Do you know what that costs? Well do you.
In the world of business knowing your costs would seem to be very important. After all, how do you know what your margins are or what your making on certain products or product lines if you don’t understand how much things cost to make or buy.
When the economy is booming and margins are high how much things cost is not as important to some. They are making so much money on the product that if they have uncontrolled or unbridled costs it is not as noticeable. But when the bottom drops out and the competition rises, then what happens. Margins shrink, sales dry up. Understanding your costs becomes imperative.
Knowing where you can cut costs and what products or lines are most profitable becomes ultra important.
Whether you make the same widget over and over or a different thing every time there is no reason not to understand the cost of your product. The process of tracking your costs is slightly different in these varying manufacturing scenarios but the results are the same. How much labour, material and overhead goes into making this.
ERP or enterprise resource planning as it is called formerly, can go a long way to aiding you in tracking and monitoring costs. Of course if you read this blog regularly you will know that ERP alone is not the answer. Sound processes that trap the data you need and no more, and a diligent work force that communicates with the software in an efficient manner must be employed as well.
It sounds complicated but it is not really. Using ERP you will Purchase and receive goods into the system. The costs of those purchases will be trapped in the system. The labour will be tracked and input into the system. Employee rates, cycle times and quantities will be recorded to calculate labour and possibly overhead. So not only the finished goods or the product you are selling will be costed, but the raw materials and work in process or WIP will be calculated.
What do you get out of all this. A true understanding of our costs of course but other side effects are;
- Inventory value including work in process
- A schedule for production
- Manufacturing or production targets
- Production comparisons by employee
- An integrated system that enables departments to communicate seamlessly
- Reports to easily access crucial company data
The reality is the list above can go on and on. Not all facets of the list will be useful to all organizations but there are many benefits for every business.
Mind your business using ERP, the easiest way to control your costs.
