Manufacturing Engineering Interactions with Finance, Who has the Ball?
The role of finance is to record, guide, and ensure the financial activities of a company are properly recorded. This process can include product costing to be properly documented, cash flow being appropriately handled, along with sales and business costs being monitored and controlled.
For companies that make products at one or more locations, accurately and effectively allocating the amount of cost to each part number is very important for the company’s bottom line results.
Finance is charged with determining the proper hourly amounts of allocations for each part number, but Manufacturing Engineering is charged with determining the rates (time) for each part number. Together the rate times the monetary allocations should equal the business cost plus their expected profit margins in a perfect world.
What other areas do the two groups interface together? How about Capital Equipment Requests (CARs). Minimum levels vary by company, but let’s say your company needs a new piece of production equipment, and its $3500. If the capital equipment level is set at $3000, you can’t buy it via an expense budget, it should be written up for a CAR approval with supporting information of how this piece of equipment is going to help reduce costs, decrease safety concerns, add new production options to reduce lead times, or it may be a replacement piece of equipment needed for business continuity as the existing equipment is on its last leg. Capital equipment costs are treated differently than expensed items, and items should be listed separately for audits, have asset numbers assigned and placed on the equipment whenever possible, and Finance needs to be involved when the equipment is no longer useful or going to be sold so their records can be updated.
A third very common area where Finance and Manufacturing Engineering interface frequently is with an active cost reduction program. Regardless of the name your company picks for this activity, it is very important that the information for any decrease or increase in rates be accurately reflected. For more mature companies with financial tracking, Standard costs are compared to the Current (or actual) costs to find both negative and positive variances during each product month.
The first level is to properly determine the new cost. Once agreed upon, the Current cost is updated in the router, but the business still uses the frozen Standard cost to determine profit and loss. The beginning of the next fiscal year, the old Current cost becomes the new Standard cost, and this process repeats year after year.
The next level of looking for cost variances is to have the production employees engaged by logging in and out of their respective router operation(s). This time the actual time they spent on the process is compared to the Standard rate to determine if it above or below the frozen rate. A second custom report could also be generated to monitor the products against the new Current rates to ensure the times are achievable as this rate will be the new Standard rate for the next fiscal year.
So, getting back to the title question, the answer is situational. The three areas I reviewed above are very typical for not only Medical Device companies, but they have industrial applications as well. Finance and Manufacturing Engineering should continue to work together in harmony as both are needed to identify and control costs for the business to keep it as competitive as possible. I hope your teams are doing the same for you.