Product Costings

A simplistic and dynamic cost model, fit for the future.

Background

Flamingo Flowers primarily operates out of 3 sites that produce a wide-ranging array of flowers and plants for both the retail and home delivery markets. There are currently inconsistencies in the way labour costings have been generated across the sites with a subsequent misalignment of direct / indirect costs within payroll leading to a lack of visibility of what drives the variances between standard and actual costs.

Challenge

There exists a large volume of SKUs with seasonal products and events resulting in varying product compositions at different times of the year. This, along with handling a live or perishable raw material, sometimes with extended supply chains, results in significant fluctuations in activity and associated costs of processing. There is limited confidence in some of the current costings and a lack of visibility around the causes of variance or true margin at product level.

Solution

The Libra team created a consistent approach to costing across the three Flamingo sites. This included a new consensus of how standard costs are to be derived as well as how direct and indirect activities should be classified. A costing model was to be developed that provided a methodology to derive and document standard costs for all products. Performing a detailed study of all SKUs would be impractical due to volume of SKUs and seasonality, therefore many would subsequently not be observed during the project timeframe, but the methodology would be shared to allow the Flamingo team to capture these as they are produced. The costing model would incorporate agreed assumptions based on the limited observations and be designed with mechanisms to upscale to the entire SKU portfolio. The output of the model assist in the uploading of data to the IFS ERP solution in bulk, as well as giving the sites the ability to derive new, and maintain, standard costs within the database.

Results

A costing model was developed to provide a consistent approach and tool for standard product costing across the three Flamingo sites. A set of assumptions were agreed based on the observations and cost reviews delivered during the engagement, for products not observed during the period. A methodology was documented and trained to the Flamingo team to allow them to capture outstanding items themselves and build the process into BAU.

The tool allowed Flamingo to upload new costings into their ERP system in bulk with confidence around the accuracy of the cost.