In many manufacturing enterprises, there exists an unseen yet expensive battle every month between two departments. While the shop floor team cares about throughputs and yields. The accounting team cares about margins and cost control as well as accurate reporting. Traditionally, these two teams have lived in very different universes using completely different datasets for what they do. However, with the competitive manufacturing environment of today where margins are getting thinner, this silo approach has become not only inefficient but a major risk for businesses. Following are some of the reasons why manufacturing and accounting teams need to operate off the same data set.
Accurate Product Costing
Product costing is the area where the rift between accounting and manufacturing produces its most devastating effect. The use of stale spreadsheet-based static cost systems by accounting combined with the dynamic nature of the factory floor where things like changes in cost of materials, scrap and machine breakdowns constantly occur, produces a financial picture that bears no resemblance to reality.
But once the two groups have access to real-time data, specifically the real-time integrated BOM and routing data. The actual cost information becomes visible in real time. This avoids the dreaded “month-end surprises,” where a seemingly profitable product line turns out to be a complete disaster because of previously unrecorded inefficiencies.
Elimination of the Inventory Black Hole
In manufacturing operations, inventory is everything and yet inventory is the most problematic issue for the relationship between production and accounting. Manufacturing uses location-based inventory management or batch-based inventory management while accounting uses value-based inventory management.
Without integration, problems will occur. Work-in-Process (WIP) may remain in the manufacturing facility without being reflected in the general ledger, thus distorting the balance sheet. At the same time, accounting records raw material as having been used even though the manufacturer knows that they have not been used and are still waiting in the staging area. The common data set guarantees that movement of parts in the manufacturing facility automatically updates the financial ledger.
1. Allowing for Real-Time, Adaptive Decision-Making
The very nature of the manufacturing process involves volatility whether a supplier fails to make an expected delivery, an equipment stops functioning, or an urgent order arrives. If both accounting and manufacturing departments have access to the same information, it becomes possible to assess the financial effect of any incident in real-time.
In case the manufacturing department decides to speed up their shipment to get the process done, it will immediately know the effect this premium charge has on the profit margins of this operation.
2. Building Trust and Getting Rid of the Blame Game
The most underrated aspect of having data in one place is the culture change it brings about. Siloed data leads to an ugly month-end blame game, in which accounting blames manufacturing for missing scrap and manufacturing retaliates by blaming accounting for not updating labour rates.
Once both sides have the same dashboard in front of them, there will be no more games of blame. There will be one single version of the truth, and this will create a lot of trust within departments and make them work together as a team.
The Bottom Line
Closing the distance between the shop floor and the back office cannot be done merely through goodwill but also needs a technological bridge i.e. x2x Lite Manufacturing that can help both worlds understand each other. Once manufacturing and accounting speak the same data language, they can become a tough, efficient and transparent business that can properly price its products and manage its inventory.
