As someone tasked with researching, procuring, and obtaining materials and components necessary for your line of business, how savvy are you with the somewhat common manufacturing issue called material quantity variance? Here’s some direction and information that impacts your role, budget, and bottom line.
WHAT IS A MATERIAL QUANTITY VARIANCE?
Simply put, it’s the difference between the actual amount of materials used in the production process and the amount that was expected to be used. For example – if a standard quantity of 100 pounds of raw lumber is needed to construct 10 widgets, but 110 pounds of lumber is actually used, that equates to a quantity variance of 10 pounds of lumber.
Any company involved in selling products has to take care of the manufacturing or production cost of products, plus the distribution and other costs associated with the entire supply chain. A material quantity variance will affect those costs and drive your invoices or purchase orders higher. As a purchasing or procurement agent, those costs need to be handled by your company or passed onto your client. Which scenario makes you more comfortable? It’s likely that neither is the correct answer from your point of view. So, how did this happen in the first place?
If there is a material quantity variance associated with one of your manufacturing orders, one of several things could have happened:
- Poor quality of raw materials – more is needed to execute the exact SKU or run
- Incorrect specs of materials – the scope of the job was incorrect, skewing how much material was needed
- Damage in transit – part or all material was damaged resulting in additional or replacement orders
- Damage in production process – material was compromised or deemed unusable after issues in production
- Human error – ineffective process or a solitary incident that affected material
- Damage in inventory process – mishandling or storage of stock material or components
- Inadequate packaging – damage administered to materials as a result of packaging and handling
HOW TO AVOID MATERIAL QUANTITY VARIANCE
In short, it’s about standards. By selecting a vendor based on standards, the effectiveness of the manufacturing process, and a willingness to communicate across the entire purchasing process will protect you, your company, and your clients against any quantity variance that’s unnecessary. The material quantity is usually determined by a manufacturer’s production or engineering team and is based on an amount of material that is 100 percent accurate for the production of your order or components.
If a standard errs on the excessive or generous side, there will be a definite series of favorable material quantity variances, but that manufacturer’s production team might not be doing the best job. On the flipside, if the standard allows little room for error there’s more likely to be quite a few unfavorable or negative material variances over time. It’s a precarious balance and you should vet any future (and current, for that matter) manufacturing partners to determine their process and understand any material variance costs that will be passed onto you.