ERP for manufacturing: from work order to cost of production
A manufacturer rarely fails to know how much it produced. It almost always fails to know what that cost — and that is not a reporting problem but a question of where consumption is recorded.
- Published
- Author
- Konis Software
There is a pattern among manufacturers that repeats regardless of size: production knows what it made, the warehouse knows what it issued, finance knows what was paid — and nobody knows with certainty what a unit cost. Not because anyone is failing at their job, but because consumption is recorded in three places at three different moments.
In that arrangement product cost is not a fact but a reconstruction: at month end someone takes the materials consumed, splits them across orders and adds overhead by a key. The result is always right in total and almost never right per unit — and pricing decisions are made per unit.
What manufacturing needs from an ERP
| Element | What it solves | What happens without it |
|---|---|---|
| Versioned bill of materials | What goes into the product and in what quantity, with a change history | A spreadsheet standard someone edited, with no record of when |
| Work order | The cost carrier — everything consumed attaches to it | Consumption recorded in aggregate, so unit cost is estimated |
| Consumption reporting | Material and labour recorded as they happen, by location and shift | Entry at the end of the shift or week, from memory |
| Costing | Planned and actual cost, with the variance and its cause | A single number without breakdown — you know how much, not why |
| Lots and expiry | Traceability from raw material intake to the delivered unit | A recall means a manual search through paperwork |
| Link to inventory | Material reservation and availability before an order starts | The order starts, then the material turns out to be missing |
Planned versus actual — the variance is the point
A system that gives only one cost figure gives half the fact. The value is in the difference: planned by the bill of materials against what was actually consumed, broken down by cause — more material, more hours, a different purchase price, scrap.
That variance is the only figure from which production is actually managed. An aggregate cost says it was more expensive; a variance by cause says where and why, and whether it was a one-off or repeats from order to order.
Where it usually breaks in practice
- 1
Consumption is reported too late
If material is entered at the end of the shift, stock is wrong all day and reservations for other orders are made against a number that does not exist. Reporting has to happen where the work happens — on a terminal on the floor, not in the office.
- 2
The bill of materials lives outside the system
A standard kept in a spreadsheet means costing runs against a version the system does not know. The first recipe change nobody transfers separates plan from reality permanently.
- 3
Scrap is not recorded as cost
If a rejected unit is merely written off stock, its cost disappears from product cost and moves into general overhead — where nobody sees it per product again.
- 4
Subcontracting runs outside the order
A service performed by another plant or an external contractor has to enter the same order as a line, otherwise the product looks cheaper than it is.
Why production has to sit in the same system
There are good standalone manufacturing programs and companies that run well on them. But every boundary between production and the rest of the system is a place where data travels with a delay — and production is the one area where a day's delay changes the decision.
- Material availability has to account for sales reservations, or the same unit gets promised twice.
- Product cost has to include the purchase price with landed costs from import, or it is lower than it really is.
- Labour hours have to come from the same record payroll is calculated from, or work is counted twice or not at all.
- The lot built into a product has to link to the raw material lot, or traceability exists only on paper.
In NG One production sits in the same core as inventory, procurement and finance, and dimensions (order, plant, project) sit on the line itself from the first posting — which is why product cost is not assembled afterwards but exists the moment the order closes. Whether that model is needed by a particular company is shown by one question: how often is unit cost used for a decision, and how long is the wait for it.