In our previous Actionable Insights blog, we discussed the Customer Support Action Center. Next, we will provide an overview of the Operating Expenses Action Center as well as the associated key performance indicators (KPIs).
Managing product costs is one of the most critical parts of operations management, and operating expenses make up a big part of those product costs. Knowing and understanding operating expenses helps companies to set prices for their products. For example, it’s obvious to most people that the cost of components on the bill of materials is part of the product cost, but what about other costs such as cutting oils that help equipment run more smoothly, or packaging for shipping the finished product? Those are operating expenses, and, unlike overhead, they vary with the volume of production. In a competitive industry, understanding and managing operating expenses well can be the difference between success and failure in making sales.
KPIs for Tracking Operating Expenses
QAD Action Centers provide analytics to help both managers and users monitor metrics and KPIs. KPI highlights for the Operating Expenses Action Center include:
Operating Expenses by Period
By comparing the actual operating expenses in a fiscal period to the budget for the same period, managers can see whether or not their predictions are on target. If operating expenses are exceeding budgeted amounts, the company may be losing money or not earning the planned margin. If operating expenses are lower than budget, the company may be pricing themselves out of a market, or perhaps simply enjoying an unexpected surge in margins.
Operating Expenses by Cost Center
Like the operating expenses by period, this visual compares budget and actual variance for analysis. This is useful insight for financial analysts in setting costs and prices, and for operations management determining whether a particular cost center is operating effectively. A sudden surge in operating expenses may reflect a need for additional training for new operators, a problem with materials, or the need for preventive maintenance on equipment, among other things. Management can use the visual to identify problem areas and investigate to rectify any problems they uncover.
Operating Expenses by Period by Cost Center
This visual allows management to track operating expenses by time and cost center, so they can more easily visualize trends or pinpoint the time when a problem arose. Seeing the time and cost center together can help in tracking down any cost anomalies that aren’t obvious.
The Importance of the Operating Expenses Action Center
Understanding costs is critical to manufacturers, and operating expenses are an often-ignored part of the equation when companies embark on continuous improvement projects. Most companies have a good handle on direct product costs such as labor and material, and overhead costs such as buildings and salaries, but whether fixed or variable, operating costs are difficult to understand and quantify. This causes issues both in determining complete product costs and setting realistic prices. The Operating Expenses Action Center resolves the expense identification issue and makes it easier to ensure that the company maintains desired margins.
Since many manufacturers today are adaptive—responding to changes in customer demand quickly—understanding these costs is more crucial than ever. QAD Adaptive ERP is designed specifically for companies grappling with the issues of adapting to market forces while staying profitable. Adopting advanced technologies along with QAD Action Centers is a valuable strategy for sustaining competitiveness.
Which KPIs and metrics are most important to your organization? Learn more about QAD’s predefined Action Centers as well as best practices for each.