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Weathering the Storm of Rising Inflation
Achieving growth and profitability as a manufacturer takes a balancing act between the price of your product and costs to manufacturer it. Managing manufacturing costs is an ongoing effort that takes periodic monitoring. In our Guide to Cost Savings for Manufacturers e-paper, Doeren Mayhew’s manufacturing CPAs explore nearly 50 ideas for managing manufacturing costs. Here are four to consider in the area of inventory spending:
The level of inventory you keep on hand directly affects your time and resource management. Obsolete and excessive stock can quickly increase your carrying costs.
To determine what inventory to eliminate, first review historical sales reports, looking for products that have experienced a decline in demand. When you find such products, estimate how long it will take to sell your remaining inventory. If it’s going to cost you more to stock these items than the potential profit you might earn, consider reducing the price to unload these budget-draining items.
Forecasting isn’t an exact science, but operating with accurate data is necessary for forecasting true demand. Perform forecasts not just annually, which is the baseline needed for financial accountability, but monthly. The more frequently you forecast, the more confident you can be that your data is accurate. You’ll also be able to catch discrepancies sooner.
How long has it been since you evaluated your quarterly analysis, weekly forecasts and seasonal planning methods? Check with your manufacturing CPA to make sure you’re following forecasting best practices.
Getting products into inventory faster means fewer products need to be stocked. Work with your suppliers and warehouse staff to speed this flow by suggesting new processes and innovations. For example, simplify product tracking by adding purchase order numbers to the outside of boxes.
Do your homework before making a bulk purchase. Examine historical sales to determine future trends and calculate the ordering cost, which includes any fixed fees the supplier charges each time you place an order and the number of hours an employee spends on ordering, transportation and receiving.
You’ll also need to determine the holding cost rate, or the cost of acquisition, taxes, breakage, insurance, warehouse overhead and pilferage for each purchase. Once you’ve compiled your background information, you’ll be able to assess the potential purchase’s value.
After you’ve implemented the cost-saving steps best for your organization, the work isn’t over. You must continue to monitor progress and weed out waste. Evaluate your inventory purchasing system periodically, keeping an eye on customer service, supplier performance and internal assets.
Above all, make sure you’ve assembled a committed team. Professionals dedicated to efficiency and continuous improvement will drive your business forward.
For more ideas on managing manufacturing costs, download our Guide to Cost Savings for Manufacturers e-paper, and contact Doeren Mayhew’s dedicated manufacturing CPAs in Michigan, Houston or Ft. Lauderdale.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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