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More mundane matters

13th Aug 2009
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After yesterday's excitements (which I note have kept some as amused on this site as many here have found the preceding) it's back to more mundane matters.

Like R & D.

I never know what Newc is up to, how much he really tells me and how much is up his sleeve. It must be a bit like working with Peter Mandelson, except he has a lot more charm.

Anyway, first he sells me an idea, then he tells me we have a man in house who claims he can build stuff for us, a regular boffin in North's team who has been chomping at the bit to use his amateur inventor skills to assist us if only we'd be willing to read him for product used.

Did Newc know this weeks ago? I don't know.

Anyway we got him in today. He doesn't want to change his day job. He likes it. He just wants to sell us ideas at a royalty rate if we can use design ideas he has.

Without knowing what the designs are I have no idea if we will: Newc says I should trust him, he's good Newc says, which certainly implies he knows more than he's letting on. So a Memorandum of Undertsanding was agreed today: we'll pay at least 5% of the difference between bought in cost of any product we replace and the materials cost of its replacement. I don't think I can lose on that.

I'm promised a first prototype next week.

And Newc has also questioned why we need extra premises: he thinks we could do a twilight shift in our refurbishment area.

I'm keeping an open mind on that one.

But I also have a strong feeling I'm not running this particular line of development.

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By Martin Tingle
13th Aug 2009 15:53

Oh do be careful....
The royalty is based on material savings and this reminds me of several bad Purchasing decisions based on pure material saving (driven by bonusses based on that)....Here are some examples of where it can go wrong...
Base bought-in cost includes transport, is available almost on-demand although you pay a premium for the service.
New material costs exclude exchange risk, freight and import duty.
New material takes huge amount of labour and overhead to use as its sub-standard but shipping time is so long you can't afford to wait for a good replacement batch.
Shipping time is so long you have to hold several months stock just in case the next batch is delayed, faulty or pirated on the high seas.
New product is ok initially but fails more often so your warranty/replacement costs are higher.

Overall, comparing like-for-like total cost, the new product costs you more than the original AND you are also paying 5% of the "saving" because the material element of the new product is smaller than the bought-in price.

My experience on similar lines was big bonuses paid to Purchasing because "savings" were massive at the same time our total costs associated rose dramatically. The bonus scheme was designed by group HR and completely out of my control by the way and yes I did point out some of its potential flaws when it was set-up.

I hope you do better!

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By alistair_king
14th Aug 2009 06:33

Cost of production
To be sure, you need to make sure this is calculated on Total Cost of Production; not materials.
Materials (landed cost) + Labour at a minimum. Overheads too if they change to encompass this.
Will there be any process waste? What levels of defect scrap do you expect during production?

When will you assess all this? At the start when you are still getting the bugs ironed out of the production line? Or once production is up and running and stabilized?

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