Finance Management

What are the main factors that make it difficult to determine costs in small and medium-sized industries?

admin • 17 Sep 2023

As it is a non-serial process, the construction of a tool is more complicated to determine, in terms of costs .

This verification of tooling is very different, for example, from the manufacture of screws – which are serialized. In this manufacturing, due to its standardization, each step can be calculated much more easily. In the construction of a tool, this becomes complicated, as it is custom-made and, therefore, it is rare for there to be two or more identical ones.

It is possible to only have an estimate of the costs required to assemble a tool, which is made based on a sketch provided by the customer, which can be changed over the course of production .

Another complicating factor is the time it takes to convert the quote into orders. In other words, the initial budget is given to the client, but he and his company have internal processes, which can ensure that the budget is approved just a few months later. However, at this time the price of materials , or even the cost of energy needed to build the tooling, for example, may have been affected and increased.

Furthermore, there may be cases of so-called “dead parts”, in which the parts may be machined incorrectly, receive the wrong heat treatment, and, as a result, the block is lost and it is necessary to buy a new one, possibly from a new price, and start the whole process over again.

What are the main measures that can be implemented by the manager to resolve these pains?

In Brazil, there is great difficulty in defining a methodology for

budget systematization. Companies end up calculating budgets for the same part, with huge differences, which should not happen.

Christian reported in the interview that in one of the courses he taught, two groups of businesspeople were asked to calculate the costs of the same part, the same tooling, and that there was a difference of almost 600% between these calculations. In this activity, one of the groups came to the conclusion that 200 kg of tooling would cost 50 thousand , while the other concluded that 1150 kg would cost 300 thousand.

In other words, there needs to be a coherent calculation methodology, a standardization of the way to calculate these costs, based on mechanics, technique and data, to train and systematize companies in the construction of tooling budgets. The lack of this systematization also affects the conversion rate into sales .

How can software help the manager and the company's overall results?

Management software, such as ERP Industrial , facilitates the entire production process and calculation of tooling costs.

They help in fully visualizing all the processes and factors included in this production, unlike Excel spreadsheets or handmade calculation notes, as these lack reliable information , as they are much more susceptible to errors and duplication of data.

When using software, all sectors and stages of production and sales will be interconnected, automating the flow of information within the company, making it much easier to calculate tax variations, for example, and, consequently, calculate possible discounts. in products.

These management tools precisely optimize and boost the circulation of data, which directly impacts the company's results in a positive way.

Difference between turnover and profit

Revenue is the total revenue that enters the company, including the amounts discounted to cover operating expenses and the remaining revenue – profit .

Once the company's results generate profit, it can use this money to reinvest in the company, keeping it updated in the market, both in machinery, computers and maintenance of facilities and in employee training, for example, so that productivity is boosted in all company environments.

This is essential for it to stand out from the rest, maintaining its level and competition.

Difference between 6 essential concepts in finance

Spending

They are all types of money outflow from the company and are divided into: Costs, Expenses, Investments and Non-operational expenses.

This last type differs from the others, as it is not part of the company's business expenses, such as loan payments, for example.

Costs

They are directly linked to production, that is, any end activity that makes the product ready for sale.

It is divided into fixed cost and variable cost :

• Fixed: It is not affected by any variation in the business, that is, it remains the same, such as machinery, for example;
• Variable: Monitors business variations and may increase or decrease, such as raw materials.

Expenses

Everything that is not directly involved in the product. These are expenses linked to the administration and commercial sector of the company, such as accounting services , security, food, etc.

Investments

These are values ​​used to generate returns for the company, that is, to bring more revenue, such as new automated machines, for example.

Earnings

They are the revenue obtained by the company through the sale of its products. In other words, the production that was converted into sales.

Losses

These may be products with errors or expired ones – which need to be discarded, as well as amounts spent to cover unforeseen failures or accidents.

What are the impacts of raw material shortages and price fluctuations on profitability?

According to Christian, on average, 20% of the cost of a tool comes from raw materials and accessories. If there is a large variation in the price of these components, great caution is needed when creating a quote for a client, because they will often not accept a new calculation on it.

If there is a large increase in the price of raw materials, the company must pass the price on to the customer, so that it does not end up at a loss. Therefore, for this conversation to occur in a friendly manner, the company must be honest with the customer from the beginning about the possibility of a new quote.