Manufacturing: Improving Inventory Control and Product Profitability
- Reduction in days sales outstanding (DSO)
- 10 daysReduction in days sales outstanding (DSO)
- Average monthly cash available for operations
- 30% increaseAverage monthly cash available for operations
- Annual company revenue
- $30M Annual company revenue
The Business Challenge
Management needed a clearer view of costs and profitability across its steel structure projects. Purchased steel, reusable remnants, fabrication labor, and material waste were not consistently connected to individual jobs, making project costs difficult to assess. Better material tracking and job costing were needed to support estimating, pricing, and purchasing decisions.
The Recommended Approach
Connected material purchases, inventory usage, fabrication labor, and project revenue to evaluate profitability by job. Reviewed how purchased steel, reusable remnants, and scrap were recorded and assigned to projects. Incorporated available remnants into material planning and compared estimated costs with actual production costs to identify variances and improve future estimates.
Financial Impact
Improve inventory visibility, identify slow-moving materials, and make better purchasing and pricing decisions. Clearer job costs also help management address margin pressure and identify opportunities to reduce cash tied up in inventory.
Steps in the Approach
- 01Reviewed material inventory: Evaluated purchased steel, reusable remnants, and scrap to clarify what was available for production and how it was recorded.
- 02Connected materials to jobs: Assigned material usage and related costs to individual projects to improve visibility into job profitability.
- 03Incorporated fabrication costs: Included direct labor and applicable production overhead to give management a fuller view of each job’s cost.
- 04Compared estimates with actual costs: Identified material and labor variances to explain margin differences and improve future estimates.
- 05Improved purchasing visibility: Compared available materials with upcoming project needs to identify purchasing requirements and opportunities to use existing stock.
- 06Established job profitability reporting: Presented revenue, material costs, fabrication costs, and margins together so management could identify jobs needing attention.