessary to manufacture your portfolio for this compexity is …

8. So instead of allocating Like peanut butter … to your products overhead costs

9. You better take into account the This will make the ‘manufacturing cost price’… ” uniqueness” of the articles used

10. Show larger –and more realistic - differences than in the conventional system Enabling you to make decisions… to improve your product portfolio €

11. So you do not want to use only an elaborate Activity Based Costing system… But you also do not want … the conventional costing system… How should you do it ?

12. Analyze your Profit&Loss account Define to what extent the metric is a cost driver for each cost pool … and use this to establish ‘ article number’ the (overhead) cost of an article

13. This parameter can be used to give a more realistic overhead allocation for products featuring more ‘uniqueness’ € €

14. then remember: If you don’t feel the pain , Don’t want to change? So… there won’t be any gain

15. Why not try to apply it … And raise your in your own specific situation … long term profitability ?

16. If you need some more support … please contact: Verbeek Business & Innovation www.verbeekbi.nl [email_address]