Driving Profitability Through Cost Transparency at U.S. Manufacturing Subsidiaries.
Challenge
In today’s competitive manufacturing landscape, cost control and pricing accuracy are critical to long-term success. For U.S.-based manufacturing subsidiaries of international organizations, the challenges can be even more pronounced. Our firm recently partnered with a Swiss-headquartered technology group, specializing in rugged embedded computer systems and enclosure solutions for the U.S. defense and high-tech industries.
The group operates two manufacturing and assembly entities in the United States — one in Georgia and the other in California — with a combined workforce of over 300 full-time employees. Despite a strong engineering foundation and a robust customer base, the U.S. operations were grappling with a critical issue: a persistent and significant discrepancy between quoted project margins and actual results.
Key challenges:
- Absence of an accurate and transparent costing system
- Quoting done with limited insight into real production costs and inconsistent overhead allocations
- Lack of a unified structure for evaluating performance across cost centers, leading to poor pricing accuracy and unpredictable profitability
The consequences were clear: poor pricing accuracy, unpredictable profitability, and limited strategic visibility into operational performance.
Solution
Our firm brought in an interim project manager to establish a comprehensive Activity-Based Costing (ABC) system across both U.S. entities — a solution tailored not only to fix the immediate cost issues but to create long-term value. Within a tight three-month window (excluding final ERP integration), our interim manager developed developed a fully customized costing framework, including:
- A clearly defined cost center structure aligned with organizational activities at both sites
- Transparent, accurate cost rates across all production activity groups
- A powerful calculation tool to support precise sales quote creation — factoring in direct manufacturing costs, production overhead, material overhead, and SG&A costs
- A reporting suite to deliver real-time insights into monthly cost center performance, including over/under-absorption analysis based on direct productive hours
Results
While the initial goal was financial accuracy, the benefits extended far beyond cost reporting. The ABC system now enables the local management teams to proactively manage pricing strategies, evaluate operational efficiency, and align cost structures with strategic goals. It has become a foundation for not only day-to-day decision-making but also for the annual budgeting and forecasting cycles — turning what was once a reactive process into a proactive management tool.
ERP system integration was executed by the in-house IT team in collaboration with external consultants, further embedding the new costing framework into the company’s digital infrastructure.
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