In an earlier article "Manufacturing Software - Improving Your Business' Bottom Line" - the major process steps for a small manufacturing organisation were listed in dot points.
The first two of these - Accurately estimate and cost a job and Provide a quotation to the enquirer - are crucial to a profitable outcome for any job being undertaken.
Expanding these two items we find that accurate estimations are needed for some if not all of the following factors:
Should this erosion last for any length of time there is a high probability that the organisation will continually struggle to remain in business. Often the end is a surprise to those involved in the enterprise because their focus is on getting tasks completed rather than looking after the business.
The adage "Work on the business, not in the business" would never be truer.
Man Hour estimation is not always straight forward. But it is crucial to be able to define the labour components for a particular job within reasonable limits. If too few are allowed the quote may look very acceptable to the customer but your profit is likely to be hard to find. Conversely over estimation provides more margin in the quote but it may disadvantage the outcome.
Where the job is similar to one done previously there is a a better basis from which to work. However appropriate records need to maintained to take advantage of this. Experience does counts so there may be someone in the organisation who can make a reasonable estimate of the time required. But memory is not always reliable and personnel can leave taking their knowledge and experience with them.
An associated factor in estimating man hours is defining the trades and the skill sets required. It is of no value to have an electrician available when a plumber is required unless he is multi-skilled. Rigid trade defined skills can be seen as an impediment in some cases however it is vital that skills used for the task are valid and meet applicable approved standards. Again well kept records will assist here.
Task time, machine time and component assembly time are related. The time for each needs to be well defined and they need to be sequenced correctly. In many cases a particular machine is used to perform more than one task. Here it is important to sequence the tasks correctly so that the other activities are not delayed by lack of components or the unavailability of the machine. The pre-manufacture of some components when there is idle machine capacity can often great improve work flow and reduce production times. This obviously requires the holding of some inventory but the holding costs may be significantly less than a delay in manufacture. Good inventory control is important in these circumstances. A stock out of a critical component at the wrong time can lead to significant losses of time and profit.
Good inventory control is also applicable to the finished product. If it is a stocked item or one that is held for any period after manufacture then both the location and the quantity available needs to be readily available to the organisation.
Material wastage can have a major impact on the profitable outcome of a job. This applies to both the material required for the task (steel, plastic, piping etc) as well as any consumables needed (paint, oil, welding rods, gaskets etc). While the items mentioned here relate to simple structural work each industry will have its own specific materials and consumables. A key factor in reducing wastage is being able to accurately cut or extract the maximum amount of usable material from the raw feedstock, be it sheet metal, cloth or pipe. Keeping scrap to a minimum is generally profitable. The same applies to consumables. Extravagant or poor use of consumables needs to be controlled. This often comes down to the quality and skill the operators involved. Finally excessive scrap is an added cost which introduces its own requirements for handling, storage and disposal.
Any product shipped to a customer needs transport and delivery which may need to be arranged by the manufacturer. Being able to record and track this activity is important. A manufacturer may provide his own transport or employ the services of a freight company. In either case there is a need to be able to estimate the cost of trucking the item to the customer and ensure that the delivery is recorded.
Finally there is invoicing and payment processing which many may consider an accounting procedure rather than a manufacturing one. However the cost of manufacture and the accounting process are closely linked. Poor costing of the manufacturing processes will lead to poor invoicing values. This in turn may materially impact the profit margin or make estimating the profit all but impossible. Then profit just becomes an estimate or guess. In many organisations an accounting package is often the first software purchased. It is frequently done separately and remote from the purchase of manufacturing software. Having the manufacturing software directly integrate with the accounting package is of immense advantage.
In an earlier article the general requirements and advantages associated with the use of manufacturing software were discussed. This article deals with some of the specifics associated with accurate estimating and job costing and the provision of a quotation.
The first two of these - Accurately estimate and cost a job and Provide a quotation to the enquirer - are crucial to a profitable outcome for any job being undertaken.
- man hours
- skills required
- material requirements
- task time
- machine time
- component assembly
- inventory control
- material wastage
- transport and delivery
- invoicing and payment processing
- profit margin
Should this erosion last for any length of time there is a high probability that the organisation will continually struggle to remain in business. Often the end is a surprise to those involved in the enterprise because their focus is on getting tasks completed rather than looking after the business.
The adage "Work on the business, not in the business" would never be truer.
