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Quote, Price and Close Work Orders the Right Way

by Nick Knight, Senior Director of Customer Services

Global Shop Solutions

Every manufactured part has a story – the story of how something is made, how much something costs, how much something can be sold for and if that something can be made again. A good manufacturing story will be filled with precise detail and perfect accuracy, guiding your future based on a truthful history. And, this means customers will want more. Why? The answer is simple – if a company is manufacturing like a boss, it means the company can do the following:

  • Master the four key transactions
    1. Purchasing Receipts
    2. Issuing Material
    3. Work-in-Progress (WIP) to Finished Goods (FG)
    4. Shipping/Invoicing.
  • Know its costs (freight, labor, outside services, overhead, material, other) with accurate precision
  • Price parts competitively and profitably
  • Quote jobs correctly with speed and accuracy
  • Reduce risk by knowing and not guessing

When a manufacturing facility is doing the above, it is making parts faster, making parts better, watching it all in real time and knowing exactly what everything costs – otherwise known as “manufacturing like a boss.” So, let’s get back to the basics and manufacture like a boss with these 13 items on the To Do list.

1) Prepare to win

Manufacturing can be won or lost in how prepared each company is to meet day-to-day challenges.

  • Employees must be well trained to accurately capture data. Garbage in, garbage out.
  • Employees must hold each other accountable. See something, say something.
  • Employees must understand daily processes and how each action impacts costing. If an employee does not know, ask first.

2) Accurate bills and routers

When a work order is generated, it begins the process that drives how much it will cost to make the parts and how long it will take. The accuracy of the bill of materials and the associated routers impacts runtime, set-up, lead times and quantities. If the lead time is incorrect, it will tell purchasing to order material at the wrong times, leading to overstock of product or expedited fees to get product in on time.

3) Realistic due dates

If the due date on a work order (often driven by the sales team) is entered for a week from now, but it takes several weeks to make the part, a company is setting itself up for failure. Purchasing will be scrambling to order material, supervisors will be adjusting labor schedules, and the company likely won’t be profitable on the job. To make matters worse, other jobs may need to be bumped, and the customer will be upset if it the job takes longer to make than promised – a double whammy.

4) Correct cost and conversion factors

Cost on a purchase order line should be known at any given time. If the cost or conversion factor on a purchase order (PO) is incorrect, everything downstream – from the PO receipt to the cost on the parts being shipped – will be incorrect, including financial implications.

5) Timely PO receipts

If material is on the shelf but a receipt has not been completed, this will lead to problems. Employees may cycle count the parts in because the material is on the shelf, but not in the system. This can lead to loss of traceability on any material requiring certification, heat, lot, bin tracking or serialization. When the PO receipt is done, then the parts are cycle counted back out.

6) Issue material on time

Inventory control is imperative. If material has been taken from the shelf, but not issued to the work order, this leads to problems. Parts may be promised sooner than what can happen because it looks like the material is available. Employees may cycle count the parts out because they cannot see the material on the shelf. And, if the finished good is moved to inventory without the material issued, the value of that product will be under-costed, which leads to incorrect profitability.

7) Watch cycle count adjustments

Cycle count adjustments have an inverse relationship with inventory control: The more cycle count adjustments happen, the less inventory control there is. This means the parts are not being issued correctly to work orders, WIP to FG is not being done, etc. This leads to incorrect costing on work orders.

8) Finish the job

Most of our customers tell their employees, “If it is not in the ERP software, then it didn’t happen.” Operations must be closed accurately when completed. If the estimated material is greater than the actual amount needed and the operation is left open, it will continue to call out for the remainder of the material to be issued, leading to incorrect demand. And, it will continue to show on dispatch lists – allocating incorrect costs.

9) Have a plan

Inspect as production goes instead of at the end, as the cost of quality increases with each operation performed on bad parts. This leads to a higher cost of goods sold (COGS) from the extra cost applied. A plan to handle rework or bad parts on work orders where the bulk of the parts have been completed should be in place.

10) Track labor and perform daily balancing

Labor is the 800-pound elephant. First, when it comes to indirect labor, use common sense. There will be indirect time if employees work on several work orders each day and some employees – such as shipping personnel, maintenance staff, engineers, parts movers and office employees – will have higher indirect costs than others. If employees should have a lot of direct time but instead show a considerable amount of indirect time, it typically means they are not logging work orders correctly, resulting in jobs being under-costed. If there are employees who should have some indirect time and don’t, it typically means they are staying logged into work orders while they are finding their next job, resulting in those jobs being over-costed.

Second, track direct labor and perform balancing every day. It is better to find labor mistakes as soon as they happen so the cost is corrected immediately. For example, say an employee forgets to log out of a work order at the end of the day on Friday before a long weekend. When the employee comes back on Tuesday and notices he or she didn’t log out, the employee likely will log out then. If the employee doesn’t tell the supervisor, and daily balancing is not performed for several days, the work order that employee was logged onto is over-costed. Chances are the part has moved into inventory, has been issued to another work order or has shipped – resulting in incorrect costing ricocheting through the system.

11) Close work orders on time

If parts are on the shelf but the work order is not closed, there is a chance the parts will be cycle counted in. Parts that are cycle counted in have no traceability, and when the work order is eventually closed, on-hand increases and the parts have to be cycle counted back out. This leads to incorrect inventory history, failed traceability and incorrect costing, not to mention a bunch of wasted time fixing the inventory count.

12) Performance matters – compare estimates to actuals

If the bills and routers (To Do #2) are accurate, then estimate vs. actual can be used for analysis. If there are operations that are drastically different, it means either the bills/routers are incorrect or someone applied too much or too little labor/material. Having something to base costing on is imperative, as there is no way to know if cost is correct without a proper baseline being established.

13) Stop guessing and start knowing

If a company performs daily balancing every day, employees are logging in and out of jobs correctly, material is issued accurately, operations are being closed, WIP to FG is being done, and parts are shipped correctly – then that company is job-costing like a boss. It is too late to notice bad costs after the parts are shipped. Everyone should strive to handle job-costing by exception rather than after the jobs are complete. Simple exception reports can be created to help identify when material has not been issued, when operations are not closed and more. These reports are typically created based on the type of parts being created, the amount of rework or scrap being processed, and if there are “if necessary” operations that don’t have to be processed.

In any line of work, it is easy to lose focus. Days become weeks and weeks become months – and suddenly we find ourselves working harder for the same results. Typically, this means we have stepped away from the success that got us to the top of the mountain and need to get back to basics.

As senior director of customer services, Nick Knight oversees the consulting, account representative and custom departments for Global Shop Solutions, The Woodlands, Texas. He ensures customers have everything they need for success with ERP software from the moment of purchase. Global Shop Solutions has been in the business of simplifying manufacturing for more than 40 years and has helped thousands of manufacturers take their operations from good to great.

More information: www.globalshopsolutions.com