Resolve Financial issues

Establishing better financial control and information

This page looks at ways to improve financial control and information.

Engineer to order (ETO) product manufacturing companies provide products tailored to customer requirements. These companies generally offer product solutions which are loosely termed as ‘standard’, although product design defers until a customer enquiry or purchase order is received. The product solution offered to the client is incomplete and based only on an outline of the intended solution. The outline product solution lacks detail, and therefore both the design and the cost of the product remain uncertain. Engineering is expected to clarify these design details at a later stage.

By deferring detailed engineering until after a customer order is received, product design is reactive. This paper looks at some of the problems and considerations companies can experience with reactive product design. The paper also shows how product standardisation can help companies overcome these problems, reduce delivery time, save cost and reduce errors.

Problems facing the Finance team

  • Sales cost
  • Delivery
  • Profitability
  • Product cost
  • Contingencies

 

Sales cost clock

Sales cost

Costs relevant to this paper can be broken down into several categories

  • Sales proposal cost: This cost includes the time to gather information and to prepare customer quotations. The cost may include time spent by other departments such as Engineering or Production to help in the assembly of the technical or commercial details.
  • Cost accuracy: This is the accuracy of the information used by Sales to prepare customer quotations.
  • Order conversion: Much of the work carried out by Sales does not result in a customer order. The order conversion rate significantly affects the cost of selling.

Engineer to order (ETO) product companies must have the means to provide sales teams with quality product information without delay. The failure to provide good quality product information may be losing the company business and adding to sales cost. It is not sufficient for sales teams to use generic information, or to ask the customer to wait while engineering prepares product details. The sales cost is greater for companies suffering from low order conversion. Low order conversion rates increase the urgency to reduce sales cost. Technically and commercially accurate quotations are of paramount importance to be competitive.

By working differently, companies can reduce sales cost, reduce time to prepare quotations and lessen the opportunity for error. See more …..

 

Delivery time truck

Delivery time

There are many factors which can influence delivery time

  • Excessive delivery time can deter a customer from placing a purchase order
  • Late delivery can cause considerable customer dissatisfaction, deter future business and can in extreme circumstances result in late delivery penalties
  • Errors can cause late delivery
  • Information received late can result in late deliveries
  • Change can be the catalyst for late delivery

Engineer-to-order (ETO) product companies are more likely to incur excessive delivery time if product design takes place after receiving the customer order. Additionally, the company may incur more cost and exposure to additional risks of error. Furthermore, to counter errors, there is additional time and cost for checking the resulting rework to both products and documentation. By working differently, companies can reduce delivery time, reduce costs and avoid unnecessary risks. See more …..

 

profitability graph

Profitability

Many factors can affect the product profitability including;

Unreliable costs: Costs taken from unreliable of historical projects

Estimation: The poor estimation of time or cost

Change: Change results in additional time, money and risk

Errors: Rework results in additional time, money and risk

Healthy product margins are essential for a business to succeed. Good access to reliable and accurate product cost information is essential to many areas of the business. Sales need accurate information to prepare customer quotations. Finance teams need confidence that these costs are accurate and up to date. Product managers and engineers need quality cost data to make informed design decisions. Production needs to know that the costs used in the customer quotation are realistic when they come to manufacture the product. Product standardisation offers one way to ensure costs are accurate and profitability targets are met. See more …..

 

Product cost dollar

Product cost

Many factors influence product cost, including;

Reliability: The reliability and accuracy of reference information

Currency: Cost information is quickly out of date

Accessibility: Access to quality information whenever needed

Volume: The volume of data maintained

Sales teams are resourceful when compiling information for customer quotations. They are particularly resourceful when calculating the product cost. Sales use many methods to determine the cost of a product, some of which may be unreliable. This paper looks at a method to resolve unreliable product cost. The information available to Sales influences the reliability of the cost quoted to customers. Without a reliable, cost base, it is impossible to know if the price quoted returns an acceptable profit. By working differently, Sales can access accurate product costs which are regularly updated. Eliminating unreliable product costs ensures the company achieves acceptable profit margins on sales. Having confidence in the product cost allows Sales to price competitively when necessary. See more …..

 

Product contingency umbrella

Contingencies

Sometimes contingencies are applied to product costs when there is a lack of confidence in the reliability of the costs.

  • Contingencies mask the underlying problem and make it more challenging to correct cost issues.
  • Competitive quotations are more difficult when contingencies inflate costs

Product contingency masks the underlying problem of inaccuracy and lack of repeatability. Contingencies add costs to products arbitrarily, making it difficult for sales teams to price competitively. The practice sends out a very negative message to staff responsible for product definitions and sales. See more …..