Cost is one of the major criteria a customer considers while selecting a product. Evaluating it prudently is thus crucial for any business owner. In this era of rising raw material, fuel, transportation and other costs, the margins are shrinking razor-thin. Adding to it is expensive getting labor, stringent getting labor laws plus increased benefits for them. Its direct impact needs to be on your costs or else they’ll be on your bottom line. So defining a cost that is profitable to the company as well as affordable to the customer is certainly a task.
Moreover, as product specifications change, ingredient costs fluctuate, utility costs keep rising, services need change, new laws need to be met or distribution/suppliers are added, businesses should be able to determine the variation in the cost, quickly and accurately. Doing it manually everytime can only promise delays, errors and chaos, specifically for process manufacturers who have complex supply chain and processes. To gain higher margins, they need to have an accurate view and strong control on finished goods costs along the entire production cycle.
Wondering how is it possible? Probably through an ERP software built specifically for process manufacturers. Yes, certainly an ERP solution is aimed at automating and streamlining all your business processes be it manufacturing, distribution, finance, quality, inventory management or compliance. But it can even give you visibility into your finished goods cost right from formulation to job completion. A granular view of costs at the ingredients, packaging, container, labor, setups, utility and such levels allows a manufacturer to quickly get approval for new products. In addition, management can pinpoint areas of improvement in terms of product development, production and procurement.
With an ERP solution like BatchMaster ERP that is built for process industries, different costing methods including Standard, Average, Last, etc. can be used to create, track, model, and analyze costs throughout the product’s value chain. Process manufacturing mandatorily have formulas which in turn have ingredients, containers and packaging materials. The cost of these items is based on purchase price, business partner special price, item’s price list, or special price on a given date range. These costs are automatically fetched in the formula to evaluate its theoretical cost. Once these formulas are active and used in production, the system calculates the costs from the actual purchase prices for the available inventory on hand. When a batch job is fully closed, the system calculates the actual finished goods costs using the costs of actual quantities of ingredients and raw materials consumed, and any indirect costs incurred.
As the prices of materials continually change, roll-ups are really useful in viewing projected costs and analyzing the impacts of changes in prices. Understanding this, BatchMaster ERP provides dynamic roll-up capabilities for both intermediates as well as finished good formulas, in which it rolls up the line item costs for both formula and packaging bill of materials, including all costs associated to intermediates and sub-assemblies.
Via an interactive dashboard, it offers an in-depth “what-if” evaluation and analysis model to let you try different cost scenarios without disturbing the current operations or book values. The costs can be analyzed on more than 20 elemental cost components that include labor (static and variable), overheads, line costs, setup/machine cost, etc. This enables to make real-time adjustments that impact costs during product development and production.
A range of reports satiate the standard cost enquiries while also giving a deeper view of the expected and actual costs of finished goods, including co-products, by-products, intermediates and packaging materials. Side by side comparison of various components of the finished goods costs in different packaging, or of actual vs. theoretical costs of carious formulas can also be done to determine which packaging configurations offer the highest margins.
Most people realize that an ERP increases collaboration and provides information through a single pane of glass for better and informed decision making. But they don’t realize the many ways in which an ERP suggests precise costs of the products, checks it all stages and thereby increases profitability. BatchMaster ERP software, along with doing this, offers a range of integrated modules and acts as a complete solution that reduces wastage, curates costs, checks losses and thus improves bottom line. For more details on BatchMaster’s Product Costing capabilities, click here