Pricing From a Cost That Was Wrong For Three Years.
The client manufactured electronics assemblies and sub-assemblies under contract for OEM customers. Contracts were typically 12–24 months in duration, with pricing agreed at signing based on standard cost models. Their standard costs had been set in Q1 2021 — before the component price inflation of 2022–2023 and before two rounds of wage increases.
The accounting system reported gross margins in the 22–26% range, which looked healthy. But the standard costs feeding those calculations were three years stale. Nobody had connected the dots between rising actual costs and unchanged standards — partly because the ERP system they were using required a manual standard cost update process that nobody owned. The business was growing top line while bleeding margin, and the P&L was lying to them about it.
- Conducted a full standard cost audit — comparing every active standard cost against actual material purchases, actual labor rates, and actual machine utilization data for the trailing 12 months
- Found average standard-to-actual variance of 31% across the product range — with individual products ranging from –8% (overcosted) to +67% (severely undercosted)
- Implemented Odoo Manufacturing with real-time job costing: every production order captures actual labor time, actual material consumption at actual purchased cost, and machine overhead based on actual usage
- Built a cost variance dashboard showing standard vs. actual cost by product, by product family, and by customer contract — updated automatically as each work order closes
- Worked with the commercial team to identify the 14 customer contracts most severely affected by the cost gap and build a repricing case for each, supported by actual cost data
- Established a quarterly standard cost review protocol: standards are automatically flagged for review when actual variance exceeds 10% for 30 consecutive days
- Actual gross margin of 11% was confirmed — 13 points below reported. The business had been making strategic and investment decisions based on a margin figure that didn't exist.
- 14 customer contracts were repriced over an 8-month period. 11 accepted increases averaging 19%. Two contracts were declined by customers and allowed to expire; one was renegotiated with reduced scope. Net revenue impact: flat. Net margin impact: +$2.1M annually.
- Two product lines were identified as structurally loss-making at any achievable price point — exited from the portfolio, freeing capacity that was redeployed to higher-margin work
- Actual gross margin stabilized at 22% by month 12 — below the fictional 24% but dramatically above the real 11%, and now a number the business could actually trust and plan from
- The quarterly standard cost review process prevented a similar drift in year two — three products were flagged and repriced proactively before contract renewal, avoiding the crisis-repricing dynamic
- Owner: "For the first time in three years, I understand what we're actually making."
I thought we had a 24% gross margin. We had 11%. The business looked fine on paper and was slowly dying in reality. The ERP didn't save us — it showed us what was actually happening. That was enough to save us ourselves.— CEO · Contract Electronics Manufacturer · Pacific Coast, U.S.
Standard Costing Is a Snapshot. Your Costs Never Stop Moving.
Standard costs are set at a point in time and become increasingly fictional as materials, labor, and overhead evolve. In stable cost environments, the drift is slow enough to manage. In environments with volatile commodity prices or competitive labor markets, a two-year-old standard cost model can misrepresent true gross margin by 10–15 percentage points. Real-time job costing doesn't eliminate the need for standards — it surfaces the variance between standard and actual continuously, ensuring that pricing decisions and strategic choices are made on the same cost reality the plant is actually experiencing.
