Why spreadsheets fail—and how smarter costing systems protect margins in a volatile supply chain

In the apparel and footwear industry, profitability is often decided long before a product reaches the shop floor. While sales performance and marketing play an important role, margins are largely determined at the product costing stage.

Many apparel businesses still rely on spreadsheets, estimates, or disconnected systems to calculate product costs. These approaches struggle to keep pace with rising material prices, fluctuating labour costs, and volatile freight charges. The result is often inaccurate costing, late visibility of margin erosion, and limited ability to respond.

Improving profitability starts with better product costing — and that requires systems designed for the realities of the apparel industry.

The True Complexity of Apparel Costing

Unlike simple manufacturing, apparel costing involves multiple variables that change throughout the product lifecycle. A single garment may include several fabrics, trims, labels, packaging elements, and outsourced processes such as washing or embroidery.

Costs are also influenced by:

– Supplier pricing and minimum order quantities

– Exchange rates for overseas production

– Freight, duty, and handling charges

– Seasonal production volumes

– Revisions during development

When these factors are tracked manually, errors are inevitable. Even small inaccuracies, when multiplied across large production runs, can significantly impact margins.

Why Spreadsheet-Based Costing Falls Short

Spreadsheets are familiar and flexible, which is why many apparel businesses still use them. However, they introduce several limitations.

1. Spreadsheets are static. They do not automatically update when supplier prices change or when a bill of materials is revised. This often leads to outdated cost assumptions being used in pricing decisions.
2. Spreadsheets lack integration. Costing data often sits separately from purchasing, inventory, and sales data, making it difficult to understand the true profitability of a product once it enters production.
3. Spreadsheets offer limited visibility. Version control issues and manual updates make it hard to trust the numbers, especially across teams.

ERP-driven costing addresses these challenges by creating a single source of truth.

Building Accurate Bills of Materials (BOMs)

At the core of effective product costing is a detailed and structured bill of materials.

An apparel-focused ERP system allows businesses to:

– Define multi-level BOMs

– Assign supplier-specific pricing

– Include labour, overheads, and additional processes

– Track revisions over time

This structured approach ensures that all cost components are captured consistently. When changes occur — such as fabric substitutions or updated trims — costs are recalculated automatically, maintaining accuracy throughout development.

Managing Cost Changes Before Production

One of the biggest risks to apparel profitability is late cost changes.

Without real-time visibility, businesses may commit to pricing or accept orders based on outdated cost assumptions. ERP-driven costing allows teams to model scenarios before production begins.

This includes:

– Comparing supplier pricing options

– Understanding the impact of volume changes

– Assessing margin impact before confirming orders

By identifying margin risks early, businesses can adjust pricing, renegotiate with suppliers, or revise production plans before costs escalate.

Margin Visibility by Style, Season, and Customer

Profitability in apparel is rarely uniform across products.

Some styles drive strong margins, while others act as volume drivers or loss leaders. Without granular margin visibility, it is difficult to understand which products are truly performing.

ERP systems designed for fashion provide margin analysis by:

– Style and colour

– Season or collection

– Customer or channel

This level of insight enables more informed decisions around range planning, promotions, and future collections.

Supporting Pricing Decisions with Confidence

Pricing decisions in apparel are often made under time pressure, particularly during seasonal buying cycles.

When costing data is unreliable or delayed, pricing becomes reactive rather than strategic. ERP-driven costing provides confidence by ensuring pricing decisions are based on accurate, up-to-date information.

This allows businesses to:

– Protect target margins

– Respond to cost increases proactively

– Avoid unnecessary discounting

Accurate costing also strengthens negotiations with buyers and retail partners, as pricing can be justified with clear data.

Improving Collaboration across Teams

Costing is not the responsibility of a single department.

Design, sourcing, production, finance, and sales teams all rely on costing data — often from different perspectives. When data is fragmented, collaboration suffers.

An integrated ERP system ensures all teams work from the same cost data, reducing misunderstandings and improving alignment across the organisation.

This shared visibility is particularly valuable when responding quickly to market changes or supply chain disruptions.

Long-Term Profitability Through Continuous Improvement

Better product costing is not a one-time exercise. It is an ongoing process that evolves as businesses grow and markets change.

ERP systems enable continuous improvement by:

– Tracking actual costs versus planned costs

– Identifying recurring variances

– Supporting data-driven decision-making

Over time, this insight helps businesses refine sourcing strategies, improve supplier performance, and build more profitable collections.

Conclusion: Costing as a Strategic Advantage

In the apparel and footwear industry, profitability depends on precision.

Businesses that rely on manual or disconnected costing methods often struggle to maintain margins in a volatile market. Those that invest in accurate, integrated product costing gain greater control, confidence, and resilience.

By improving visibility, supporting smarter decisions, and aligning teams, ERP-driven costing transforms product costing from an administrative task into a strategic advantage.