Tutorial 13 – How to Create a Cost Center?
Cost Centers, Products and Templates
To save time and improve efficiency across your enterprise it is imperative to understand the concepts of how Products, Templates and Cost Centers are linked together and why it is important to consider all three aspects before setting up your system.
Cost centers form the basic elements to Pricing, Costing and Scheduling. Hence by designing Cost Centers and Products with the correct information, your organization can save time wasted in data duplication and collect useful information to identify bottom line numbers and improvements.
Cost Centers, when combined with a Product, can enhance Product options e.g. the same Product can be defined in many ways.
Product definition 1: A Business Card is a product which has 2 Cost Centers (2 separate cost centers), Round Cornering and Lamination.
Product definition 2: Define MULTIPLE products but with NO Cost Centers. Each Product is separately Priced and described in detail and is treated as ONE complete unit e.g.
- Product 1 : Standard Business card
- Product 2: Business card with Round Cornering
- Product 3 : Business Card with Lamination
Both the above methods have their merits. The first gives the end user less choice of which product to select (i.e. only 1 in this case), whereas the second method gives the end user a precise choice of distinct products to reduce confusion in production.
This is made easier by deciding FIRST what products and how many products and services you want to present on your Digital Stores and what you should upsell as reefing options initially. You can always Up-Sell at a later date in the offline world.
Keep it simple, think of the End User.
The majority of your print business will still be done offline, and a customer-supplier relationship will continue to exist. So don’t worry about creating products with few Cost Centers from the get go. Keep it simple initially and learn from your customers about how they select, order and purchase Print products from you.
Consult with the End Users and see what terminology they associate with your Products or Cost Centers.
Cost Centers versus Cost Centers
Cost centers and Cost Centers should be considered as being interchangeable terminology.
Cost Centers can be seen as minor Cost Centers that are described in ‘End User friendly terminology’ to describe an option rather explain the process. E.g. Round Cornering or Lamination.
Cost Center Basics
Cost Centers are processes, materials or direct costs that form part of the final price.
There are the types of Cost Centers
- Major Cost centers i.e. Heavy plant such as Presses, Plotters and Guillotines
- Minor Cost Centers i.e. Bindery processes, Studio activities, Raw Materials etc…
- Formula based cost centres, to combine the two using specific “IF” & “THEN” statements allowing you to formulate pretty much any calculation that would be required in todays industry.
The following are all examples of Cost Centers
Paper, Ink, Plates, Press time, Preflighting, Impositioning, Design / Studio time, Labor time for finishing activities, Round Cornering, Bindery, Delivery, and Administration time.
MPC creates the following as System Cost Centers. However, any number of Cost Centers, Cost center groups and Cost center sequencing can be created.
Combining multiple Cost Centers together to form a Product, quickly builds up a detailed breakdown of the overall TIME and Cost to produce any item. This breakdown can then be used in Estimating and Job Production to further refine and individual Scheduling. Having this structure approach allows Print Production teams and Pricing teams to see where improvements and profits can be made.
Note: Cost Centers feed into Scheduling
Cost Centers are not just used for working out the selling price, they are an important input to Job Costing and Scheduling.
Cost Center Components
Each Cost Center is made up of the following components.
- Time: (estimated & actual)
- Labor: (estimated & actual)
- Material: (estimated & actual)
Each ESTIMATED Cost Center Component value is defined by using a Calculation Method to arrive at the numeric quantitative value (estimated).
By adding up the 3 Components values together, we arrive at the Cost Center Selling Price and Cost prices.
The ACTUAL time and cost used for Cost Centers can only be accumulated at production. This can be achieved in numerous ways e.g. Shop Floor data Collection by JDF or direct input into devices to enter the paper used, or time taken to do this activity etc…(See Shop Floor Data Collection for more information).
Cost Center Calculation Methods
The Cost Center Component values are defined by using a Calculation Method to arrive at the numeric quantitative value (estimated).
There are 3 calculations methods to work out a component value.
- Quantity based: The final charge for Selling and Costing for each cost center component can be calculated based on multiplying the Quantity of a item or system variable with a unit price plus a minimum selling price
This is then multiplied by either a system variable or by prompting a question to the operator.
- Time based: The final charge for Selling and Costing for each cost center component can be calculated based on multiplying the Time taken to produce each Unit with a Unit time period + Setup time.
The total time is added up and an Hourly rate for Selling and Cost is applied to arrive at the Selling / Cost price.
A minimum charge can be applied if the Selling price is calculated below a certain threshold.
Time based cost centre are calculated.
- Formula based: Here the final Selling and Costing for each cost center component can be defined by using a formula string that can refer
- Look Up (matrix) tables
- Over 50 System variables
- Static values
- User Questions
These inputs are gathered and populated at the time of running the Estimate Wizards. Variables such as the number of sections, paper weight, number of colors used etc. alongside user promoted questions are used to form an arithmetic formula to calculate the final Selling / Cost price.