REAL WORLD
SCENARIOS
Volume 4
Cases 11 - 13
Identifying True
Product Costs
Segmenting Costs
Simulating Cost Changes
Maintaining standard costs in
a multi-site environment
Identifying True
Product Costs
The nature of the food and beverage industry generally
to a business and identifying and understanding the true
leads to the adoption of “Process Costing” that allows
costs of your end product can lead to an improvement in
businesses to track and accumulate direct costs while
your overall profit margins.
allocating indirect costs thorough the manufacturing
In todays’ global economy, companies in the food and
process. The manufacturing process is usually batch based
beverage industry face daily challenges in product
where costs need to be allocated to individual units of the
management, including::
product for a period of time or at a set point in time. This
>> Increased competitive environments
is the opposite of Job Costing which attempts to measure
>> Increased legal requirements and standards
individual costs of production for each unit, instead of
>> Complex supply chains
assigning an average cost.
>> Empowered customers and end users
In many segments of the food industry, a single percent
>> Retail consolidation
cost change can represent a huge impact in the overall
>> Tighter margins and rising costs
profitability of a product. The monitoring and management
of the unit costs through the production process is critical
All of these factors are forcing manufacturers to review
their methods and approaches. It is clear that a more
accurate understanding and management of actual product
costs enable businesses to make timelier and intelligent
business decisions, thus reducing risk and creating
competitive advantage.
The following case studies illustrate how Columbus has
helped many companies address these issues using
Microsoft Dynamics together with ColumbusFood.
Case 11:
Segmenting Costs
!Issue
?
Problem
!
?
A food products manufacturer had insufficient visibility
The inability to see the segmented cost of a product
of the cost of each product; all they could determine was
within the system blinded the business to many issues
the full cost attributed to the unit upon completion of
and made them slow to react to rapidly changing raw
the batch. The business employed a cost-segmentation
material costs. With the smallest change in unit cost
breakdown in Microsoft Excel to help understand their
impacting the overall profit margin, the business was
cost structure. The vast majority of the cost was for
painfully aware of the need for more accurate and timely
material, split into subsections of raw material and
information.
packaging, while the manufacturing costs were split
None of the manually-captured cost segmentation
between the mixing line, dressing line and packaging line.
information was visible to the business and the manual
nature of the spreadsheets led to generalizations and
errors.
Due to the manual nature of the work, there was no
analysis of indirect costs on the end product.
4
!
?
!
?
Remedy
Benefits
Using Microsoft Dynamics and ColumbusFood each
The monitoring and management of costs through
item is assigned a cost group. The work centers where
the production process is critical to the business. The
the products are manufactured are also assigned
system gives the business real-time accurate costing by
cost categories to cost the labor elements of the
business defined segmentation, in addition to costing at
manufacturing process. In addition, the costing sheet is
transaction levels.
configured to display all of the cost groups, and in turn
Having visibility of the configured cost segmentation in
these are used to create indirect cost apportionment for
inventory and production creates a better understanding
the labor and materials.
of the cost elements of the finished product. This is turn
This approach means that upon configuration of the
allows the business to better target changes that improve
Formula and Routing, the business is able to run a cost
overall profitability. .
calculation and get a fully-exploded cost breakdown
Replacing the manual entry of information with a
reflecting the cost group segmentation.
system-driven solution improves the accuracy of the
In addition, one of the automated steps is a cost
information while removing a time consuming task. The
estimation which takes the expected formula and usage
real-time management information facilitates improved
and apportioned costs based upon the cost segmentation
decision making.
including the indirect calculations. When production
has finished and the reporting elements of each step
are known, comparisons can be undertaken at a cost
segmentation level to see where variances are being
encountered.
5
Case 12:
Simulating Cost Changes
!
!
Issue
?
?
Remedy
The cost accountant at a food products manufacturer
With Microsoft Dynamics and ColumbusFood the business
wanted to simulate the impact of potential cost changes
is able to maintain the standard costs for all items
on the calculated costs of manufactured items.
within multiple costing versions as well as the active
cost records for labor rates and overhead formulas. The
Problem
!
