Page 55 - 04. Subyek Engineering Materials - Manufacturing, Engineering and Technology SI 6th Edition - Serope Kalpakjian, Stephen Schmid (2009)

Section 1.10 Manufacturing Costs and Global Competition

TABLE L6
Typical Cost Breakdown in Manufacturing

Design 5%
Materials 50%
Manufacturing
Direct labor 15%
Indirect labor 30%

particular material is higher than that for a more expensive material. For ex-
ample, a low-cost piece of material may require more time to machine or form
than one of higher cost, thus increasing production costs.
2. Tooling. Tooling costs include those for cutting tools, dies, molds, work-
holding devices, and fixtures. Some cutting tools cost as little as $2 and as
much as about $100 for materials such as cubic boron nitride and diamond.
Depending on their size and the materials involved in making them, molds and
dies can cost from only a few hundred dollars to over $2 million for a set of
dies for stamping sheet metal to make automobile fenders.
3. Fixed. Fixed costs include costs for energy, rent for facilities, insurance, and
real-estate taxes.
4. Capital. Production machinery, equipment, buildings, and land are typical
capital costs. Machinery costs can range from a few thousand to over a million
dollars. Although the cost of computer-controlled machinery can be very high,
such an expenditure may well be warranted in view of its long-range benefit of
reducing labor costs.
5. Labor. Labor costs consist of direct and indirect costs. Direct labor, also called
productive labor, concerns the labor that is directly involved in manufacturing
products. Indirect labor pertains to servicing of the total manufacturing oper-
ation; it is also called nonproductiz/e labor or oz/erbeacl. Direct-labor costs may
be only 10 to 15% of the total cost (Table I.6), but it can be as much as 60%
for labor-intensive products. Reductions in the direct-labor share of manufac-
turing costs can be achieved by such means as extensive automation, computer
control of all aspects of manufacturing, the implementation of modern tech-
nologies, and increased efficiency of operations.
As shown in Table 1.7, there is a worldwide disparity in labor costs, by an
order of magnitude. It is not surprising that today numerous consumer products are
manufactured mostly in Pacific Rim countries, especially China, or they are assem-
bled in Mexico. Likewise, software and information technologies are often much less
costly to develop in countries such as India and China than in the United States or
Europe. As living standards continue to rise, however, labor costs, too, are beginning
to rise significantly in such countries.

Outsourcing. A more recent trend has been outsourcing, defined as the pur-
chase by a company of parts or labor from an outside source, from either another
company or another country, in order to reduce design and manufacturing costs.
There is increasing evidence, however, that, depending on the type of product,
manufacturing abroad can have significant challenges, including the rising cost of
shipping. Another problem is the social impact and political implications of any
ensuing lowered employment, especially in the European Union countries and the
United States.