Manufacturers can predict financial outcomes by breaking down production costs into their true business drivers rather than relying on fixed estimates
According to Aaron Berg, VP of River Logic Strategy, the Digital Planning Twin, specifically within River Logic's system, is distinguished by its meticulous cost modeling approach. In crafting a comprehensive plan for production volume, a key concern is predicting the resultant financial outcomes.
In crafting a comprehensive plan for production volume, a key concern is predicting the resultant financial outcomes.
This necessitates a detailed breakdown of costs into their essential drivers within the business structure. Rather than providing a fixed cost, this approach involves specifying raw materials, considering procurement options, and accounting for various cost implications tied to different vendors.
Additionally, it encompasses production-related costs like electricity, packaging, and labor, with a nuanced understanding of labor costs tied to specific work centers and production throughput. The result is a tool that not only forecasts costs accurately but also offers insights into optimizing shifts, overtime, and inventory, ensuring economic fidelity in planning and decision-making.
The result is a tool that not only forecasts costs accurately but also offers insights into optimizing shifts, overtime, and inventory, ensuring economic fidelity in planning and decision-making.
Video TranscriptExpand ↓
I wanted to talk a little bit about the cost model within a digital planning twin, the Rubologics digital planning twin. When you're making a decision, when you're trying to build a plan that says, how much production should I do? One of the things that would come up is will, when I execute that plan, will the financial results be what I think they're going to be? And one of the things that we've, that we found over the years is that in order to build a planning that gives high fidelity pro form a financial results and can predict what the actual cost is of a particular plan that you need to do deconstruct your costs into their drivers within the digital, within your business, within the digital planning And what I mean by that is rather than telling the twin that it costs a dollar fifty to make a product, you're going to tell the twin that It needs these raw materials, and then we'll have options on how to buy them and what the costs are to buy them so that I could have different vendors with different costs. So that way if the model chooses one vendor or another, the cost will be different. And then within production, you will be telling it you know, are there production added costs? You know, is it another ten cents per unit of electricity that it's going through, or is there packaging cost as it's going through production? As well as what is the incurred labor. And labor is a very interesting one because normally when you're planning, you'd assume a certain amount of labor per unit to the products that you're manufacturing. Within the digital twin, the best practice is to say is to tell the digital twin what labor cost to produce on a particular work center production line, and then to tell the digital twin what the throughput is of that line for that particular product. That gives you two things. One, is it allows the model to calculate how much of that labor lands on each product as it flows through. But more importantly, it understands what a shift is and what overtime is. So let's say you're doing production, And the plan says, well, you do need to go into overtime a little bit, and it suggests that you do it because it's still profitable. That's one thing that the planning tool will help you with. When that happens, the production as soon as you go into overtime, the costs go up by that overtime labor cost. That changes the dynamic of what's a good product and what's a bad product. So it may no longer be a good product and the digital twin might say, well, maybe you shouldn't support that customer because you have to go into overtime, or maybe you maybe you should stick below. Even fancier, the digital twin can say, Well, instead of running overtime a little bit, why don't we turn on an entire new shift and build some inventory that we can use in a future time period? So this is an example of why more economic fidelity. More of these drivers of cost need to be an additional planning to and to give you those hot fidelity results that you seek with a digital planning trip.
