CLIENT: Outsourced Manufacturer In The Food And Beverage Industry

Sapling was engaged to build an activity-based costing (“ABC”) model for the purposes of better understanding the client’s cost drivers at a SKU and customer level. While the client had an internal finance team and an operating ERP system, their systems did not provide insight into which types of products/customers lead to a profitable production run, or which activities drive higher costs

The lab technicians and hygienists with clean suits and PPE examining water bottles in bottling plant mineral water drinking water factory
Key Insights

Through a facility tour and reviewing the tracking available in the company's ERP system, Sapling helped the client to identify its resources, or uses of capital, then allocate those resources to activities. Resources included items such as equipment and labor hours. Activities are split into primary activities that are directly involved in production, such as packaging, as well as secondary activities not directly related to production, such as sales or customer support

Through designing methods of counting these activities, to account for cost differences across products, Sapling was able to determine a per unit cost of performing these activities

The result was a full-fledged ABC model, with the ability to import pricing information, allowing the client to understand its margins with a high degree of granularity. Outputs were created in various formats, allowing the user to drill down to revenue, variable, and fixed costs (or at the activity level) at the SKU, customer, and consolidated company level

COSTING MODEL OVERVIEW
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