profitability graph

Profitability solution

Healthy product margins are essential for a business to succeed. Good access to reliable and accurate product costs are essential for managing profitability. Without accurate and timely information it is impossible to make adjustments to correct poor profitability. Margin erosion can occur for numerous reasons including errors, failures, poor estimation and many more. The management of product margins depends upon good control of costs and pricing strategies.

Problems:

There is numerous product costing systems in use, some useful others not. Often a combination of different costing systems is used. Costing systems based upon estimation require skill and accept a degree of inaccuracy. These systems are costly to maintain and add delays. Costing based on prior experience is not uncommon, these systems can also be inaccurate, and errors passed from one project to the next. Some companies compound errors by applying incremental increases to product costs year on year. Incremental increases are quick to apply but lead to high levels of inaccuracy.

Solution:

If sales costs are accurate and no further costs are incurred during the design, specification or manufacture of the product, target product margins will be achieved. Product standardisation can ensure that the information used by sales is accurate. Further processing and information transfers are eliminated, reducing the opportunity for error

A cost database is developed together with a standard product reference library. Ensuring that the standards are complete, accurate and contain all the data required by stakeholders. Use standard costs in preference to dynamic costs. Actual costs are volatile and are affected by quantity, availability and supplier. Associate standard costs to each standard component. Regularly, the standard costs are compared against actual costs using a variance report and manual adjustment made if necessary.  Standard costs are attached to each component and allocated to a total cost as the product is configured.

 

Advantages from different perspectives

  • Faster receipt of sales quotations
  • Opportunity for more competitive prices
  • Accurate product costs
  • No estimating uncertainties
  • Reduction of skills required
  • Reduced sales support time and cost
  • Fewer bottlenecks requiring management attention
  • Increased profitability with the reduction of cost and risk, while improving  productivity
  • Accurate product costs
  • No estimating uncertainties
  • Reduced sales support time and cost
  • Fewer bottlenecks requiring management attention
  • Increased profitability with the reduction of cost and risk, while improving  productivity
  • Accurate product costs
  • No estimating uncertainties
  • Reduced time to issue customer proposals
  • Reduced sales support to define technical details and costs
  • Fewer bottlenecks requiring management attention
  • Accurate product costs
  • No estimating uncertainties

 

Further help and assistance

Gatehouse Design are specialists in product standardisation, product configuration and design automation. We can help companies develop highly effective product strategies, maximising profitability, productivity and customer satisfaction. We can help you improve profitability and improve the efficiency of your business. Please contact us to discuss any product design related issues that you may have.

There is an offer a free product audit to help identify opportunities for product standardisation, product configuration and design automation. Additionally, Gatehouse Design has published many helpful white papers and articles which are available on this website.

 

The author

Written by Peter Slee-Smith 14/05/2018.

Peter Slee-Smith founded Gatehouse Design in 2012, a Chartered Mechanical Engineer with more than 30 years experience in industrial design. Peter qualified with a Masters Degree and has held senior positions in many leading engineering and product manufacturing companies. He is passionate about product design efficiency and has written many articles on the subject. Based in Littleport just outside Ely in Cambridgeshire, Gatehouse Design specialises in product standardisation, configuration and design automation.

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