5 Ways Manufacturers Can Improve Their Processes for Determining the Cost of Goods Sold

ByBusines Newswire

Manufacturing businesses have little control over many of the challenges they face, from tariffs and supply chain disruption to rising material costs and labor shortages.

It’s an environment of narrow margins and steeply competitive markets, where the ability to stay competitive can hinge on a grasp of the smallest costs. A thorough understanding of the true cost of the products you manufacture can prevent costly oversights and give you more control over the things you can control.

Here are five ways to broaden your view of your cost of goods sold (COGS) and take control for a stronger position in a tough marketplace.

1. Improve Inventory Management

The perfect inventory strategy, as every business owner knows, is the so-called “just-in-time” (JIT) method, where you never have more inventory than exactly what you need for sales under contract. But in the real world, manufacturers may have to wait months for materials to arrive from the other side of the world. Here’s what you can control: financial reporting that provides transparency and analysis of historic sales and supply trends for better, more accurate forecasting.

2. Fine-Tune Manufacturing Efficiency

The challenge of keeping up with production demands, especially when business is good, can obscure small inefficiencies in your manufacturing flow. But it is well worth the time and scrutiny to eliminate wasteful tasks and even little bottlenecks in processes.  Small inefficiencies can add up to big expenses over time.

3. Minimize and Re-Use Scrap

Scrap is another factor that inflates the cost of goods sold, and while it is easy to overlook, sometimes it is an overlooked opportunity. Out-of-the-box thinking for minimizing scrap or putting it to use may result in cost-saving innovations.

4. Practice Preventive Maintenance

It’s understandable to want to put off expensive maintenance services, especially if they require downtime or an interrupted production schedule. But regular maintenance is an investment in preventing downtime and interrupted production. Unscheduled downtime also tends to be more expensive, given the labor costs of idle employees.

5. Make Sure You Have Reliable Financial Reporting

Solid financial reporting is the foundation of good strategies for reducing costs and growing your margins. You need reporting that provides both real-time insights into the financial health of your business and historic tracking you can use to plan and forecast for better cost controls and decision-making.

Your financial metrics should provide you with insights you can use to shrink costs, fine-tune pricing, and limit your exposure to fluctuations in material costs, while driving process improvements across your operations:

  • Inventory planning
  • Material cost management
  • Cash flow projection
  • Sales forecasting
  • Monthly financial statement tracking and reporting
  • Accounting software cleanup and process development
  • Product costing
  • And more

Manufacturing Industry Accounting Support

Growth-minded manufacturing business owners need more than a tax return from their accounting provider; they need financial visibility for better decision-making and process improvements that drive profitability, competitive advantage, and long-term growth.

About Kirsch CPA Group

With a holistic approach to accounting and outsourced controller services, including tax planning, preparation, filing, advisory and consulting services, Kirsch CPA Group, an accounting and CPA firm serving Hamilton, Cincinnati and Dayton, Ohio, helps manufacturing clients develop solid plans for meeting short and long-term financial goals.

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