Here is an interesting question

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Smitty37

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What do you think is the major manufaturing cost driver in commanly used pen kits such as Sierra or Slimline are. Typical manufacturing cost items would be raw materials, labor, tooling, machining, stamping, plating, cleaning, polishing, packaging etc Which one or ones do you think drive the manufacturing cost the most.

In case you are tempted to include marketing/sales costs - don't.

Also, don't be concerned over production volume which is a big contributor but is too much of a variable to think about.

Don't include Stainless Steel Kits or Sterling Silver in your thinking Constant has already told us about Stainless and both are manufactured with different methods than used for the common kits.

Remember, I am asking about the cost of manufacture not about everythihg that goes into the selling price.

NOTE: I am fully aware that many of you have no manufacturing back ground and probably can't give any answer. I do have such a back ground and still don't have much more than a idea...nothing I'd bet the farm on.
 
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If these were made in the USA, my guess and it's only a guess at this point would be Labor. I do know that in my last job, even though we used mostly Mexican labor, our biggest cost factor was Labor - we paid our workers fair and equitable salaries.... cost of labor was followed by raw materials... mostly wood... we were an export packing company and went through rail car loads and/or truck loads of lumber pretty rapidly.
 
Labor is very inexpensive in China and Taiwan.
Most of the process is automated I would guess.

The most involved part is the tooling. It takes a lot of time to design a mold, stamp, etc., and the engineers responsible for the designing, use expensive software.
The cost related is very expensive, so my vote is the tooling.
 
In US manufacturing Labor is undoubtedly the correct answer but most of the common kits were NEVER manufactured in the USA...so does labor remain the cost driver? That is probably another question and I don't know the answer to that.
 
I don't know for sure, but I would almost guess the most labor intensive part of pen kit manufacture is inspection and packing the parts in the bags and a sophisticated manufacturer could probably find a way to automate the packaging and some of the inspection.
 
Smitty37 said:
In US manufacturing Labor is undoubtedly the correct answer but most of the common kits were NEVER manufactured in the USA...so does labor remain the cost driver? That is probably another question and I don't know the answer to that.
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Labor may be cheap overseas, but so are raw materials (speaking from experience). Labor is also on the rise overseas (driven by us).
 
CREID said:
Smitty37 said:
In US manufacturing Labor is undoubtedly the correct answer but most of the common kits were NEVER manufactured in the USA...so does labor remain the cost driver? That is probably another question and I don't know the answer to that.
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Labor may be cheap overseas, but so are raw materials (speaking from experience). Labor is also on the rise overseas (driven by us).
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I wonder about that but tend to think increasing local demand has more to do with that than we do. If you make things it helps your economy overall if you can sell them at home. China, in particular has a massive infrastructure. mainly highways, program going on right now, putting a lot of money in peoples pockets and raising the demand for labor and even with their limited westernization of their economy that will raise the price of labor.
 
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Overhead is the biggest driver in most business. Labor is often less than 10% and usally never over 20%. Labor is a part of over head. Then there are the tax's and insurance on the labor. Plant, building, equipment, loss of materials, insurance, mark up to cover the cost of the over head is often 25-45% of the cost of raw materials and labor. The more labor in a product in the ratio of materials the higher the over head percentage has to be, and it can easily be 70% of the cost of the item. My 2 cents worth. Smitty I probubly screwed up and did not even answer the question correctly. But hay I am here.
 
Hmmmm....I thought that the first response would be related to what has the most impact on price. Two Identical pen kits same style one plated in Rhodium one plated in Chrome....acknowledge that until they get to plating the costs will be the same. Once the plating related operations are finished the remaining costs would be the same.

This does pose a problem though because some portion of the plating costs are related to raw materials (the various plating solutions etc.) so the difference between chrome and rhodium is at least partially because of the different raw materials they use.

I'm not going to go out on a limb and say Plating but I am surprised that nobody mentioned it.
 
Actually overhead are mostly fixed costs like property plant and equipment and typically go down by ratio as labor content grows. Tooling is a significant cost but the overall fixed costs are a major driver. Untill you pay for the building and tooling you haven't made any money. We have processes with 2000% overhead rates because the machines are used so little.
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raar25 said:
Actually overhead are mostly fixed costs like property plant and equipment and typically go down by ratio as labor content grows. Tooling is a significant cost but the overall fixed costs are a major driver. Untill you pay for the building and tooling you haven't made any money. We have processes with 2000% overhead rates because the machines are used so little.
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I think most large and even not so large diversified manufactures see that same sort of thing. I know the company I worked for did. Some machines that they had to have but rarely used that occupied floor space that could have been used for much more productive things.....

I'm not sure that the pen kit manufacturers have that problem, I believe they subcontract a lot to small job shops to do specific operations.