?
active cost records can be used as the fall-back principle
in cost calculations, meaning the system picks an
alternative-defined costing version rather than the item
Since the ERP system did not support defined routing,
record cost.
the company had no ability to simulate cost changes or to
The approach of multiple costing versions allows for the
allocate overheads based upon material.
creation of a costing model containing planned costs to
The inability to plan for potential cost changes made
define pending cost records for the selected items, labor
the business slow to react to rapidly changing raw
rates and formula the business wanted to run simulations
material costs and made future planning difficult. With
against. The structure and data in this costing version
the smallest change in the unit cost of the finished item
represents the potential cost changes and this means
impacting the overall profit margins, the business knew
any cost calculation for this costing version presents the
there was a need for accurate and immediate information.
impact of the altered cost base.
The inclusion of an automated route enables the
business to apportion overheads on the finished product
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quantity without any additional work outside of the initial
These changes can be analyzed at item and process
configuration of the product. In addition, the allocation of
specific levels or at cost group segmentation levels.
overhead costs, based upon material, gives the business
Having the visibility and ability to simulate the change
a simple yet flexible apportionment of overheads that can
of costs leads to a better understanding of the cost
be altered in the simulated costing version.
elements of the finished product and what impact various
The business then uses the calculation inquiry to
changes would have. This in turn allows the business to
interrogate the item cost records by cost group
better target cost changes, or alterations to the selling
segmentation and at an individual item and process step
price, that would lead to the improvement of overall profit
level to ascertain the full impact of the cost changes
margins.
across the product cost.
The introduction of a route that is automatically flushed
!
?
enables the business to build a first step production
routing and critically gives the business the ability to add
Benefits
indirect costs to the production process and analyze the
impact on the overall cost of the product.
The entry of the costs into a costing version enables
the segmentation of costs to allow simulation. The
management of the costs through the costing version is
critical to the business to give them the ability to quickly
and accurately see the impact on profit margins, and
selling prices based upon changing the make-up of items.
7
Case 13:
Maintaining Standard Costs
in a Multi-site Environment
!
Issue
?
!
?
Remedy
A food products company had multiple manufacturing
In order to maintain standard costs across multiple sites,
sites producing different finished products. Theses
the cost accountant has used the Microsoft Dynamics
finished products were then transferred to a distribution
costing version functionality; defining multiple costing
site. The business wanted to have standard costs per
versions to represent each site and holding the standard
site per year to aid in the management of costs in future
costs for the current year. The cost accountant in addition
years.
defines multiple costing versions for each site’s standard
costs for the next year, using the copy functionality to
Problem
!
?
utilize the existing standard costs and to adjust them.
The process adopted by the cost accountant to use
these costing versions forms a three-step approach to
The old system allowed the standard cost to be held
maintaining next year’s standard costs, as summarized
per item but not per site. In addition the system did not
below:
allow for planned scenarios; this meant the process of
Step 1: Prepare next year’s standard costs at the
updating the standard cost was a single process - they
manufacturing sites
would run an update routine and then publish the update
To create pending costs representing next year’s
routine to over-write the existing standard costs. No
standard costs, the cost accountant copies the active
real analysis could be undertaken and therefore the
cost records from one costing version to another for
business developed an ad-hoc import and export tool
each manufacturing site. The pending date is January
to take the current standard costs out of the system.
1st. The cost accountant updates the pending costs
Once the business had defined the set levels for the next
for purchased items to reflect expected cost changes
year, these were imported back into the system. Having
and calculates the costs for manufactured end items.
this process outside of the system caused the business
In addition, set item groups can be brought in with an
problems due to the inability for management to make
adjustment across the previous year’s cost to reduce
amendments and changes.
the manual work of the updates. All of this contributes
8
to preparing next year’s standard costs as pending
analyze the costs of the finished products within the
cost records.
version prior to release. This gives the business forward
Step 2: Prepare next year’s standard costs at the
visibility of the impact of changes, how they affect the
distribution site
profit margin and in turn whether the business has to
The cost accountant copies the pending cost records
alter selling prices for the year. This analysis can take
for end-items from the costing versions for each
place at a detailed item by item level or segmented
manufacturing site to the costing version for the
by cost group depending upon the level of detail the
distribution site. As part of the copying process
business needs for decision making.
the item cost records are marked up by an agreed
Overall the business has gained greater control over
percentage to reflect the freight and handling costs
processes and improved visibility of the impact of the
associated with the transportation of the products
changes to make business decisions on the adoption of
from manufacturing to the distribution site.
the new standard costs.
Step 3: Activate next year’s standard costs
On January 1st the cost accountant activates the
pending cost records within the costing version
!representing?next year’s standard costs.
