Steel Manufacturing Costing Software: Track Heat Cost, Production Cost, Yield, Scrap and Profitability

Knowing Your Production Cost Is Essential

Steel manufacturing involves large amounts of raw material, energy, labour and processing.

A small change in any of these costs can affect the final product margin.

This is why steel manufacturers need to know what each product actually costs.

The question is not simply:

How much did we spend this month?

Management needs more useful information.

What did this heat cost?

What is the cost per tonne?

How much scrap was generated?

What was the yield?

What did rolling cost?

How much did power and fuel add to the cost?

What did job work cost?

What is the actual cost of the finished product?

Which products are profitable?

Which customers are giving us a good margin?

These questions are difficult to answer when costing is prepared manually.

Steel manufacturing costing software can connect production transactions with material, processing and financial costs to provide a more complete view.

Why Steel Costing Is Different

Steel manufacturing has several production stages.

Depending on the business, the process may include:

Each stage can add cost.

At the same time, material can be lost through scrap and yield variation.

This means the final cost of a tonne of finished steel cannot always be calculated simply by adding the purchase price of raw material.

• Scrap purchase
• Melting
• Casting
• Billet production
• Rolling
• Cutting
• Slitting
• Grinding
• Bright bar processing
• Fabrication
• Job work

Raw Material Cost Is the Starting Point

Raw material is usually one of the largest components of steel production cost.

The costing system should capture the actual cost of material consumed.

This may include:

The system should then connect the material consumption with the relevant production order or heat.

• Scrap
• Billets
• Alloys
• Additives
• Consumables
• Other production materials

Heat Wise Costing Gives Better Visibility

For many steel manufacturers, heat is an important production level.

A heat may have its own:

The ability to calculate cost at heat level can provide useful information about production performance.

Management can compare one heat with another and identify unusual cost differences.

• Raw material consumption
• Grade
• Production quantity
• Yield
• Scrap
• Energy consumption
• Processing cost
• Production date

Cost Per Ton Is a Key Measure

Steel manufacturers often need to understand cost per tonne.

But the calculation should be based on actual production information.

For example:

This can then be compared across: products, grades, heats, production periods, plants, machines or batches.

This gives management a better understanding of manufacturing efficiency.

• Total production cost
• Divided by actual finished output

Yield Has a Direct Impact on Cost

Yield is one of the most important factors in steel production.

Suppose a production process consumes 100 tonnes of material and produces 90 tonnes of usable output.

The remaining material may be scrap, process loss or another form of loss depending on the process.

If yield decreases, the cost of the usable output increases.

That is why yield should be included in production costing.

Scrap Recovery Can Change the Effective Cost

Scrap generated during production may have a recovery value.

If scrap is sold or reused, this value can affect the overall economics of the production process.

Costing should therefore consider:

This gives management a more realistic view of the net production cost.

• Input material
• Finished output
• Process loss
• Scrap
• Scrap recovery value

Energy Cost Is Important in Steel Manufacturing

Power and fuel can represent a significant production expense.

Depending on the plant, energy may be used during:

If energy costs are not connected with production, it becomes difficult to understand the actual cost of manufacturing.

The costing system should allow relevant energy expenses to be considered in production cost.

• Melting
• Heating
• Rolling
• Cutting
• Grinding
• Other processing

Labour Cost Should Also Be Considered

Labour is another production cost.

Different production processes may require different labour levels.

The cost may depend on:

Management can use this information to understand the labour component of production cost.

• Production process
• Shift
• Machine
• Department
• Production quantity

Consumables Can Add Up

Steel production also involves many consumables.

These may include:

Individually, some of these expenses may appear small.

Across a large production volume, however, they can become significant.

Proper costing should include relevant consumable costs.

• Electrodes
• Refractory materials
• Grinding wheels
• Cutting tools
• Lubricants
• Oils
• Other production consumables

Job Work Cost Should Be Part of the Product Cost

If a steel company sends material to an external processor, the processing charge becomes part of the cost.

For example:

The ERP should connect the job work transaction with the relevant material and production process.

This helps prevent job work costs from being forgotten when calculating the final product cost.

• Material sent for grinding
• Slitting charges
• Heat treatment
• Cutting
• Other subcontract processing

Actual Cost and Standard Cost Should Be Compared

Many manufacturers work with an expected or standard cost.

This provides a useful benchmark.

But actual production can be different.

The system should allow comparison between:

The difference can then be investigated.

• Standard cost
• Actual material cost
• Actual processing cost
• Actual scrap
• Actual yield
• Actual production output
• Actual total cost

Cost Variance Can Reveal Production Problems

Cost variance is not only a finance report.

It can point towards operational issues.

For example:

Raw material cost increased.

Yield dropped.

Scrap increased.

Power consumption increased.

Job work charges increased.

Production quantity was lower than planned.

These differences can affect the final cost per tonne.

A regular cost variance review can help management identify the reason.

Product Wise Costing

Different steel products can have different production costs.

For example, one product may require additional processing while another may go directly from rolling to finished goods.

Product-wise costing can show:

This helps management understand the economics of individual products.

• Material cost
• Processing cost
• Energy
• Labour
• Consumables
• Job work
• Scrap recovery
• Total cost
• Cost per tonne

Grade Wise Costing Can Also Be Useful

Different grades may require different raw materials and production conditions.

A higher grade may require additional alloying materials or tighter process controls.