BTW re the building and fixed costs..the CEO of Intel (I'm pretty sure it was intel) once said It would cost them a billion dollars more to build a factory to make microchips in the USA than Off Shore and it wasn't the cost of labor that caused it.
 
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I am not in a manufacturing industry directly. I do here a lot of conversation of utility costs when I do speak to people in manufacturing. May be different in other countries though.
 
With the slimline and Sierra mentioned, the tooling cost would be spread over so many units that it would have to be quite low. The design costs would be even lower on those kits, as design would not wear out and need to be replaced.

Opportunity costs, using resources to manufacture low-margin goods like slim kits, rather than making higher-margin goods, has got to be a factor. Spending time and money to make pennies per unit would have to be weighed against investing the same time and money to make higher per-unit profits.
 
At least one Summer, Rizheng was subjected to 'rolling brown outs' or something similar when power was not available and they hsd to close the factory for a day or two every week. Which would also impact their costs due to lost opportunity.
 
Smitty37 said:
I'm not going to go out on a limb and say Plating but I am surprised that nobody mentioned it.
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That begs an interesting question - are we discussion the factors that govern the cost to the manufacturer of pen kits, or the price that we pay when we purchase pen kits.

Seems to me that the impact of plating is to effect the perception of value of one kit versus another, and it could have a significant impact on the price we pay, while not making a very big difference in the manufacturers' cost. That is, the manufacturers' margin on 'better' platings is higher than on the plain vanilla stuff.

Which then introduces the marketing concept that the price we pay for something is more related to the perceived value of that thing to us than it is to the cost of producing that thing.
 
monophoto said:
Smitty37 said:
I'm not going to go out on a limb and say Plating but I am surprised that nobody mentioned it.
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That begs an interesting question - are we discussion the factors that govern the cost to the manufacturer of pen kits, or the price that we pay when we purchase pen kits.

Seems to me that the impact of plating is to effect the perception of value of one kit versus another, and it could have a significant impact on the price we pay, while not making a very big difference in the manufacturers' cost. That is, the manufacturers' margin on 'better' platings is higher than on the plain vanilla stuff.

Which then introduces the marketing concept that the price we pay for something is more related to the perceived value of that thing to us than it is to the cost of producing that thing.
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That would require collusion of manufacturers who are competing with each other for business. So I would hesitate to make that assumption.
 
Smitty37 said:
monophoto said:
Smitty37 said:
Which then introduces the marketing concept that the price we pay for something is more related to the perceived value of that thing to us than it is to the cost of producing that thing.
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That would require collusion of manufacturers who are competing with each other for business. So I would hesitate to make that assumption.
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Collusion in one thing. Market awareness is totally different.

One of the things that has made Walmart successful is continuous comparison shopping at their competitors stores, combined with an intelligence system that spreads information about competitive pricing across the entire Walmart system in almost real-time.
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monophoto said:
Smitty37 said:
monophoto said:
Smitty37 said:
Which then introduces the marketing concept that the price we pay for something is more related to the perceived value of that thing to us than it is to the cost of producing that thing.
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That would require collusion of manufacturers who are competing with each other for business. So I would hesitate to make that assumption.
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Collusion in one thing. Market awareness is totally different.

One of the things that has made Walmart successful is continuous comparison shopping at their competitors stores, combined with an intelligence system that spreads information about competitive pricing across the entire Walmart system in almost real-time.
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I am sure the involved companies are aware of each other's pricing. I believe what you describe would still require collusion. -- basically because of the structure of the industry (and the fact that it is a pretty small industry).
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Take the slimline. A slimline ranges from $3.45 (PSI slimline Brushed Satin) to $6.25 (PSI Slimline Rhodium). (ignoring Funline kits, which are $1.75) Tooling costs will be the same for all slimline kits, because of the identical styling. Labor will be the same. Overhead (assuming the same manufacturer) is the same. What is left? Plating and perceived quality.
 
ChrisN said:
Take the slimline. A slimline ranges from $3.45 (PSI slimline Brushed Satin) to $6.25 (PSI Slimline Rhodium). (ignoring Funline kits, which are $1.75) Tooling costs will be the same for all slimline kits, because of the identical styling. Labor will be the same. Overhead (assuming the same manufacturer) is the same. What is left? Plating and perceived quality.
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The "perceived quality" piece of your picture is not a manufacturing cost...perceived quality would be related to the marketing end affecting price but not cost.
 
Lots of interesting thoughts

There have been a lot of interesting thoughts on this topic, I don't know if any one has hit the correct answer, but I will ask one of the manufacturers.

The most complex cost to determine is plating for a number of reasons. Suffice to say that different finishes often require different steps and materials in the plating process.

I believe the way the industry is organized also changes the cost equation, but I don't know quite how that is done.

It is also very difficult to apply USA and European costing algorithms to tasks being done in other parts of the world. So many factors are just different from what we would do, particularily labor costs and fixed costs.
 
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