Manufacturing = making + selling.
Easy right? Not so much.
When you have to set a long-term sales price for your contacts – how do you make sure you’re pricing competitively but you’re still protecting yourself against fluctuations? You could look at building review triggers into your proposal. For example, if sterling goes below a certain level or the price of oil increasing by a set amount. It’s also important to insist that orders have minimum amounts/notice clauses if they’re cancelled.
Once you’ve set your price, you’ll need to know how your performance is going against your expected “standard cost”. You’ll need a system in place that gives you a crystal-clear summary of usage and price variances for the material and labour. If you have this you’ll be able to spot issues like whether the setup stage overran, leading to you having to pay overtime – adding up to more labour costs that you were expecting. It sounds simple, but accurately tracking this across multiple production lines isn’t easy.
Once you’ve spotted any differences, it’s then about being able to make decisions based on what you’ve found. Not just in terms of overspends but also underspends. For example, if a project is underspent, are there any learnings that you can now roll out across the business to increase efficiency?
We’ve all seen the impact that even just a couple of unpaid sales invoices can do to cash flow in this industry. Your credit control process is crucial. Starting from the day you raised the invoice, to getting confirmation of receipt and it being approved to the payment date being confirmed and the follow up action you have in place if it becomes overdue. You’ll also want to understand if you need to ensure invoices if clients have a poor credit rating/history.
Manufacturing is a complicated industry and businesses need to make sure they can stay on top of the game by having an experienced finance director on side. Accounting information needs to be accurate and available in real time so that decisions can be made using the right data.