Easily View Expected & Actual Job Costs
A key requirement for an engineer-to-order manufacturer is job costing, the ability to view actual job costs at all times throughout the life of the project. These actual costs are used to compare to the estimated (as bid/quoted) costs and the planned costs (as planned in the job structure). The Encompix ERP system is built on this very foundation and provides the ability to view the expected and actual job costs at any time, thereby calculating expected profit.
By defining the job structure as potentially multiple, related jobs with routing operations and planned materials, it is possible to view the individual job costs or the complete parent structure with a job cost roll-up to the parent. As actual materials are issued and labor collected, the job costs are immediately available.
For purchased materials, if job BOM items are purchased directly to the job they will be costed to WIP upon receipt. If the actual material cost is different than the planned cost on the job/PO, the voucher will appropriately update the job cost to reflect this difference. Encompix offers:
- Actual costs reported to job and visible at any time.
- Browsers to allow drill-down from summary to detail.
- Job costs available as individual or rolled up to project parent.
- Contribution Margin summary of job costs optionally available.
- Contribution Margin summarizes actual job costs to user-defined categories.
- Actual vs. Planned vs. Estimated available.
- Labor reports summarized or viewable by Employee/Operation.
- Material Costs are tracked against the job as Un-issued BOM, Un-costed Purchases and Costed (Received and Vouchered or Issued from Inventory).
- Overhead Costs (% or Amount) optionally calculated based on actual labor costs.
- Estimated cost to complete is available at any time though the life of the project.
Avoiding Co-Mingled Inventory Costing
Most ERP systems on the market today have their heritage in the Material Requirements Planning (MRP) philosophy developed in the 1960s. This concept utilized computer power to calculate time-phased material requirements. It later evolved into MRPII promoted by APICS and Ollie Wight during the 1980s, and further evolved to the Enterprise Resource Planning (ERP) systems available today. The emphasis of such systems is on standard bills and routings and standard costs.
Such systems plan inventory based on sales orders and forecasts, purchase material for inventory, and issue the material to work-in-process (WIP). Finished goods are moved from WIP to finished goods inventory before shipment to the customer.
"This is fine if you are making standard products," said Sonia Lebot, corporate business systems manager for GL&V. "But we don't make standard products, and they don't go through inventory. We make capital equipment specifically designed to customer specifications, and ship directly from WIP." Lebot headed the selection committee that included an implementation team from GL&V's Hudson Falls, New York, facility. Learning from their previous experience, the team's first question to potential software vendors was: "Does the system force goods to go into inventory before shipping to the customer?" "If the answer was yes," Lebot explained, "We didn't continue with that vendor."
Another company that had similar experiences was Assembly & Test - Worldwide, Dayton, Ohio. "In our environment everything has to be purchased directly into work-in-process (WIP) against the job. The major stumbling block in nearly all the packages [we reviewed] was everything had to go into inventory and then into WIP. That's a problem because we just don't function that way," said Joe Osterday, V.P. Finance.
True Actual Costing
The problem is that most systems, which claim to support actual costing, do not truly reflect all the actual costs throughout the system at the time the actual costs hit the books. Try this simple test:
Step 1. Create a job with a planned cost of $1,000 for material.
Step 2. Enter a purchase order with a planned cost of $1,000 for the material.
Step 3. Record the receipt of material.
Step 4. Post the invoice at the actual cost of $1,251. In a traditional costing system, the planned cost ($1,000), not the actual cost ($1,251), is reported against the job, and a variance ($251) is shown in the general ledger.
Only systems that were designed and built to address the needs of engineer-to-order and project-based manufacturers support true actual costing. Traditional ERP systems based on item numbers and standard cost only offer incomplete solutions that compromise good business practice.