In today’s competitive manufacturing climate, improving your margins and profitability is important to remain competitive and successful. Even a small increase in your margins can be impactful to your business.
One of the major challenges to improving margins that custom manufacturers face is knowing the actual cost of the product they are manufacturing. Because each item is custom built, and there isn’t a previous spec to base a job off of, it isn’t easy to know what a job will cost—meaning it is difficult to know what to charge a customer for a job. And if you don’t charge your customer the right price, your margins and profitability will be off.
Why do you need accurate job costing?
Custom manufacturers need accurate job costing to determine how much a job costs, and what price to charge their customer. What job costing comes down to is: “Are you losing money or making money on a job?” You know what the answer to that question needs to be.
Without proper job costing you may have run into one or more of these problems:
- Significant differences between actual costs and presumed costs
- Decreased margins and profits
- Tension within project teams and amongst management
- Poor customer relationships
- Limited knowledge of your company’s profitability
Accurate job costing is one of the biggest factors that can affect your bottom line. Precise job costing not only tells you how much each job you take on actually costs you, and if you are actually making money on a job, it also helps you to identify where you can become more efficient and save on costs. Job costing provides accurate and timely costing information to management which allows you to make informed decisions about production, pricing, process efficiency and more. This can help save you money and improve profit margins.
Let’s back up for a second—what is job costing? And how do you do it?
Job costing consists of the combined value of the labor, engineering, materials, outside processing, freight and manufacturing overhead incurred in producing a job’s line items or deliverables.
Using an ERP to determine job costs is one of the most effective ways custom manufacturers can determine their true job costs. Because custom manufacturing is a complicated process that involves many departments, components, tasks, and long-lead items, an integrated system, like an ERP, can help you better get a handle on all of the elements that make up job’s true cost.
The use of a robust and integrated ERP solution will stop the broad (and usually wrong) assumptions and guesswork associated with job planning and costing, and lets you use accurate and real-time data and metrics to determine real job costs. An ERP tracks all of the costs of a manufactured item or a process including material, labor, equipment, outsourced operations, as well as other resources that are directly required to manufacture an item. An ERP will also include detailed analysis and reporting tools that will allow you to drill down and identify the true costs and profit margins of your operation.
What are the benefits of using an ERP for job costing?
A fully-integrated manufacturing ERP system, like Genius ERP, lets you trace job costs throughout the production process and lets you gather information on costs at every step of the manufacturing process. You will be able to create an accurate and complete job cost for every job in your shop, which will allow you to make quicker, and better-informed decisions about what jobs to take on, what prices to charge your customers, and how to save money—all while being a more efficient shop.
Another great advantage of having an ERP solution as part of your manufacturing business is that you can view real-time progress and costs, and align them to your approved project plans. If you are seeing an overrun in one area, you are able to address it immediately. Or if you are seeing a lag in the timeline, you can act upon it and get the project back on track by assigning additional or different resources—meaning you will avoid costly delays and errors. All of which will ultimately improve your margins.
With Genius ERP you can get accurate job costs which will help improve your profit margins. Genius ERP has many built-in features and functionalities that will help you create better job costing. With Genius ERP you will:
- Increase profitability by accurately measuring job costs, comparing to your initial estimate to target profit/loss centers
- Track standard, average and actual product costs
- Use real-time job costing to improve on the fly and better predict your profit
- Quickly determine actual vs. standard cost variances
- Be able to analyze profitability by job, project, or contract
- Easily drill down to determine profit/loss down to the item number
- Create job cost budgets from estimates or work orders
Many manufacturing businesses today are not in control of their job costing, which has major consequences for their bottom line. Using Genius ERP to easily, effectively and accurately manage your job costing will save you money, and improve margins and profitability. To learn more about how Genius ERP software can benefit your business or to read some success stories, download one of our eBooks or check out our case studies.
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