How to Calculate Manufacturing Overhead by Tracking Maintenance on Equipment

Manufacturing overhead, otherwise known as factory overhead, factory burden, and manufacturing support cost is an important costs category that tends to get overlooked, especially in the cases of overworked or new operations. Manufacturing overhead refers to the most obvious costs, such as the amount of cash it takes to keep the factory’s lights on – but it also includes more ‘under-the-radar’ expenses, such as equipment depreciation and maintenance.

All too often, operations allow the latter points to fall by the wayside, but doing so can end up costing them time and money. To safeguard your factory from equipment failure due to poor – or non-existent – maintenance planning, it’s best to take advantage of today’s cutting-edge asset tracking tools, such as CMMS asset tags. When paired with a reliable maintenance software, an effective asset tracking solution helps you stay on top of your maintenance programs and can even alert you to potential issues before they become serious problems. Not to mention, having a better understanding of your manufacturing overhead costs allows you to implement cost-cutting strategies where needed to improve the bottom line. 

Here’s a breakdown of how to calculate manufacturing overhead by tracking maintenance on equipment: 

  1. Track Maintenance Activities for All Manufacturing Equipment
  2. Use Maintenance Tracking Data to Determine Replacements vs. Repairs
  3. Analyze Data to Measure & Predict Future Manufacturing Overhead Costs

Let’s take a closer look at each of these steps and how to leverage equipment maintenance tracking to better gauge your manufacturing overhead costs. 

Step One: Track Maintenance Activities for All Manufacturing Equipment

Don’t let the idea of automated maintenance tracking scare you away. Believe it or not, it’s probably something that you’re already doing in one form or another. How to Calculate Manufacturing Overhead

Do you keep track of the location of your assets with the help of barcodes, asset tags, and a barcode scanner? If so, then, almost all of the work is already done for you. Connecting these solutions to your computerized maintenance management system (CMMS) puts a wealth of data at your fingertips and allows for sophisticated analysis, actionable alerts, and more.

Once configured, your CMMS should alert you to scheduled maintenance, pinging the specific divisions who need to know first. Asset tags are used to help you keep tabs on movement, installation dates, and usage levels, which can also help determine if one piece of equipment requires maintenance sooner than another – even if the two pieces are identical.

To get started, invest in asset labels and barcodes that are durable enough to withstand the conditions of your specific manufacturing facility. (Camcode has a wide range you can choose from to suit the unique needs of any application.) Once you’ve tagged your equipment, invest in a CMMS that is flexible enough to meet your operation’s specific asset tracking and maintenance needs.

After setting up this system, you’ll have access to a multitude of tools that will help you keep your equipment running at optimal levels and extend the lifespan of your valuable equipment assets. Included in this are scheduled maintenance alerts, which can help you calculate more accurate cost data later on, such as depreciation, maintenance and repair costs, and other data such as the cost of equipment downtime.

Step Two: Use Maintenance Tracking Data to Determine Replacements vs. Repairs

Now that you have the necessary data safely in your CMMS, you can use it to inform decision-making. When equipment breaks down, some repairs can be costly, and depending on the asset’s expected lifespan, it may make more financial sense to replace the equipment rather than repair it. And that’s precisely what your CMMS data can help you determine. Calculating Manufacturing Overhead Costs

For instance, if a piece of equipment has a guaranteed lifespan of, let’s say, five years with normal use, you can analyze the usage data to see whether it would be less costly to replace the piece if it required certain repairs. Perhaps the equipment was used much more than normal, a factor which brings the average lifespan down to about three-and-a-half years. In this case, it may be cheaper to replace it entirely at four years, rather than invest a large amount of money in repairs or replacement parts that won’t pay off in the long run.

Alternately, if the data shows that the piece of equipment has not been used as often as what is deemed to be “normal,” you can then alter its maintenance/repair/replacement alerts and procedures based on this data. Either way, you are using your barcoding-CMMS system to guarantee that you are maintaining your assets in the most efficient and cost-effective manner possible.

Step Three: Analyze Data to Measure & Predict Future Manufacturing Overhead Costs

Depending upon your CMMS’ customization options, you may be able to predict future manufacturing overhead costs based on data generated via your asset tracking program. Whether you have access to a customized view or custom report generation features, you will be able to get a much better idea of your manufacturing overhead costs than you had before implementing your asset tracking program and CMMS. Some operations may decide to calculate these costs quarterly, during monthly audits/counts, or in accordance with their own purchasing schedules.

Manufacturing overhead costs include your equipment maintenance costs, as well as labor for completing repairs, replacement parts needed, and the cost of replacing equipment when repairs are not feasible. Other costs included in manufacturing overhead include:

  • Equipment depreciation
  • Property taxes for the facility
  • Rent for the facility
  • Salaries for management, maintenance staff, quality control staff, materials management staff, and janitorial staff
  • Payroll taxes for the staff above
  • Ancillary supplies that aren’t directly involved in production, such as maintenance forms
  • Utility costs (anything keeping the facility’s lights on)

Generally, you’ll find all the data you need in your CMMS and accounting software. Calculating your historical manufacturing overhead costs may be as simple as generating a custom report for the fiscal year you’re evaluating, particularly if your CMMS is integrated with your accounting software application. Use the data from multiple years to formulate your average manufacturing overhead costs. This figure can then be used as a benchmark for forecasting. If you want to predict your manufacturing overhead costs for the upcoming year, you can analyze the data or generate custom reports including the following information:

  • The predictive maintenance schedule for each asset
  • The cost of replacement parts needed for predictive maintenance (as well as labor costs)
  • The cost of replacing assets nearing the end of their anticipated lifespan
  • Anticipated salary and payroll tax costs for maintenance, QA, and other staff based on current salary information
  • Current utility costs, taking into account any expected rate increases
  • Current facility rental costs or property taxes, as well as interest on capital loans

No matter your method, the data will tell you how often you are using the equipment, what you are using it for, how often you are maintaining it, how often you are replacing it, etc. You can take these numbers and hold them up to your projected budgets in order to better predict manufacturing overhead for the very pieces of equipment that keep your factory running.

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