Money and cost inflation

Significant swings in commodity markets are crushing manufacturers across the globe. Geopolitical upheaval in Europe, in addition to the pandemic, continues to fuel dramatic price increases in oil and steel, and many other critical manufacturing components.

These challenges illustrate the need for improved visibility into material costs, but they are also highlighting information gaps or disconnections associated with legacy or disparate systems. This means businesses are often not recognizing increased costs until several months after the actual increase, and while manufacturers may be in close communication with suppliers regarding input costs; these discussions are ad hoc and often specific to the purchasing manager overseeing each commodity. Without a standardized platform to consolidate costing information, organizations often rely on complex spreadsheets that are subject to broken links, data entry errors and overall inefficient management.

An inflation management platform can help manufacturers gain visibility into their material costs and forecast the impact on end products and customers. This platform, paired with recommended processes, can empower companies to actively manage inflation, rather than simply react.

How does it work?

Baker Tilly’s inflation management platform uses standard enterprise resource planning (ERP) data schemas to link into an automated workflow, resulting in a visual dashboard that gives a snapshot of the latest purchasing information.

The platform contains two modules, each aligned with typical business needs:

1. Inflation identification: What is driving recent cost increases?
  • Compares how costs are performing against standard costs
  • Highlights significant variances
  • Uses platform embedded logic to consolidate bills of materials
  • Calculates the impact of an individual material, including subassemblies, on the overall costs of a finished product
  • Accurate reporting based on industry complexities and related disaggregation
2. Inflation forecasting: What will happen if my costs increase further?
  • Enables custom costing forecasts using up to four scenarios at once
  • Insight into rolling forecasts based on known cost changes
  • Saves historical changes for future reference
  • Includes comments and customized entries for material costs and item sale prices to calculate margin impact

What is needed to start managing inflation?

Businesses can benefit from Baker Tilly’s inflation management platform if the company is:

  1. Using an ERP system for purchasing and sales activities with common item codes
  2. Has an integrated bill of materials set up within the ERP or in a separate system that has fully integrated item numbers for reference within the accounting system
  3. Relevant business systems are capable of connecting to cloud-based analytics tools

Recommended processes are also available to support the following typical business activities:

  1. Cost variance analysis
  2. Pricing management
  3. Inflation planning
  4. What-if scenario analysis
  5. Customer impact assessments

How can this benefit your company?

  • More timely and relevant information regarding material input costs
  • Additional custom forecasting scenarios
  • Enables the management of the past and the future in one platform
  • Better visibility to drive more objective pricing decisions
  • Accurate data that can support the case for customer-facing pricing changes

We’re here to help

Early identification of sharp cost increases enables businesses to take action. If no action is taken, companies may face millions of dollars of potential cost absorption. The inflation management platform empowers users with the most relevant information at the right time to mitigate that risk.

To learn more about inflation management, contact one of our Dynamic Costing® specialists.

Cory R. Wendt
Principal
Concert Hall Tower at the West Chester University of Pennsylvania
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