SKU Manufacturing Cost Model
This guide explains how to build a SKU level manufacturing cost model for consumer goods, FMCG and CPG manufacturers in Model Reef.
You will:
Represent plants, production lines and SKUs in the branch and variable structure.
Model bill of materials (BOM), labour, overhead and conversion costs per SKU.
Link SKUs to volumes, capacity and utilisation drivers.
Produce SKU level and category level gross margin views that roll into full P&L, Balance Sheet and Cashflow.
Use scenarios to test cost, mix and footprint strategies.
Model Reef is not an MRP or MES. It models manufacturing economics at SKU, line and plant level using structured drivers and variables, not shop floor work orders.
When to use this pattern
Use this pattern when:
You manufacture physical products with repeatable recipes or BOMs.
You need SKU level cost and margin transparency.
You want to connect plant, line and SKU economics to commercial decisions.
You need scenario capable modelling of mix, cost and footprint changes.
It combines well with:
Inventory Turnover and Working Capital
Capacity and Production Planning style patterns
Retailer and Channel Margin Modelling
New Product Launch Forecast
Architecture overview
Step 1: Define plants, lines and SKU branches
In the branch tree, create a structure such as:
Manufacturing Group
Plant - A
Line - A1
SKU Group - Beverages
SKU Group - Concentrates
Line - A2
Plant - B
You can model each SKU either:
As its own Revenue and COGS variables within a SKU group branch, or
As aggregated SKUs where many codes share the same economics.
Ensure that commercial and manufacturing branches align so that volumes and COGS connect cleanly to sales.
Step 2: Build SKU volume drivers
In the Data Library, create volume drivers for each SKU or SKU group, for example:
Sales Volume in units or cases per period.
Production Volume per plant and line, where you want to separate make and sell.
Scrap or yield factors if production exceeds saleable volume.
Volumes may come from:
Demand or sales forecasts.
Capacity and production plans.
Imports from planning spreadsheets or ERP extracts.
These volume series will drive BOM consumption, labour and overhead allocation.
Step 3: Model BOM and material costs per SKU
For each SKU or SKU family, list its main BOM items, for example:
Raw ingredients.
Packaging components.
Labels and inserts.
Other direct materials.
In the Data Library, create drivers for:
Quantity per unit or per batch for each component.
Unit cost per component (for example per kg, litre, roll or unit).
Scrap or yield adjustments where relevant.
Create COGS variables such as:
COGS - Raw Materials - SKU X.
COGS - Packaging - SKU X.
Compute material cost with formulas such as:
Material Cost per Period = Volume × Quantity per Unit × Cost per Unit.
You can also maintain cost per unit by dividing total BOM cost for the SKU by volume in the same period when you need per unit reporting.
Step 4: Add labour, machine time and overhead
Create Staff variables to represent:
Line operators and supervisors.
Maintenance and technical staff.
Quality and support teams where appropriate.
Attach drivers for:
Hours per unit, per batch or per production run.
Wage rates and on cost percentages.
Shift patterns and overtime assumptions.
For machine and overhead costs, use Opex variables such as:
Opex - Energy - Plant A.
Opex - Maintenance - Plant A Line A1.
Opex - Factory Overheads - Plant A.
Allocate these to SKUs using drivers such as:
Machine hours per SKU.
Volume or throughput per SKU.
Standard cost allocation percentages.
Use formulas in custom reports or additional variables to derive:
Conversion cost per SKU.
Fully loaded manufacturing cost per SKU including materials, labour and overhead.
Step 5: Connect SKU costs to sales and gross margin
Ensure that each SKU also has a Revenue variable, for example:
Revenue - SKU X - Channel Y.
Link revenue and cost using common volume drivers so that:
Revenue = Volume × Price per Unit.
COGS = Volume × Cost per Unit plus volume based overhead components.
Then use custom reports or dashboards to show:
Gross margin per SKU, SKU group and plant.
Gross margin by channel, customer or geography where you combine this pattern with retailer and channel models.
Margin waterfalls showing the impact of price, mix, cost and FX where applicable.
Because SKU COGS are built from structured drivers, any change to materials, labour or overhead assumptions flows automatically into gross margin and valuation.
Step 6: Use scenarios for cost, mix and footprint changes
Clone the base model into scenario models to explore:
Material cost inflation or supplier changes.
Labour rate increases, productivity initiatives or automation.
Moving production between plants and lines.
Changes in product mix, de listings and new SKUs.
FX shifts where input costs are in foreign currency and you model FX via drivers.
In each scenario, adjust:
BOM quantities and unit costs.
Labour and overhead drivers.
Volume and mix assumptions.
Pricing assumptions and any related commercial terms.
Compare scenarios using:
SKU and category margins.
Plant, line and group manufacturing P&L.
Cashflow and working capital impacts.
Valuation metrics where manufacturing changes are material to value.
Check your work
BOM and cost assumptions are consistent with current recipes and standards.
Volume drivers align with sales and production plans.
Overhead allocation drivers are reasonable and documented.
Scenario outcomes are usable for both finance and operations teams.
Troubleshooting
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