NetSuite ERP Systems: Master Product Costing Management for Maximum Profitability

The business landscape today is quite competitive. In this scenario, it is quite essential to understand what it costs to produce each product. There are several organisations that tend to struggle with scattered data, manual calculations, and delayed insights. 

This is where an efficient ERP system can prove to be handy. The NetSuite ERP system lets you access all your data from one unified system. In fact, it offers you a unified cloud-based system that offers you real-time insight and visibility into your entire business. 

This blog explores how NetSuite helps you transform your product costing into a strategic advantage. 

What Exactly is Product Costing Management?

Let us make the definition clear. The term product costing typically involves calculating and tracking all the costs associated with producing a product.

This would include - 

1. Direct materials – This includes the raw materials that go directly into the product. It includes wood, fabric, and hardware. 

2. Direct labour – This would include the wages and benefits offered to the employees involved in the manufacturing. 

3. Manufacturing overhead - The indirect costs necessary to keep production running, such as facility rent, utilities, equipment depreciation, and supervisory salaries.

When you add all these factors together, you will get the total product cost. This cost impacts your pricing decisions, margin analysis, and overall profitability. 

Product costing also takes into account the variation of the prices over time. Material prices fluctuate, labor rates increase, and overhead allocations need regular adjustment. If you have a system in place that tracks these factors, you will be able to make decisions based on the exact costing. 

Why Does Product Costing Matter So Much?

Many businesses do not pay attention to product costing. However, it should be understood that the product costing affects three basic business functions. 

1. Profitability – When you know the exact costs, you will be able to calculate the accurate margins or profitability. 

2. Pricing strategy – Your pricing decisions should be based on solid cost data. Using guesswork for these calculations can lead you to make wrong decisions. With accurate costing, you can price confidently and competitively.

3. Budgeting and planning – If you are looking to ensure better budgeting and planning, your cost assumptions should be error-free. Inaccurate costing data leads to unrealistic budgets and missed financial targets.

This is the area that NetSuite can help you with. It is a unified cloud platform and helps integrate your finance, inventory, procurement, and manufacturing operations into a single source of truth. You no longer need to toggle between multiple spreadsheets and separate systems anymore. 

Key Ways NetSuite Improves Product Costing Management

There are multiple ways that NetSuite can help the businesses in terms of effective product costing management. 

Real-Time Visibility into Cost Components

Imagine how you  will be able to see the factors driving the cost in real time. With NetSuite, you will be able to do exactly that. The inventory management module on NetSuite provides you live updates with respect to material costs. 

When you receive goods from a supplier, the cost is immediately captured. When you consume materials in production, the system automatically updates your inventory and reflects the cost in your product's overall cost calculation.

If you are a manufacturer, you will be able to catch the consumption costs in real time. You will no longer be estimating the material cost. So no more ambiguity in terms of the cost components. 

Flexible Costing Methods to Match Your Business

Different industries and business models require different costing approaches. 

1. FIFO (First-In, First-Out): This will assume that materials purchased first are consumed first. This method is popular in industries where material age matters, like food and beverage or pharmaceuticals.

2. LIFO (Last-In, Last-Out): The costing is based on the most recently purchased materials being consumed first. This method can provide tax advantages in inflationary environments but is less common in modern supply chains.

3. Average Cost (the default): Calculates a weighted average cost for all inventory. This smooths out price fluctuations and is the most commonly used method in manufacturing

4. Standard Cost: Allows you to set predetermined costs for materials and labor based on standards or historical data, then track variances from those standards. This is invaluable for identifying inefficiencies.

You have the flexibility to choose different methods for different purposes. That would invariably mean all your costing approach aligns with your actual business operations. 

Automated Cost Calculations Across the Supply Chain

This is the strength of the NetSuite system. You no longer need to calculate the costs layer by layer. NetSuite will help you automate the entire process.

You will have an automatic roll-up of Bill of Materials (BOM) costs. It will also calculate the cost of each subassembly. The system also works with  Multi-level BOM costing. NetSuite navigates this complexity automatically, calculating the complete cost at each level.

