TVP – Metric 16 Comparative Manufacturing Cost
- Resource Type
- Tool
- Authors
- Alan Fusfeld, Innovation Research Interchange
- Topics
- Innovation Metrics, Stage-Gate, Tools and Techniques
- Associated Event
- Publication
Background | User Guide | Program Contents | Stakeholders | List of Metrics
1. Metric Definition
Benchmarked manufacturing cost data vs. competition for same type of unit cost.
2. Advantages and Limitations
It is extremely useful and in some companies paramount to know how R&D is helping to provide an advantaged cost position to the operations. This metric reflects the quantification of that goal. Unfortunately, cost accounting and even further comparative cost accounting can be extremely difficult.
3. How to Use the Metric
While most firms have very accurate manufacturing cost data for themselves, the generation of accurate manufacturing cost data for competition is considerably more difficult. Therefore, when using this measurement, there should be an estimate made of the variance of the competitive estimates. One way to deal with this difficulty is to model the competitor’s operations using the firm’s internal cost models, then make and consistently track adjustments. For instance, one adjustment might be for purchasing power parity if the firm’s operations are in, say, China and the competitor’s operations are in, say, Singapore, Vietnam, or Ireland. This generally works for R&D organizations because so much of their factor inputs are direct labor as measured by compensation paid to scientists, technicians and engineers – and purchasing power parity is calculated by comparisons of publicly available data reflecting the wages earned and costs that those employees face in their respective economies. .
4. Options and Variations
This metric is intended to be based on unit process comparisons. There can be many options created that are aggregates of production processes, but these simplifications can be misleading. Therefore it is important not only to be consistent but also to model the comparisons in ways that most directly represent the underlying activities.