Manufacturing businesses and controlling
Theory and practice
Let’s get to the heart of the more technical side of controlling: that of mechanical engineering companies. Here, understanding what it really costs to produce is the difference between a sustainable offer and a race to the bottom that erodes margins.
Many SMEs tell us: “The customer is asking me for a lower price because the competitor is cheaper.” But a lower price is not always a sign of efficiency: often it is a signal that someone has underestimated costs or quality.
Showing how product costs are calculated is a competitive advantage, because it builds credibility, justifies the price asked and brings to light any internal weaknesses in the production process.
The crux of the matter: product cost. In engineering companies, controlling revolves around two components:
- material cost;
- processing cost.
Materials are the “easy” part: the data are traceable, provided you also take into account offcuts, scrap, handling, warehousing and financial costs. The complexity arises in processing, where other factors also come in: machines and equipment used; production staff; indirect costs (machine downtime, maintenance, supervision, internal logistics).
Set-up and processing times: the hidden variable. Every production cycle has two phases:
- set-up (preparing the machine);
- the actual processing.
Set-up weighs more heavily on small batches and much less on large production runs. That is why knowing the duration of each phase is vital for assessing whether a job order is worthwhile.
Some processes, such as heat or surface treatments, on the other hand occupy the plant for a pre-set time, regardless of the specific production order. Those who can manage these variables reduce unit costs and improve the overall margin, and are also able to build quotations that are more reliable, sustainable and consistent with the company's real production capacity.
Optimising material: the cost you don't see. In cutting operations, for example, optimising the sheet metal layout may seem a technical detail but it has a direct impact on production costs. Every percentage point of scrap recovered is net margin gained.
And let us not forget the sampling phase (PPAP in the automotive sector) and the production of specific tooling: moulds, templates, jigs, dedicated instruments. These costs too must be allocated correctly if we want to know the true cost of the product.
In short: i n mechanical manufacturing, controlling is not just for “knowing how much is being spent” but for deciding how to produce, what to sell and at what price. Only then do quotations become strategic weapons, not mere spreadsheets.