Man Hour estimation is not always straight forward. But it is crucial to be able to define the labour components for a particular job within reasonable limits. If too few are allowed the quote may look very acceptable to the customer but your profit is likely to be hard to find. Conversely over estimation provides more margin in the quote but it may disadvantage the outcome.
Where the job is similar to one done previously there is a a better basis from which to work. However appropriate records need to maintained to take advantage of this. Experience does counts so there may be someone in the organisation who can make a reasonable estimate of the time required. But memory is not always reliable and personnel can leave taking their knowledge and experience with them.
An associated factor in estimating man hours is defining the trades and the skill sets required. It is of no value to have an electrician available when a plumber is required unless he is multi-skilled. Rigid trade defined skills can be seen as an impediment in some cases however it is vital that skills used for the task are valid and meet applicable approved standards. Again well kept records will assist here.
Task time, machine time and component assembly time are related. The time for each needs to be well defined and they need to be sequenced correctly. In many cases a particular machine is used to perform more than one task. Here it is important to sequence the tasks correctly so that the other activities are not delayed by lack of components or the unavailability of the machine. The pre-manufacture of some components when there is idle machine capacity can often great improve work flow and reduce production times. This obviously requires the holding of some inventory but the holding costs may be significantly less than a delay in manufacture. Good inventory control is important in these circumstances. A stock out of a critical component at the wrong time can lead to significant losses of time and profit.
Good inventory control is also applicable to the finished product. If it is a stocked item or one that is held for any period after manufacture then both the location and the quantity available needs to be readily available to the organisation.
Material wastage can have a major impact on the profitable outcome of a job. This applies to both the material required for the task (steel, plastic, piping etc) as well as any consumables needed (paint, oil, welding rods, gaskets etc). While the items mentioned here relate to simple structural work each industry will have its own specific materials and consumables. A key factor in reducing wastage is being able to accurately cut or extract the maximum amount of usable material from the raw feedstock, be it sheet metal, cloth or pipe. Keeping scrap to a minimum is generally profitable. The same applies to consumables. Extravagant or poor use of consumables needs to be controlled. This often comes down to the quality and skill the operators involved. Finally excessive scrap is an added cost which introduces its own requirements for handling, storage and disposal.
Any product shipped to a customer needs transport and delivery which may need to be arranged by the manufacturer. Being able to record and track this activity is important. A manufacturer may provide his own transport or employ the services of a freight company. In either case there is a need to be able to estimate the cost of trucking the item to the customer and ensure that the delivery is recorded.
Finally there is invoicing and payment processing which many may consider an accounting procedure rather than a manufacturing one. However the cost of manufacture and the accounting process are closely linked. Poor costing of the manufacturing processes will lead to poor invoicing values. This in turn may materially impact the profit margin or make estimating the profit all but impossible. Then profit just becomes an estimate or guess. In many organisations an accounting package is often the first software purchased. It is frequently done separately and remote from the purchase of manufacturing software. Having the manufacturing software directly integrate with the accounting package is of immense advantage.
In an earlier article the general requirements and advantages associated with the use of manufacturing software were discussed. This article deals with some of the specifics associated with accurate estimating and job costing and the provision of a quotation.
Business Bookkeeping
Business bookkeeping is the process of keeping track of the money that flows into a business, usually through revenue, and money that goes out, which are often expenses such as manufacturing and payroll. While bookkeeping for businesses used to be done on paper, it's now almost universally done through software solutions which made it easy and fast for almost anyone to do. Without business bookkeeping, it can be difficult for a business to know their current state: are we profitable by making more money than we spend, or are we temporarily unprofitable while our expenses exceed our revenues? It's this sort of information that can help a business owner make the right decisions about how to run the company.
Bookkeeping can also be helpful as you prepare for tax time. In particular, many businesses need to keep track of expenses carefully and this can be difficult without a rigorous system. Payroll is also a complicated task that is dramatically simplified by software solutions. Many businesses who don't employ someone with a bookkeeping background use an outside bookkeeper or an accountant to run the books.
This can be a great way to take the load off the business owner, but it's important to hire someone that you trust and someone that knows your business well. An accountant often plays the role of a business advisor and can often give a lot of helpful advice even outside the realm of keeping the books up to date. Without business bookkeeping, it can be nearly impossible to understand how even a fairly complex business is doing.
Interested to expand your business by using manufacturing software solutions. Check with Alenu Group today at +65 6884 5030
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