OUTLINE Questions? Take roll Quiz example Tools Needed for this class: Excel VBA Useful functions Lookup, random, function information, special copies Selector Example Solver Add ins, Data Analysis Costs

Example of a quiz 1.    So far we have covered two drivers of supply chain performance – what are they? 2.    Select one of these and discuss how it contributes or detracts from the success of a supply chain. Limit yourself to this page and 15 minutes. (Write as legibly as you can)

How do we determine the cost of an item or service?

Adding up the costs (example) A plant generates 270,000 earned hours (established by standards for each of the products produced). 85% efficiency is assumed. The cost of an hour of labor, including benefits, is $30 Indirect labor totals $25M Materials cost $100M Material overhead costs are $2.5M What is the cost of a product containing 0.8 hours of standard labor and $20 of material? We first calculate the total labor rate as (25,000,000+270,000*30/0.85)/270,000=$127.89/hour

Adding up the costs (example continued) Material overhead = $2.5M/$100M= 2.5% Direct and indirect labor =0.8* $127.89=$102.31 Material =$20.00 Material Overhead= 0.025*20 =$0.05 Total Cost =$122.81 We can separate the direct and indirect labor into: Direct labor = 0.8*30 =$24 Indirect =$78.31 And you can see why everyone attacks overhead If you are independent company, the profit would add another 10% or so. It is very dependent on the industry and level of investment

Cost Distribution