Benefits of having accurate job costing
Given that many of Visual South’s customers and prospects are “to order” manufacturers, one of the prime operational areas they are typically looking to improve when we speak with them is costing. Additionally, many companies we work with are engineer-to-order, configure-to-order, and project-oriented manufacturers, so job costing is critical.
There are many benefits of having accurate costing, but you need some form of an ERP costing module and related components of costing software to achieve these benefits.
Some of the most important benefits are as follows:
- Product line profitability: Having true costs from ERP costing modules allows decision makers to focus on the most profitable products and leverage these products to grow the business in a cost-effective manner. Conversely, decision makers can see which products are less profitable and take corrective actions or drop these products all together.
Customer profitability: Most of our clients have “prime” customers that generate a significant amount of revenue and therefore typically get schedule preferability and priority. By virtue of having proper job costing, our customers can measure order profitability, order line profitability, and overall customer profitability. These measures are critical because they allow businesses to not only measure revenue, but the profit generated by customers. In some cases, costing software might reveal that your perceived top customer is generating less profit than other low-volume, high-profit customers.
Cost clarity: Having clarity and visibility on margin analysis and detailed costs from an ERP costing module can prompt positive changes to lower volume and higher profit product lines. By changing from the high-volume model, additional manufacturing capacity opens up and profit increases across the board, even though revenue may temporarily slip. You should know when you should make money and when you shouldn’t.
- Reduced risk: Engineer-to-order and project-based manufacturers have a ton of risk if they don’t have accurate costing. Robust ERP costing software can help mitigate these risks by giving project-based manufacturers visibility into critical indices such as percent complete, actuals to budget, estimate at completion, and cost to complete. Without accurate costing, it’s impossible to get this data and risk goes up.
For more information on ERP data that can assist you with costing for better decision making, visit Manufacturing Process Improvements That Make an Impact .
Risk of a not having properly implemented ERP costing module
If you cannot use your ERP costing module to measure profits, see job costs, and quickly access both order line and total order profits, you are at a huge disadvantage. If you don’t truly know your costs, then you are likely getting beat on multiple fronts by your competitors. When you don’t know your true costs and where you’re making and losing money, you’ll face these problems:
- You can’t price accurately
- You can’t discount with confidence
- You may not be focusing on the right products and mix
- You can’t properly manage any project-type manufacturing without running the risk of the project being a loss
These are common issues that can be quickly remedied with leading “to order,” manufacturing-centric ERP applications that include costing software. These applications will allow you to capture the four pillars of manufacturing costs:
- Direct labor costs associated with the work order and sub-assemblies, rolled up to the finished good
- Material costs
- Outside services
If you want guidance or feedback on how to gain the benefits of having proper costing you can trust, reach out for a free assessment You can also learn about evaluating ERP software options and ensuring you get the costing functionality needed on your own with our popular eBook for selecting ERP software.