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Evolution of Textile Cost Management
With impending retirements of many senior cost managers, a
leading textile producer needed a new solution to manage
their complex costing process. The company required a
comprehensive cost management tool to eliminate the existing
layers of spreadsheets used to track, manage and analyze
costs. The manual process, which required keying data into
multiple systems, was both time-consuming and populated with
inaccuracies. Impact:ECS furnished the textile company with
a flexible tool that served as more than just a database for
cost information. The manufacturer was able to analyze cost
trends to the most detailed level, perform scenario analysis
for future spending, value inventory at any stage of the
production process and generate relevant reports – all
leading to enhanced decision-making abilities for the
business leaders in shorter times.
Current Cost Management Situation
The textile producer's existing cost management systems
consisted of multiple spreadsheets to handle the enormous
amount of data produced while manufacturing denim. Product
costing was extremely time consuming because the process was
entirely manual. If the marketing department requests a
product cost, for example, the cost accounting group would
collect the data from the company's mainframe system, review
for missing information, and request updated data from the
mill personnel. Then, spreadsheets for standard product cost
and breakeven analysis were developed and sent
electronically to the marketing group. This information is
then re-keyed into other enterprise systems and spreadsheets
to finally value work-in-process. The lack of integration
produces significant inaccuracies in determining product
cost.
Furthermore, much of their manual costing process is guided
by a group of experienced senior cost personnel, many of
whom are at or near retirement. Over the years, this group
learned to make intuitive decisions because of their
immersion in the production and costing process. Now the
company needed a way to capture vital information about
their costing methodologies in a centralized place to
increase the information’s accuracy without losing the
knowledge gained by the cost personnel.
They also had limited budgeting and scenario analysis
capabilities with their largely spreadsheet costing system.
The manual processes made it difficult for business leaders
to understand future spending and revenue trends. And the
dependence on the cost accounting personnel to generate
models for each potential business scenario is a large time
and resource commitment.
Impact:ECS’ flexible architecture provides solutions to
improve the producer's entire cost management process. The
cost models used by the system are completely customizable
to mirror business processes within the mills, making it
possible to correctly calculate costs. Integration with
existing IT infrastructure is another component of
Impact:ECS that helps companies increase cost data awareness
throughout the organization.
Impact:ECS Solutions
The first set of goals for the project revolved around
developing an accurate cost management tool that reflects
current production and business processes. With the
implementation, the cost department personnel can load the
information directly into Impact:ECS. Business rules, in the
form of cost models, are applied to the cost data to
calculate standard product cost and value work-in-process
and finished goods inventories. Because information like
rates and input prices are located in Impact:ECS, the
potential for calculation errors and inappropriate
allocations is reduced.
Once a working costing methodology was up and running at the
plants, the project switched gears to focus on rate building
for each process. 3C Software consultants worked directly
with the cost department to develop models and calculations
that would accurately allocate overhead costs like labor and
selling, general and administrative expenses.
Scenario analysis and budgeting capabilities were also
included with the Impact:ECS implementation so the cost
managers can estimate future spending based on changing
input prices or market trends. These business intelligence
tools provide greater insight into the budget planning
process by providing realistic product cost information and
appropriate allocation rates.
Results
The textile manufacturer has experienced a series of
successes by implementing Impact:ECS at two additional
mills. With the new cost management system in place, the
denim producer can maintain its years of cost management
experience in a central location. Cost data users from
different departments can access Impact:ECS easily, ensuring
cost data is consistent among decision makers across the
company. And because the solution is integrated with other
enterprise systems, it reduces the need to manually enter
data leading to improvements including a 38% reduction in
time for calculating standard product costs and valuing
work-in-process takes one day instead of the usual four.
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