Manufacturing was tough enough before the economic downturn.  Decreased business forces even strong companies to adapt processes, but change is not new to the manufacturing profession. In a stronger economy manufacturers can get by doing things as they always have, but in today’s environment innovation is needed to meet profit targets. If you are facing challenges, let us help.

The solution can be as simple as retooling your thinking.  Many manufacturers have profit opportunities by taking a different look at costing systems and processes. These items impact pricing, inventory, equipment, labor, processing costs, storage and ultimately sales quotas. Cost decisions are heavily dependent on allocation selections. Unfortunately, allocation methods are not updated as frequently as they should be, and are often designed with flaws in them from the start.

The impact is major.   Costing and process decisions set the pace for the entire outcome of a business. A few examples are:

1. Process Impact. A company’s production schedule kept two boilers going to meet needs. After a workflow analysis it was determined one boiler was needed at peak capacity, but the other could be kept at a reduced level. This obvious solution in retrospect reduced energy costs by 30%.
2. Labor Reduction. After reducing labor cuts, the bottom line did not respond accordingly. The net result was the customer’s cost allocation process was based on a flawed set of assumptions, which created incorrect product profit contribution margins. In the end they were focused on making and selling their less profitable items. We realigned costs, which changed their sales goals and production focus.

Change is very difficult to embrace, but often not as complex to implement.  Most costing systems and processes evolve over time, which is how they sometimes transform into less functional systems. Here are a few signs of manufacturers who are encountering costing problems:

1.  Complex. The costing model is too complicated for management to understand.
2.  Reconciliation. It’s difficult to reconcile the costing model to the actual financial results.
3.  Alignment. No one has recently reviewed the processes to the allocations and labor decisions.

There’s no cost to talk about your needs, so let us help each other.  The William Vaughan Company is a progressive CPA and advisory firm with significant manufacturing insight. We have learned how to develop solutions for manufacturers by working with them for over fifty years. We are not asking you to switch auditors or fire staff. All we want to do is talk about how we can help you change thinking, which can lead to changing costs, processes and goals.

Please contact William Horst, CPA and CMA, Managing Shareholder at 419-891-1040 ext.252.