Fabricators have always walked a tightrope of offering competitive pricing, while protecting their margins.
Our Cost of Manufacturing Report shows how much labor, energy and materials costs are hitting start-up manufacturers—but even if you’re an experienced fabricator, pricing fluctuations make it increasingly difficult to provide accurate estimates for jobs.
By its nature, fabrication involves multiple parts, complex assemblies, and varying levels of customization/configurations depending on the customers’ requirements. Central to it all is a live bill of materials (BOM), which should be both quick to generate and highly-accurate. We’ve seen how enterprise resource planning (ERP) software can be used to manage your BOMs—but quote-to-cash functionality allows you to manage the entire order process in one place, reducing the risk of errors.
In this article, we’ll look at why accurate job costing is a non-negotiable for fabricators and how an ERP can help.
What we’ll cover
- Why do you need good job costing processes?
- What does accurate job costing look like?
- How does an ERP support job costing?
Why do you need good job costing processes?
Commercial success depends on your ability to quote based on the actual cost of delivering goods, including production. Price it too high and potential customers will go elsewhere; if you price it too low, your margins will be hit by the costs of materials, labor and overheads. This is the case for all manufacturers but it’s particularly important in metal fabrication where each job usually has its own configurations and customization requirements.
Being able to generate accurate quotes helps you to:
Protect your margins
No two jobs are the same in metal fabrication. Everything from the thickness of sheet metal, to the time it takes to run a machine, will impact your costs and therefore your margins. Without a live and regularly-updated BOM, you might not have factored in recent pricing fluctuations due to shortages, nor the cost of substitutes and supplier lead times.
Cut down on delays and waste
Understanding customers’ specifications from the get-go allows you to generate and maintain a live BOM containing the correct materials and parts. You can reduce delays by ensuring the parts, including suitable substitutes, are ready for production in line with customer deadlines and supplier delivery dates. Similarly, a live BOM also avoids wastage due to overstocking materials/parts since you know precisely what is needed and any updates are visible to everyone.
Increase quoting efficiency and speed up payments
Manually producing quotes is a time-consuming task—and if your competitor gets there faster, you could easily lose out on a job. At the other end, if your quoting and sales processes aren’t linked to payments, it could lead to delays and cashflow headaches.
Improve resource allocation
Labor and machine time are two of your biggest costs—so knowing exactly what is needed for every job means you don’t erode your margins. Understanding the detailed requirements of every job means you can allocate resources in exactly the right areas to maintain throughput and hit deadlines.
Map trends—and make long-term strategic decisions
It’s not the cost of a single job that counts but the types of job too. Some product types and sectors are often more profitable than others, and by keeping a precise record of costs, you will see whether there are opportunities to expand or diversify in these markets. Equally, you could choose to decline less profitable work if there are better opportunities elsewhere.
In short, the insights you have from every job contributes to a culture of continuous improvement. Customers receive fair and competitive pricing, making you a trusted supplier, while any inefficiencies are quickly identified and addressed.
What does accurate job costing look like?
We know that good job costing processes and tools are essential—but what does it mean in practice? While every business is different, successful fabricators will have the following in place:
Robust BOM management
A live BOM is at the center of job costing, from the initial quote right through to production and delivery. No matter how big or small your manufacturing plant, spreadsheets just aren’t suitable for managing multiple parts, assemblies and sub-assemblies. Spreadsheets can’t be easily integrated with critical tasks linked to procurement, inventory management, production planning and payment so there’s a chance your BOM won’t match your initial estimate.
Automated quoting
Being able to automate quoting gives you an immediate advantage over your competitors. Customers receive–and accept—their quotes faster, and you remove any guesswork around costs/specifications. You can streamline the process further by automatically creating a work order based on the quote, ensuring no information is lost by manually inputting the data.
Live job tracking
Once a job hits the production line, being able to track its progress in real-time helps to avoid any delay and unexpected costs. You can also optimize your schedule, allocate resources in the right areas and the right time, and avoid expensive over-runs.
How does an ERP support job costing?
An ERP—or job costing software—makes the task of costing up every job easy because it removes the many manual steps traditionally involved with it. With in-built quote-to-cash functionality, you’re able to generate quotes, BOMs, work orders and production schedules in just a few clicks, before automatically invoicing your customer once the job is complete. It supports both short-term resourcing, cash flow and profitability, while also giving you the insights you need to make better strategic decisions.
