Keeping track of your actual costs is vital for ensuring profitability, especially in industries with volatile material prices and complex production processes. Here is how to track your actual production costs in the chemical industry.
Tracking actual costs in spreadsheets
Actual costing in spreadsheets involves meticulously tracking every expense related to the production of goods, including the costs of materials, labor, and overhead, and tying these to specific products, batches, and orders.
To start, you need to create well-structured spreadsheets that capture all relevant cost factors for each batch. Labor and overhead costs are typically easier to calculate, as they are based on hours worked. However, assigning specific material lots with their varying prices to individual product batches is where things become more complicated.
Each ingredient lot used in production must be documented with details like quantity, price per unit, and supplier. While this approach can work for small-scale operations, as the number of batches and ingredients increases, managing these details in a spreadsheet can quickly become overwhelming and prone to errors. The risk of manual mistakes grows as the dataset becomes more complex, limiting the scalability of spreadsheet-based systems.
Using manufacturing software for actual costing
For growing chemical manufacturers, relying solely on spreadsheets for cost tracking is not sustainable. As production scales, you must track dozens of materials sourced from various suppliers at different price points, while simultaneously recording labor costs and capturing real-time shop floor data. Without the right tools, this complexity can easily overwhelm your systems and team.
This is where manufacturing software, particularly Manufacturing Resource Planning (MRP) systems, comes into play. While basic accounting or inventory management systems may offer partial solutions, MRP software is a manufacturing-centric solution that caters specifically to the needs of growing manufacturers. This includes manufacturing cost tracking capabilities often missing from other systems.
Following the journey of a product from ingredient suppliers through production to the customer, modern MRP software helps you record each direct and indirect cost, material handling transaction, inspection, and various other events, helping you achieve full traceability as well as transparency in your costs. The software automates much of the data entry necessary for maintaining meticulous records and provides you with an array of useful reports that help you make impactful business decisions. Moreover, integrating the software with your accounting software automates the exchange of information between the two, making record reconciliation a breeze.
In addition, manufacturers can use MRP software to:
- Manage and develop bills of materials (BOMs or product recipes)
- Get complete visibility into their inventory
- Quickly forecast material requirements
- Easily estimate production costs and lead times per order
- Automatically schedule and re-schedule production
- Track quality inspections, identify the root causes of issues, and organize callbacks.
To learn more about MRP software, visit https://www.mrpeasy.com/