Manufacturing costs are essential for calculating the profitability of manufactured products. However, measuring manufacturing costs accurately can be challenging, especially for businesses that use complex manufacturing processes. This is where ERPNext comes in. ERPNext is a comprehensive ERP system that includes features for managing all aspects of manufacturing, including production planning, inventory management, and quality control.
To precisely determine the entire cost of Finished goods, you must compute expenses at each stage of your manufacturing line.
So a better and more balanced strategy is to optimise expenses throughout the cycle.
The first step to reducing or optimising costs is knowing where the costs occur.
Start by keeping track of your expenses from the bill of materials stage. Both operational and raw material costs are manageable in ERPNext. The expenses of resources, fuel, power, and workstations are examples of operating costs.
Choose the right costing method. Select the costing method that best suits your needs and ensure that it is configured correctly in ERPNext. ERPNext supports a variety of costing methods, such as FIFO, LIFO, and weighted average. You can choose the costing method that best suits your needs.
Store the cost price of goods in the Valuation Rate of each item. This way, the BOM will reflect the accurate prices of the raw materials being used.
Then, as the production starts, operating costs like fuel, electricity, rent, etc. can be stored in the Workstation form. These costs are then fetched into the BOM for proper costing.
Moreover, the actual time for processing materials can also be tracked in the Job Cards themselves. In each job card, there's an option to start and stop a timer which will give the total time spent on performing operations at each stage.
Once you have accounted for these factors, the costs can be seen in BOM and timesheets. Entering the valuation rate in the finished products gives you the cost price and adding an item price for selling gives you the selling price. Therefore, you can understand your cost of production and margins more accurately.
You can use ERPNext to create reports that display the COGS for each completed product as well as the total cost of manufacturing once you have recorded all manufacturing expenses. Cost-cutting, production scheduling, and price decisions can be made with this information in hand.
To reduce manufacturing costs further,
ERPNext can help you to reduce waste and scrap in several ways. Here are a few examples:
Bill of materials (BOM) scrap management: You can use ERPNext to track and manage scrap rates for individual items in your BOM. This can help you to identify areas where you can reduce waste and improve your material usage.
Work order scrap management: You can also use ERPNext to track scrap generated during production. This data can be used to identify and address the root causes of waste.
Inventory management: ERPNext can help you to optimise your inventory levels and reduce the risk of obsolescence. This can help to reduce waste caused by overstocking and product spoilage.
Quality control: ERPNext can help you to implement and manage quality control processes. This can help to reduce scrap caused by defects in raw materials, components, and finished products.
Process Loss Report: You can use the Process Loss Report available in ERPNext to identify areas where waste can be reduced. For example, if you see that a particular product has a high process loss percentage, you can investigate to see why this is happening and take steps to reduce the waste.
Conclusion
ERPNext is a comprehensive enterprise resource planning (ERP) software that can help manufacturers optimize their manufacturing costs and improve their overall efficiency. By tracking expenses throughout the manufacturing cycle, using the right costing method, and implementing waste reduction strategies, manufacturers can use ERPNext to achieve significant cost savings. Additionally, ERPNext's reporting capabilities can provide valuable insights into manufacturing costs and help manufacturers make informed decisions about pricing, production scheduling, and cost-cutting initiatives.
Written by - Amit Parab
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