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Strategic development of the company BlueJay Manufacturing is based on the analysis of financial aspects of outsourcing materials and detail formation of the basic models to be used for the estimating cost of ownership. It is necessary to underline the fact that every competitive industry functions in accordance with the rules of supply and demand balancing; the company’s business success is dependant on its ability to keep the costs of the manufacturing competitive for the purpose of satisfying the demand and maintaining the leadership position on the market.
BlueJay Manufacturing is to stick to total cost of ownership models development in order to support the decision based on in-house manufacturing and outsourcing materials financial aspects. (Blanchard, 2004)The analysis is to begin with the development of appropriate comprehensive cost models supporting the requirements of decision makers. The models development is to be concentrated on the following issues to be followed:
- Examination of all areas for the manufacturing improvement;
- Evaluation of slow productivity and reasons for disability of meeting the deadline;
- The analysis of economics of disposing or upgrading the existing in-house manufacturing opposing to replacement.
COO models are concentrated to be based on the combination of life-cycle cost and determination of annual operating costs. The basic algorithm for the assessment of costs is to be presented as the following:
CW = (CF + CV + CY)/(TPT * Y * U), here the components are the following:
- CF – fixed costs
- CW – per wafer;
- TPT – throughput;
- U – utilization;
- Y – composite yield
- CY – yield loss costs
- CV – variable costs (Laudon, 2007).
The key cost elements are considered to be based on the evaluation of risk, disposal, and productivity. The outlining of the principle models elements gives an opportunity to analyze three basic cost division models to be taken into account as the background for strategic management development:
- Operating. The assessment of operating costs is concentrated on the investigation of all manufacturing processes and evaluation of operating the progress and benefits. It is necessary to underline the idea that this model is built of the tooling, maintenance, consumable items and all operating processes. (Blanchard, 2004)
- Labor. The costs being associated with labor are considered to be assessed through the analysis of the time spent for in-house manufacturing including the handling of raw materials, remnants, finished parts and attending the process of production. To use this model, it is important to be aware of operator’s hourly cost, the time required for manufacturing units, taking into account the percentage of time spent for additional labor processes.
- Depreciation. These costs are associated with the purchase of the necessary materials and equipment for the manufacturing; it is necessary to underline the fact that this can be loan payment, a monthly lease or the initially established price. The assessment is to cover the costs on estimated value of the used equipment at the payment schedule end. The depreciation costs are considered to be fixed, allowing identifying the progress or regress of in-house manufacturing process. (Jones, 2006)
The COO model is built on the benefits for the company’s management; the estimation of cost-of-ownership highlights the details to be overlooked in the business running. The suppliers and manufacturers will work in accordance with the results of objective analysis of decisions evaluation. (Jones, 2006) It should be noted that the model is to improve the manufacturing process through the effective evaluation of possible risks and assessment of the necessary costs to be spent for meeting the requirements of the market and balancing supply and demand. (Laudon, 2007)
The grouping of COO input is to be organized as the following: equipment costs; process scarp yield; downtime; annual operating costs and completed wafer value. The basic aim of the COO models development is directed to addressing the manufacturing and economic performance on the basis of specific semiconductor process. Careful consideration of the costs assessment on the basis of developed models will stimulate the resolution of financial instability and regulate the supply and demand balance of the in-house manufacturing within BlueJay Manufacturing. (Laudon, 2007)
References
Blanchard, B. (2004). Logistics engineering and management. Pearson Prentice Hall.
Jones, J. (2006). Supportability engineering handbook: implementation, measurement, and management. McGraw-Hill Professional.
Jones, J. (2006). Integrated logistics support handbook. McGraw-Hill Professional.
Laudon. (2007). Management Information Systems. Pearson Education.
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