Discover the Links between Material Costs and Products, Customers and Equipment

In times of global economic uncertainty,the only certainty is that material prices will fluctuate, both in frequency and in magnitude. Because of these fluctuations, material costs stored in business systems or spreadsheets either as standard costs or as historical costs may generate an inaccurate base for profitability analysis, pricing decisions, product development, or future production planning. Furthermore, because material costs affect every aspect of your value chain, it becomes critical to understand the relationships linking these costs and other areas of the business - including relationships between:

  • Materials & Products/Customers
  • Determine how much margin, by product and customer, is dependent on specific materials

Analyze past cost and simulate impact of future cost changes

pVelocity profitability and cost simulation software works with these relationships to not only permit analysis of past performance – answering “what happened” questions – but also enable sophisticated simulations of material or component cost changes on future profitability with detailed “what would happen if…” scenarios. These simulations are modeled on actual cost data that may currently reside in operational and functional silos across the enterprise in various business systems and spreadsheets.

Material or Component Cost Impacts

When the relationships between material costs and the other areas of the business are identified, the value of analysis based on actual costs becomes clear, but it’s pVelocity’s simulations that reveal the impact of business choices and allow you to make effective
decisions, such as:

  • Future price adjustments by product and by customer due to material cost fluctuations
  • Prioritizing and allocating production to the most important customers and products when faced with material shortages

Gain Complete Material or Component Visibility

Developed to handle the analytical needs of environments with large data stores, pVelocity’s Cost Simulator is the only software that provides in-depth modeling of material cost fluctuations. As a result, key operational roles within the company are able to experience unprecedented levels of visibility and insight on the impact of changes in material costing.

Margin Protection

By way of example, let's say that you ask the pVelocity Profit Analyzer to plot a 12-month trend for the actual cost and usage of a particular raw material. This reveals a steady cost increase over the past three months, and uncovers variances compared to the standard costs in your system.

You want to address the implications of the change, so you drill further, to view all linked products, customers and assets. In the space of few clicks, the pVelocity Profit Analyzer shows you a real-time view of how many products, customers and pieces of equipment are affected by this ingredient, and what volumes are involved.

The pVelocity Cost Simulator then allows you to model the effect of the raw material cost increase and explore the implications of different actions, such as a price increase, an uptrend in volume or reallocation of equipment. You are quickly able to calculate the bottom-line impact of possible changes, based on the variances of the raw material used in each product. As a result, you can establish what your new strategy must be in order to protect your product and customer margins.

 

Access more Information about pVelocity