Benefits
The control of the costing versions by site enables each
site to have different indirect costs and cost categories to
reflect the changing nature of cost impacts of different
production sites. In the previous system, the standard and
indirect costs are company-wide restricting any flexibility
by site.
Having the management and simulation of the cost
changes within the base ERP system removes all security
and amendment issues previously experienced by the
business. In addition, the business can see all of the
elements, and amend them giving full and detailed
visibility of the cost changes and the impact on profits.
The copying of the costing versions from one year
to the next by site is a simple process that removes
the necessity for manual intervention while reducing
errors. Having the ability to copy in part or stages and
make adjustments on the copy is a great time saver.
The automatic copy to the distribution site with agreed
percentage uplift reduces input time.
Using the costing version means the business can
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ColumbusFood
The issues and challenges presented here and many
ColumbusFood allows you to utilize the solutions and
more are addressed by ColumbusFood. ColumbusFood
functionality you need.
!
?
is an integrated business solutions tailored for food
sectors such as prepared foods, produce, meat, dairy and
bakery. It includes a combination of our award winning
food and beverage software, our industry templates and
>> Microsoft Dynamics AX or Dynamics NAV
implementation methodology all built onto the flexible and
>> Columbus F&B (Food and Beverage)
reliable Microsoft Dynamics platform.
>> Columbus SCS (Supply Chain Solution)
ColumbusFood starts in the supply chain, though
>> Columbus BIS (Business Integration Software)
warehousing, inventory, production planning, manufacturing,
>> Columbus Business Intelligence Software
sales, service, equipment maintenance and delivery routing.
>> Columbus RapidValue
It is widely known as delivering operational efficiency in
>> Columbus SureStep+
the supply chain, improved business intelligence and risk
>> Microsoft Dynamics CRM
reduction through improved food safety and compliance.
10
Introducing Columbus RapidValue
RapidValue has been designed and developed by Columbus
RapidValue enables customers to translate business
to help organizations implement best practice business
process models into solutions while working directly in
processes alongside their ERP implementation.
Microsoft Dynamics AX. RapidValue is designed to meet
80% of your industry requirements out of the box.
RapidValue is a Business Process Modeling solution
that is fully integrated into Microsoft Dynamics AX, the
>> Business processes
foundational platform of ColumbusFood
>> User procedures
>> Application functionality
>> Streamline business processes for
efficiency and speed
>> User roles and profiles
>> System set-up and base data
>> Adopt best practices when appropriate
to the business
>> Standardize business processes across
the organization
11
The ColumbusFood Real World Scenario Series
INTEGRATING QUALITY
MANAGEMENT
SHELF LIFE
BATCH ATTRIBUTES
EXPIRATION DATES AND PLANNING
CALCULATIONS
PERISHABLE WAREHOUSE/
TRANSPORTATION MANAGEMENT
BATCH ATTRIBUTES
IN-LINE PRODUCTION TESTING
REAL WORLD
SCENARIOS
Volume 3
Cases 8 - 10
Volume 2
Cases 5 - 7
Volume 1
Cases 1 - 4
MANAGING
PERISHABLE
ITEMS
REAL WORLD
SCENARIOS
REAL WORLD
SCENARIOS
REAL WORLD
SCENARIOS
MANAGING CO-PRODUCTS
PURCHASED MATERIAL
NON-CONFORMANCE REPORTING
UNDERSTANDING COSTS FOR
PLANNING AND PRICING
OPTIMUM YIELDS WITH FULL
TRACEABILITY
Volume 4
Cases 11 - 13
IDENTIFYING TRUE
PRODUCT COSTS
SEGMENTING COSTS
SIMULATING COST CHANGES
MAINTAINING STANDARD COSTS IN
A MULTI-SITE ENVIRONMENT
COSTING OF CO-PRODUCTS
Volume 1
Volume 2
Volume 3
Volume 4
Cases 1 through 4
Cases 5 through 7
Cases 8 through 10
Cases 11 through 13
Thanks to the ColumbusFood Team for sharing their Real World Scenarios: Steve Weaver, Dave Ward
and Scott Hamilton.
For more information on Columbus, our client’s experiences
and our solutions, please visit www.columbusglobal.com
About Columbus:
Columbus currently employs over 1,000 dedicated professionals working out of
41 offices in 21 countries. With more than 20 years experience and 6,000 successful
implementations, Microsoft recognizes Columbus as a top global partner and has
presented the company with virtually every award and certification available.
’Columbus’ is a part of the registered trademark ‘Columbus IT’