Calculation of standard cost
The standard cost for products that are produced within a production flow is calculated with the cost calculation based on the BOM and either the production flow and kanban rules or the route. Additionally, the standard cost calculation can be run for a single item or for a group of items.
The different settings that are available for cost calculation are shown in the following table:
| BOM calculation for single or a range of items | Cost calculation source | Coverage settings |
|---|---|---|
| Run for a single item | Planned cost for the product is computed according to the selected route structure. | Not applicable |
| Run for a single item | Planned cost for the product is computed according to the selected production flow for the chosen calculation date. | Not applicable |
| BOM calculation is run on a range of items | Planned cost for the product is computed according to the default production flow for the site and product, treating composed components that are produced in the production flow as phantoms when those components are not maintained with on-hand inventory in the production flow. | Item coverage or default order settings for the site are set with the planned order type of Kanban. |
| BOM calculation is run on a range of items | Planned cost for the product is computed according to the active route and BOM. | Item coverage or default order settings for the site are set with the planned order type of Production. |
| BOM calculation is run on a range of items | Planned cost for the product is computed according to the route if a valid one can be found. If a valid route cannot be found and a default production flow has been defined for the site and product, the production flow will be used to calculate the cost. | No item coverage and no default order settings are defined. |
Calculation based on the production flow
Lean manufacturing lets you substitute production order routes with the production flow definition, to calculate costs of products that have been manufactured using production flows.
The cost calculation for products that are manufactured through a production flow can be done based on the production flow. To perform the cost calculation, you must create a kanban rule that defines how the product is supplied out of the production flow and what activities should be used to calculate the conversion cost.
If a product can be supplied out of multiple production flows at the same site on the calculation date, the default production flow can be selected for the BOM calculation. The default production flow can be configured for each item on the Default production flow page.
If multiple kanban rules exist for the same product in the same production flow, and they are active on the calculation date, the calculation picks the first kanban rule that is active for the calculation.
If products can be produced in many different flows and activity variants, it might be useful to create a specific production flow for costing that only includes the activities and kanban rules that are needed for costing. This method also allows different throughput ratios to be set for the calculation than what are applied in the actual production.
The default production flow can be named for each site on the Default production flow page.
The cost calculation will use the default production flow to determine the cost when the cost calculation is run for a range of products and the item coverage setting is set to a Planned order type of kanban or when a route is not defined for the item.
Calculation based on the route
A calculation that is based on a route is equally as valid as a calculation that is based on a production flow. The route should use resource requirements for resource groups and use the same work cells, or at least the same cost categories, to avoid systematic variances. Again, cost categories for setup and quantity should be avoided. Calculating the cost in a more granular breakdown than can be provided by lean manufacturing cost backflushing adds no value.
Selecting the calculation method
To determine the better option to calculate the cost of production flow or route, consider the results of the cost breakdown. The version that comes closer to reality, and at the end of the day results in fewer variances, is the better option.
In a lean manufacturing environment where a product is supplied by a single production flow and a single kanban rule, the calculation is probably more accurate based on the production flow. A product that can be supplied by lean manufacturing and production orders on the same site or can have multiple production flows or multiple kanban rules in the same flow might be more accurate to calculate on a route version that is built for the cost calculation, not the production as such.
To calculate products with subcontracting, you must use the production flow calculation. In Supply Chain Management, the cost models for subcontracting with production orders and subcontracting in lean manufacturing are not compatible. Production orders calculate subcontracted services as materials. Lean manufacturing introduces a new Cost group type of direct outsourcing for subcontracted services.