Manufacturers Must Know Their Costs

As a manufacturer, you know you have to constantly improve your productivity to stay competitive and to be able to open up new markets (a tough lesson learned from globalization). One of the first challenges for a manufacturing company seeking to grow is to understand and properly control the cost of each of the products it makes.

That presents a major challenge for a smaller business because you have to consider a number of factors when the time comes to calculate your costs:

  • raw materials,
  • components,
  • parts,
  • labor,
  • subcontractor, etc.

It gets even harder if your company does custom work for its clients, an approach that sets you apart from the overseas competition.

But then, knowing your costs is important if you want to understand where your profitability comes from and where you have to be more productive—if you don’t measure it, you can’t improve it! Some activities may not be profitable or could be done better through a partner. Once again, you can’t know that if you’re not in control of your costs.

The solution: an enterprise requirements planning system integrated with manufacturing functions. The name says it all, it’s a system that, by itself, provides all the information and links it to each of your production orders. That means you can amass the information as your operations develop so you can then analyze it.

Obviously, moving forward with such a system will demand a lot of discipline from you in actually using the system. You have to be prepared to change the way you do things—no more just entering inexact information in an Excel file!

A phased approach can lessen the impact of the change: start by associating the cost of parts with your projects or operations, giving a time and standard rate for labor. You’ll then be able to ask each employee to record the time spent on the various operations, using different possible methods:

  • timecard,
  • time clock with integrated scanning feature,
  • access to the software directly on each workstation.

A major undertaking to be sure, but such an investment is still within the reach of SMEs in Quebec, especially because of the existence of various tax credit and subsidy programs. What’s more, the Government of Quebec sees the ability of manufacturing companies to grow as strategic, and the minister responsible recently indicated that Investissement Québec is planning to allocate $1.4 billion over the next three years to businesses that modernize their production processes. As a manufacturer, this is a great chance to upgrade your systems and take control of your cost.

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