How often have you heard the phrase ‘that’s not my job’ in your working life?
Sadly, the older you are, the more likely you are to have listened to that! But as software becomes ever more interconnected, and we become more reliant that our data is correct, can we say that something is no longer important for us to consider? Working in silos is not going to help your business!
Take job costing, for example. This one small area of business can have wide-reaching impacts, which is why we decided to talk about this at the SyteLine User Group event. So, before we talk about silos and why they’re not good, let’s recap a little on Job Costing.
What is Job Costing?
Essentially job costing is a method of tracing all the costs associated with a particular item. It could be that the cost is made up of even smaller parts such as the cost of labour to make the item, materials and even things like the third party cost. These cost figures give you accurate information on how much that item costs to produce. You can work out what you need to charge for said item to make sure you hit your profit margins. This adds value if you’re a business that estimates costs before you manufacture something, enabling you to see where you’re not being so accurate with your estimates and show you where there are perhaps costs you’d not anticipated.
Why is this important?
Given the situation that we are in now, with rising costs associated with fuel such as gas, ensuring your costs are accurately reflected may now be even more critical than it was before. If you’re underestimating fuel costs across a range of products, that could very quickly eat into your profits and cause a lot of trouble!
Where this really can come into its own is when there are variances. So if you’re using standard costing for your job, then you’re likely to have variances in some way, shape or form. Whilst this can be very much a fact of life, you must review them. From our experience, the finance team ends up with unexplained variance at the end of the month in the P&L variance account and then will need to follow up on the number – what is the reason for the variance, which material or resource caused the variance, which order and when the item was produced, is there a problem with operations or is it an accounting mistake. This can be a very time consuming and very inefficient process and needs to be owned by multiple teams, not just finance.
Hence, this is why we’re talking about not working in silos!
What can you do?
This example is relatively simple; you see variances in your costing. You have a conversation between your finance and manufacturing teams and resolve things. Yes, it can be time-consuming to work through the variances and update costings accordingly. But imagine if this was a complicated situation and your teams were not working together; what could happen then?
The worst-case scenario is that no one is talking to each other, costs are spiralling out of control, but the sales team are still selling your product at the same price, and worse, they are heavily discounting it. We all know what happens next, and no one wants to see that.
Do you want to know more?
If you are unsure how best to use standard costing for job costings and use Infor SyteLine, why not get in touch? We’d be happy to help take you through best practices around this.
If you’re a member of the SyteLine User Group, then what about coming along to the conference in May?
Matthew and Ana will be holding a session on this topic. They will start with a financial overview of standard costing, following on with a real-life example showing how the variances can arise, and more importantly, how to analyse them to update your Job Costings accordingly. (to help identify inefficiencies, streamline operations and save money for the business)
This informative session will give you the key takeaways on making Standard Costing work for you.