Landed Cost and Procurement Accuracy

The product cost includes several costs apart from the material costs. Some of these extra and additional costs that you should take into account would include freight, import duties, insurance, and handling. 

These are called landed costs, and NetSuite does take care of these costs. These are distributed across all the units produced, and thus you get complete information of the total landed cost. 

NetSuite also takes into account vendor cost management. This visibility helps with vendor negotiations and makes it easier to identify cost savings opportunities.

Better Inventory Valuation and Margin Insights

NetSuite comes with accurate and real-time costing. That way, your inventory valuation becomes more reliable. This should become valuable for financial reporting and analysis. The best is that the margins can be calculated at the granular level. 

Identify which products are your profit drivers and which ones are underperforming. This visibility will provide you with surprising insights. With these insights, you can make strategic decisions. 

NetSuite Features that Support Efficient Costing

NetSuite comes with specific and unique features that are supported by powerful, integrated modules.

Advanced Inventory and Manufacturing Modules

These modules track Work-in-Progress (WIP) in detail. This should let you see the costs as the products move through the different stages. Routing and work centre costing lets you allocate labor and overhead based on actual production flow. 

You can even cost-simulate the assembly lines so that you can have an overview of the possible financial impact across the different manufacturing processes. 

Financials and Accounting Integration

The system integrates the costs and finances with the accounting automatically. The tool also provides you with access to cost variance reports that help you compare the actual costs with the budgeted costs. 

Budgeting and costing are integrated with the actuals. Thus, your financial plans are grounded to the actual cost data. 

Role-Based Dashboards and Custom Reports

Different stakeholders in your business need to have different information. Your CFO needs high-level margin trends. Your accountants need detailed variance reports. Your production planners need real-time material and labor cost data. NetSuite's dashboards are customizable for each role, and you can build custom reports for any analysis you need.

Conclusion

Accurate product costing is an accounting exercise. However, it also has a lot of strategic implications. If your costing is dependent on manual practices and scattered across different systems, you are most likely to end up with inaccurate and delayed reporting. That would end up handicapping your business. 

NetSuite changes it. It unifies your finance, inventory, procurement, and manufacturing operations. You get the visibility you need to make smarter decisions faster. Jobin and Jismi help you get access to a whole new world of NetSuite solutions. 

We understand the unique costing challenges your industry faces. We'll work with you to configure NetSuite's costing capabilities to match your business model, set up the integrations you need, and train your team to use these powerful tools effectively. More importantly, we'll help you realize the true benefits of accurate, real-time product costing.

Trust us for all your needs in an effective and efficient NetSuite implementation and that would help you achieve a huge competitive advantage. 

Frequently Asked Questions

Can NetSuite handle product costing for both manufacturing and distribution businesses?

Yes. NetSuite supports product costing for manufacturers, distributors, and hybrid businesses. Manufacturers can track BOMs, WIP, labor, and overhead, while distributors can focus on landed cost, inventory valuation, and margin tracking across multiple locations.

How does NetSuite handle cost changes over time?

NetSuite tracks historical costs and automatically updates inventory valuation when prices change. This allows businesses to analyze cost trends, understand margin erosion, and adjust pricing or procurement strategies proactively.

Can NetSuite support compliance and audit requirements for product costing?

Yes. NetSuite maintains a complete audit trail for inventory transactions, cost adjustments, and valuation changes. This makes it easier to comply with accounting standards and respond to audits without manual reconciliation.

How complex is it to configure product costing in NetSuite?

The complexity depends on your business model and manufacturing processes. While NetSuite provides strong out-of-the-box capabilities, optimal configuration often requires expert setup to align costing methods, workflows, and reporting with real operational needs.

Can NetSuite integrate product costing with external systems?

Yes. NetSuite can integrate with external MES, PLM, logistics, and procurement systems using SuiteTalk, SuiteScript, or third-party connectors, ensuring cost data remains accurate across the ecosystem.