How Baker Tilly helped plan for the impact of costing changes with cost management software

Client Background

The client is a privately held U.S. metal fabrication contract manufacturer located in Pennsylvania leveraging IFS for its primary business process activities.

The Business Challenge

The client was struggling with the impact of increasing raw materials costs. As a contract manufacturer, they typically agree to prices with their customers well in advance. They needed a way to quickly see the company-wide impact of any input cost changes from their vendors using cost management software.

Strategy and solution

Baker Tilly’s manufacturing industry professionals leveraged their understanding of financial data transformation to the client up on Baker Tilly’s proprietary Dynamic Costing® application, which uses both historical and future data to determine the impact of costing changes.

The client typically relied on ad hoc Excel spreadsheets to model out pricing changes as customers requested new contracts. The process lacked consistency and created extra effort across multiple functional areas to complete.

Our first goal was to take the activities occurring manually and load them into a systematic approach that would facilitate much quicker decision making. Baker Tilly’s deep experience with the IFS platform provided the resources required to identify the appropriate fields to extract from the system and place a framework that aligned with the activities of the company.

An extensive data model incorporating purchasing activity, item master data, bills of materials and customer sale information was established to analyze the costing and profitability of each transaction occurring throughout the year.

With that data model in place, the client has extended capabilities to allow for scenario planning by making changes to input costs based on projected economic data, verbal or e-mail updates from vendors or any expected price increases. These adjustments help show the annualized impacts across the entire company's portfolio of products.

The resulting reporting highlighted differences between projected and standard costs so the most impactful pricing decisions could be prioritized. Smaller changes were also rolled out at the product and customer level so that consistent action could be taken across the business.

Results

The capabilities provided by the dynamic costing platform have allowed the client to manage pricing proactively while also supplying data needed to negotiate with large customers objectively. The platform’s use continues to expand throughout the procurement and finance functions, thanks to the implemented forecasting tools as well as the base reporting modules.

The client now has access to a platform where they can easily enter in adjustments to raw material costs and quickly see the total financial impact of those changes. By creating different scenarios, the client can see the value of each cent in a change in vendor cost has on their company. Due to the projected volume measurement of future raw material consumption, the client is also able to better negotiate costs with vendors and prices with customers.