Strategy

When Software Lets You Count Your Costs to the Penny

Hickory Farms got a better handle on its overhead costs when it upgraded its budgeting software.
Theresa W. CareyJuly 9, 2001

If you’re in the retailing business, you’ll be forgiven if you view Christmas as synonymous with overhead costs. For Hickory Farms, the catalog retailer of food gift baskets, an upgrade last fall in its budgeting system preceded its fine-tuning of its overhead accounting this year.

The company has been using SRC Software’s budgeting and planning software since 1997. Last year, it upgraded to the latest release, the Advisor Series, which allowed it to break down its overhead costs into the fixed costs for each product, the variable expenses associated with making each product, and the distribution costs for each product. Previously, it had to lump all of them together.

The use of the new approach permitted Hickory Farms to increase the value of its inventory.

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“Our cash receipts are very seasonal, so by including the overhead into the inventory we’re able to increase the value of our inventory, which affects the line of credit we use to operate from March through October,” says John Bookenberger, manager of financial planning and analysis. “We can also see if our supply-chain spending is too high. Our three marketing divisions fully absorb the costs of the supply chain through each SKU (stock-keeping unit) they sell.”

Bookenberger explains that Hickory Farms uses five “buckets” to cost out each SKU: raw material, direct labor, and the three categories of overhead.

“For each and every single item this year, every time we make an item, we know there are five components of the cost,” he explains. “Before this year, we only recognized three. We had no control on visualizing and absorbing the types of overhead. Our supply-chain planning ensures that through those five buckets we fully absorb the total cost of the supply chain.”

Released last fall, the current version of SRC’s financial planning and reporting system, The Advisor Series, comprises six modules that customers can pick from to customize the system.

The main modules are Budget Advisor, Payroll Planner, and Information Advisor. The Budget Advisor takes care of budget preparation, forecasting, and analysis, while the Payroll Planner provides detailed payroll budgeting at the individual employee or job code level.

The Information Advisor is a reporting tool that handles consolidations on an ad hoc analysis. The program looks and operates like an Excel spreadsheet, but it’s powered by a database on the back end, which makes changes in corporate structure easier to implement.

Three add-on features extend Advisor to a corporate intranet and the public Internet. I*Net Budgeting adds a spreadsheet-style browser application to the Budget Advisor and Payroll Planner modules, while I*Net Reporting allows external users to view reports and perform analysis functions.

Currently, Hickory Farms is using the Budget Advisor and Information Advisor modules.

Bookenberger was impressed by the SRC staff’s implementation of the system. “They took two weeks to configure out networks and servers, and set up some reports, and we haven’t seen them since,” he says. “They haven’t been back in four years.”

The comment on SRC’s absence isn’t a criticism; Hickory just hasn’t needed the vendor’s help. Bookenberger says Hickory Farms’ IT staff doesn’t have to devote any people to support the SQL-based system. “I’m no programmer,” Bookenberger comments. “It’s running by itself.”

SRC, a 16-year-old company with headquarters in Portland, Oregon, defines its target market as middle to high-end enterprises with more than $50 million in sales and 250 employees. A client-server upgrade allows users to scale the installation to their own needs.

That suits Bookenberger just fine.

Hickory Farms consists of three business units: retail, direct sales, which includes E-commerce and catalog sales, and wholesale grocery products. The 720 retail outlets are open for a mere eight weeks over the winter holiday season, while the wholesale division sells to large grocery chains and military exchanges. Each business unit has its own template and costing methods, and Bookenberger says he can configure Advisor to accommodate the different types of customers served.

The system’s flexibility could come in handy. The SKU accounting method Hickory Farms recently employed may have been only a prelude to another change the firm plans to implement, called SPI (sales, planning, and inventory).

Bookenberger says he’s already asked SRC to modify the system to handle this change, and he expects the revisions to be available by January.

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