Best Manufacturing ERP Software: Manufacturing Costing and Valuation

Why is Manufacturing Costing

and Inventory Valuation Part of ERP Software Selection?

The process of evaluating and selecting a new distribution or manufacturing ERP requires consideration of countless factors and requirements. One of the most important considerations should be inventory valuation and manufacturing costing. The last thing you want is to end up with a new ERP solution that’s not capable of supporting the best inventory valuation and manufacturing costing strategies for your business. Here’s what to look for:

Check out this Manufacturing Management System Evaluation Checklist

Selecting an ERP manufacturing management and accounting
system to run your business is a decision that will affect your
company for many years. Many products offer the same or similar
features, and it can be confusing to sort out what’s important and
what’s not.  Hopefully, this document will help! 

The Importance of Choosing the Right Method 

Distributors and manufacturers historically have utilized a single inventory valuation and manufacturing costing method. Often, it’s unchanged for multiple years. It is so unusual to change a costing method that the IRS and external auditors will actually scrutinize books more closely when they see multiple valuations or costing methods or frequent changes.

There are legitimate reasons for a business to make a change, but it’s typically in its first year of operation, or its business model evolves. There are also times when you would need to utilize different costing methods simultaneously, such as using standard costing for finished goods but actual costing for raw materials.  

Identify What You Need

Different industry segments in distribution and manufacturing have different impacts on inventory valuation and costing. This is why it’s crucially important to know what you need before your ERP evaluations even begin. Here are just a few considerations by industry segment that you’ll want to consider:

• Wholesale distributors that move durable goods usually see more stable costs and are more likely to implement average or first-in-first-out (FIFO) inventory valuation. Conversely, companies that distribute nondurable and perishable goods will choose particular valuation strategies. This is typically seen when products must be lot tracked or when they expect price volatility.
• Make-to-order manufacturers (MTO) engineer, configure, and assemble-to-order shops frequently choose estimated manufacturing costs and specific inventory valuation since it is unlikely they will produce the exact product again. Manufacturers of this type face complexities when trying to capture actual production costs that are often recorded after the fact because production moves quickly.
• Make-to-stock manufacturers (MTS) and repetitive manufacturers who produce the same products generally look to the standard costing method to make production costs easier to predict. They frequently use FIFO and average costing. When products require lot or serial number tracking, use actual costing. - Raw materials and finished goods can dictate which inventory valuation methods your company should use. For example, companies in chemicals, oil, food, beverage, pharmaceuticals, and metals are more likely to use specific and FIFO valuation. Conversely, companies that distribute electronics, industrial equipment, and machinery, or plastic products are more likely to use standard, average, or specific valuation methods.
  
  

How to Choose the Best Manufacturing ERP Software for Inventory Valuation

While every ERP system will enable you to comply with domestic and international accounting standards, not all systems are built the same when it comes to costing methods and valuation calculations. Some ERP applications have little or no costing and valuation support.

Applications such as Acumatica, the leading cloud ERP application serving growing distributors and manufacturers, should support average, standard, FIFO, and Specific inventory valuation with actual, estimated, or standard manufacturing costing capabilities.

Taking it one step further, Acumatica also enables you to manage costs by manufacturing warehouse to split FIFO and specific (actual) item costs using unique sub-item codes. Built on a future-proof cloud platform with native artificial intelligence and machine learning, Acumatica includes unparalleled manufacturing automation with robust financials, customer relationship management, and powerful business intelligence applications.

Become Future Proof

Your needs today are likely to be very different one, five, or ten years from now. An ERP system with limited options is likely to impede future growth. Picking the wrong application could wreak havoc on your accounting and future viability as a company, but choosing the right solution can:

• Boost sales
• Maximize resources
• Improve profits

Acumatica has best-in-class applications for production, estimating, engineering, material planning, scheduling, product configuration, and manufacturing data collection. Acumatica was designed to solve the unique needs of make-to-stock, make-to-order, configure-to-order, engineer-to-order, repetitive, and project-centric manufacturers. 

Trust an Acumatica Expert

At Aqurus, we know how valuable Acumatica ERP software is for businesses – especially those in Manufacturing, Distribution, eCommerce, and the retail industry. If you’re interested in how Acumatica’s Cloud ERP Software can boost your business, the Aqurus team is passionate about smooth implementation and ongoing support. Contact us today.