How Poor Reporting From The Shop Floor Can Affect Cost Systems

Aug 13, 2015

One of our more recent engagements was with a company that had numerous issues with their cost system including faulty and inaccurate reporting from the shop floor with regard to operational results. The reporting was flawed for a number of obvious reasons, but no department supervisor had taken responsibility to correct all of the various problems associated with the floor reporting.

As you can imagine, inaccurate and untimely operation reporting created chaos in the cost accounting system. This was especially true because the results being reported from the shop floor were so inaccurate they completely skewed the cost data being reported to help manage production. As a result, virtually no one in the operation had trust in the cost accounting system.

We were hired to evaluate and redesign the cost system, but as we began to understand the real problems, we went back to management and suggested the entire project be put on hold until operational results could be improved. As a consultant, I realize each of my assignments must be successful to allow me to continue in this field. If I could construct the best cost system in the world, but it was being fed by untimely and inaccurate data, the end result would a cost system that would appear flawed. My overall success would ultimately be affected.

With management’s agreement to go forward with the improvement of the reporting system, we began to implement minor changes. Virtually all of these changes were associated with accountability and the need to accurately count and report what is happening on the shop floor. As you might imagine many of the people reporting have had years of experience misreporting information and therefore, were not interested in changing their methods. However, as we continued down the path of accountability in shop floor reporting, the results got better and better and this set the stage for a complete cost system revision which would have a much greater chance for success.

It is not uncommon in today’s manufacturing environment to have a cost system undermine the accuracy and reliability of shop floor reporting, or vice versa. Those endeavors are the two main parts of an effective management and cost system. Make sure your reporting is accurate before you dive into fixing the cost system, and make sure you know which is actually broken.

Categories: Cost Accounting