Finance Transparency

The Problem

Costs are often separated from operations, hiding true profitability. Management makes decisions based on estimates rather than actual data, leading to pricing errors and unprofitable products.

Real Experience

A manufacturing company used standard costs for all products, updated annually. When they finally analyzed actual costs, they discovered their "best-selling" product was losing money on every unit. Labor, material waste, and machine time were significantly higher than estimates, but this was invisible in their financial reports.

The Solution

Labor, machinery, and tools must have real costs applied to each activity. Post-calculation of product costs becomes accurate when PDM and WMS data feed into finance. Formula-based allocation ensures costs reflect actual resource consumption.

Key Recommendations

• Integrate financial systems with operational data sources (MES, WMS, time tracking)
• Implement activity-based costing for accurate product profitability
• Track actual resource consumption, not just standard costs
• Establish cost centers and allocation rules based on real operations
• Provide real-time cost visibility to operational managers

Mistakes to Avoid

• Using fixed rates without tracking actual usage
• Separating financial reporting from operational systems
• Not updating cost standards based on actual performance
• Failing to allocate overhead costs accurately
• Missing the connection between work orders and actual costs