ORGANIZE A COST STRUCTURE
ORGANIZE A COST STRUCTURE
TO PILOT THE ECONOMIC
PERFORMANCE OF A FACTORY
1. LEARN BY YOURSELF & CHALLENGE YOUR WAY OF DOING
WHY
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To reduce your production cost and ensure the profitability of a factory, you have to know your cost-breakdown by process / by product.
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Why calculate a production cost by product?
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To calculate the margin per product to understand the profitability of each product.
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To make sure the level of margin is accurate âž” if it's too high, risk is to be over market price, if it's too low, risk is to lose money.
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To modify selling price if necessary.
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To compare product margin and focus on key products to reduce their production costs.
Why calculate a cost per process?
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To mobilize all managers on economic performance and cost reduction.
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To build your annual budget with each manager based on annual production planned.
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To pilot your operating income according to the piloted production process by process.
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To ask for action plans in case of discrepancies between budgeted and actual costs.
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To charge production cost on each product considering the process it is going through only.
WHAT
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BENEFITS
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HOW
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Methodology to implement an industrial management control in your factory:
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1. Identify your different process and create P&L in order to host the direct costs of each process.
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Direct costs are directly linked to the process. These costs impact the production cost of each product going through the process. A key is defined for each process to split the process cost by product.
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Indirect costs like building expenses,building repairs, energy not attribute to one process, insurances, fees, taxes, IT costs by process etc.
2. Identify variable and fixed costs to be able to pilot your activity.
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Variable costs will follow the activity âž” the objective cost per product stays the same whatever the quantity / you can define a “referenced cost by product ” or “standard cost by product ” and compare performance realized vs expected according to the mix and quantity.
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Fixed costs âž” budget equal whatever the quantity – cost per product will decrease if more quantities / you can manage the respect of commitment on these costs. This analyse will allow you to pilot your activity according to production planned.
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3. Once a year, based on budget, calculate your production cost and margin by product and determine reference cost by product.
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Accounting Decathlon Standard for factories: the only thing compulsory at the moment is to cancel all factory costs and put them in net margin.
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