Product Cost Management – Routes, Shipping Carriers and Supplier Selection

October 29, 2020

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Product cost management includes much more than just estimating the cycle and setup times for manufactured parts. Estimating beyond the part cost into the product cost includes the calculation of ever-changing material costs, overhead costs, shipping, supplier selection, and much more. When it comes to the packaging of a part, groups of parts, or an assembled product — the cost of the part can sometimes skyrocket because of ordinary oversights — through shipping and transportation. Product costing software

Parts may become distorted or warped during shipment.

Something I find fascinating about what affects product costs is in the area of shipping and transportation — all starting with packaging.
In a recent conversation, with one of our heavy equipment customers, a senior manager from cost management shared with me some of the problems they have encountered during this process. One in particular is where parts change their shape, become distorted or get warped during shipment and because of this likely possibility they need to account for these situations and be more selective in the suppliers they choose. On-going supplier review and selection affects the overall cost value of the part which ultimately affects the final product cost.

Knowing the actual manufacturing cost, the shipping routes, and issues that can occur help formulate the final cost of the part. Minimizing some of these costs requires extensive disclosure by management. This includes finding and selecting the right supplier, shipping carrier and route for the parts to be transported, all the while, helping to ensure the parts reach their next destination – safely. Estimating these unanticipated costs isn’t easy and when time is pressing its easy for somethings to be overlooked.

For example, sometimes manufactured parts are incorrectly strapped to the shipping truck or to the shipping container — either too tightly or even too loosely. It is challenging for shippers to correctly package and bind down parts onto shipping truck decks or to shipping containers. This challenge occurs from having different weights and tolerances contained within the part and knowing how to pack and tie them down. Unfortunately, if done incorrectly, this may result in the part warping during shipment — making the part no longer usable in its current delivered state.

Depending on the condition of the part any or all of the following may be required – all which increase the product cost:

Excess time spent trying to bind the part precisely to avoid warping.
Additional packing/shipping crates and components to hold the part.
Additional stops during shipment to identify if the part is safe or needs re-strapping.
Costs associate with attempts to unwrap and reshape the part at its destination.
Excessive costs resulting from discarding components and having them remade.

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