When a new product is manufactured, a price is set before introducing it into market. The price is set based on the comparisons of the prices of competitive products. One major issue is how a manufacturer can arrive at the right cost of the product? The manufacturing cost will define the market price of the product and eventually the fate of the company. Because a further percentage overhead is added over manufacturing cost which is called profit margin.
There could be two worst case scenarios. One is the product manufacturing cost is higher than the market price of the competitive products. Second you are selling the product in market lesser than your production cost. Both cases will deteriorate your market competitiveness and profit respectively.
So in order to avoid such situation, the companies need to understand the elements which create aforementioned problem. First We discuss some of those elements and then we will see how ERP help us to solve the issue.
Manual and Distributed Data
Usually the information collected about costs of various components of the upcoming product is gathered in a spreadsheet or on papers, It is very difficult to synthesize all data to determine the meaningful financial reports.
Maintenance Cost
In this modern era of technology and automation. The machines have replaced a big portion of the labour. Despite this the labour cost is considered as one of major manufacturing cost overheads ignoring the expensive maintenance of machines.
Organizational Functions
Some other elements like administration, transportation, procurement, marketing, sales and engineering must be considered. Similarly many a times service providing companies do not have a proper cost controlling structure. Companies in software, banking and insurance need to have a cost system like manufacturing companies.
How can we arrive at right cost of the product
We Need Centralized Data Rather Than Distributed
As we mentioned above, with distributed data it becomes difficult to reach the correct cost of the product. You must possess the capability to produce relevant financial reports based on real data which represents company’s monetary health. These reports help investors and financial executives to make decisions. But what we need?
Timely and dependable information is essential for initial production cost. Microsoft Dynamics 365 Business Central provides a centralized data collection service which connect data of procurement, management and finance departments. So now you can make a consolidated report which was hard to make with manual distributed data. It also helps to reduce redundant data, rekeying error, provide real-time and accurate data.
Follow Standards
By following the standard you can improve the accuracy of your production cost. An abnormality can be identified if something varies from a set level. Using standard values management can find out the sections which are not performing up to the mark. Hence they can avoid the situation of higher production cost than expectations.
Microsoft Dynamics 365 is designed to support global manufacturing, distribution, retail processes and requirements. It’s mean multiple currencies, compliance's, banking and reporting standards are available in one software. So distracting from right direction is no more a possibility.
