Accurately knowing your costings is an essential part of running a successful business, particularly if you’re looking to make significant changes and grow. However, sometimes the need to make changes in your business also requires the need to change the way those costings are worked out too.
We recently assisted a long standing Manufacturing client with exactly this issue. The method they were using for costing their production of parts for the engineering industry was old fashioned and no longer fit for purpose.
We sat down with them and had an in depth discussion on how they currently cost products and what they wanted to achieve with a new method. From this we developed a plan, did our research, and came back to the client to work on it together.
We selected a simple product and broke it down into its various steps, from the metal arriving in the factory, to it getting shipped out. We detailed how many employees worked on each process and the time each process took, what machines were used and for how long, and what materials were needed.
We then did calculations to work out a labour cost and machine cost per unit. This combined with the unit cost of the materials provided a total unit cost for that manufactured product.
Not only did this then lead to a much more accurate unit cost for this particular product, it also helped develop the necessary calculation method that could then be transferred to any product once the steps and elements were implemented.
This new method of costing now offers the client the reassurance to provide quick and accurate quotes, plus the tools to look at the efficiency of their processes, adding significant value to their business.