The costing system should allow management to compare costs by grade.

This can help during pricing decisions.

Customer Profitability Is More Than Selling Price

A customer buying at a higher selling price is not necessarily more profitable.

The actual margin may be affected by:

Customer wise profitability reporting can help management understand the actual commercial value of an order.

• Product cost
• Discount
• Freight
• Processing requirements
• Packaging
• Job work
• Payment terms
• Special customer requirements

Order Wise Profitability

Before accepting a large order, management may want to know whether the expected margin is sufficient.

The system can compare:

After production and dispatch, the actual result can then be compared with the original estimate.

This creates a useful feedback loop between sales and production.

• Expected selling price
• Estimated production cost
• Raw material cost
• Processing cost
• Other costs
• Expected margin

Costing Should Start During Production

Costing should not always be prepared after the month ends.

Management may need to know the current cost while production is still running.

For example, if scrap is already higher than expected, the estimated final cost may increase.

If raw material prices have increased, the cost estimate may also change.

Early visibility gives management more time to respond.

Estimated Cost to Complete

For production that is still in progress, management may want to estimate the final cost.

The calculation can consider:

This helps management understand where the final product cost is heading.

• Cost already incurred
• Remaining material requirement
• Expected production
• Expected scrap
• Expected processing cost
• Expected output

Production Costing and Inventory Should Be Connected

Inventory and costing are closely connected.

When raw material is consumed, its value moves into production.

When finished goods are produced, the cost becomes part of finished inventory.

When the product is sold, the relevant cost contributes to the cost of sales.

If these processes are maintained separately, reconciliation becomes difficult.

A connected ERP can reduce this problem.

Costing And Finance Should Use the Same Transactions

Finance should not have to rebuild production costs manually from multiple reports.

When production, purchasing, inventory and financial transactions are connected, finance gets better visibility.

Management can review:

This creates a more consistent view of the business.

• Material purchase cost
• Material consumption
• Production cost
• Inventory value
• Finished goods cost
• Sales value
• Gross margin

Management Dashboard for Steel Costing

A costing dashboard can show:

This helps management identify the areas that are affecting margins.

• Cost per tonne
• Material cost
• Energy cost
• Labour cost
• Consumable cost
• Job work cost
• Scrap recovery
• Yield
• Actual versus standard cost
• Product profitability
• Customer profitability
• Production variance

Why Steel Companies Need Better Cost Visibility

Steel manufacturing operates with large volumes.

A small cost difference per tonne can become a significant amount across annual production.

For example, even a small increase in cost per tonne can have a major impact when the company produces hundreds of thousands of tonnes.

That is why cost control should be based on actual production data rather than estimates alone.

How NAVSteel Supports Steel Manufacturing Costing

NAVSteel is built on Microsoft Dynamics 365 Business Central and is designed to connect steel production with inventory, costing and financial management.

Depending on the manufacturing process, NAVSteel can support costing across areas such as:

This allows the business to analyse production costs using information generated during actual operations.

• Raw material
• Heat production
• Billets
• Rolling
• Processing
• Scrap
• Yield
• Energy
• Labour
• Consumables
• Job work
• Finished goods
• Sales
• Profitability

From Raw Material to Finished Product Cost

Consider a simple production cycle.

The company purchases scrap.

The scrap is received into inventory.

Material is issued for melting.

A heat is produced.

The heat produces billets.

Billets are rolled.

Rolling produces finished bars.

Scrap is generated during processing.

The finished bars are inspected and stored.

The product is then sold to a customer.

The actual cost of the finished bars should reflect the relevant material and processing costs throughout this journey.

A connected ERP makes this information much easier to track.

Costing Can Help with Pricing Decisions

Selling price should not be decided without knowing production cost.

Before quoting a customer, management may need to consider:

A costing system provides better information for these decisions.

• Current raw material price
• Expected production cost
• Processing
• Job work
• Freight
• Expected scrap recovery
• Target margin

Costing Can Help Identify Profitable Products

A company may produce many different steel products.

Some may generate strong margins.

Others may consume more resources and provide lower returns.

Product profitability reporting can help management understand which products are commercially attractive.

This information can influence future production planning and sales strategy.

What To Look for In Steel Costing Software

Before selecting steel manufacturing costing software, check whether it can handle:

The system should reflect the actual production process of the steel business.

• Heat wise costing
• Product wise costing
• Grade wise costing
• Raw material consumption
• Yield
• Scrap
• Scrap recovery
• Energy
• Labour
• Consumables
• Job work
• Actual versus standard cost
• Cost per tonne
• Inventory valuation
• Product profitability
• Customer profitability
• Production variance
• Financial integration

Better Cost Control Starts with Knowing the Real Cost

Steel manufacturers cannot control what they cannot measure.

Knowing the selling price is not enough.

The business needs to know the actual cost behind that selling price.

Raw material, yield, scrap, energy, labour, consumables, processing and job work can all change the final cost of a tonne of steel.

A connected costing system can bring these elements together and help management understand where money is being spent and where margins are being lost.

NAVSteel connects steel manufacturing processes with inventory, costing, sales and financial management through Microsoft Dynamics 365 Business Central.

For steel manufacturers still preparing product costing, heat costing or profitability reports manually in Excel, a steel specific ERP can provide a more reliable and connected approach.

Explore NAVSteel to see how production costing, inventory, profitability and financial management can work together in one steel ERP platform.

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