July 17, 2013 Ken Jacobsen

Project-Based Manufacturing (or ETO) with Microsoft Dynamics NAV

Many custom manufacturing companies today are experiencing growing production demands from their clients that overload their current job cost accounting software. Jobs take longer, and there are more costs associated with production than can be easily tabulated. When a job takes two months to complete, there are many cost postings: labor, materials, subcontractors, travel, freight, overhead, and machining. The costs accrue so fast that companies find that using Microsoft Excel to work around the shortcomings of their accounting/ERP systems to manage their manufacturing and costing won’t work anymore. It just gets worse as the business grows and they are running 10+ different jobs simultaneously and have to schedule 20+ operations per job.

Managing these complex and often long jobs has proven to be easier if a firm can manage the costs in smaller buckets:

  1. Design – Move from initial client meetings to the point of compiling detailed drawings
  2. Engineering – The engineers need to be sure it will all work together
  3. Fabrication – Now it is time to actually build the product for the client
  4. Installation – Move the product to the client’s site and get it working
  5. Training – Spend time with clients, training them to use the product

We have seen companies where each of these steps is like a job of its own that may take up to four months to complete. It seems to work more efficiently to make these five steps into five different jobs (subjobs). This also makes it easier if there are milestone billings at the completion of each job/step, because a contract amount can be established for each job as well.

Please note that when dividing these projects into multiple jobs/steps, only fabrication will have a bill of materials and require purchasing to be involved. The other steps are mostly labor. However, ALL steps need detailed cost accounting to confirm that the work falls within the established estimate.

Microsoft Dynamics NAV Jobs is perfect for job costing, and Microsoft Dynamics NAV Manufacturing is perfect for fabrication. So by combining NAV Jobs and NAV Manufacturing, we can use Microsoft Dynamics NAV for ETO (engineer to order) or project manufacturing. You can also use the Microsoft Dynamics NAV add-on module Job Manager from Cost Control Software to enhance the ability to see ALL project costs as well as revenue tracked to the job.

With Job Manager from Cost Control Software, you can easily see profitability per job (revenue minus cost). The project (master job) is the roll up of the revenue and costs from all the subjobs. Costs posted to the production orders from the NAV Manufacturing side will be captured on the fabrication subjob as well. NAV Jobs is the “envelope” that holds all the data, but in very manageable buckets.

Project = Customer’s Purchase Order or Quotation Approval (Sales Order/Master Job)
1)  Subjobs = Design, Engineering, Fabrication, Installation, Training
2)  Job Tasks = Electrical, CNC, Welding, Painting, Assembly, Hotel Expense,
3)  Production Order(s) = Fabrication

This solution works well for all kinds of companies, such as equipment manufacturers, road builders, researchers and developers, remanufacturers, repair facilities, prototype builders, specialty subcontractors, and elaborate electronic systems. Cost Control Software’s Job Manager and Manufacturing Plus modules enhance the Microsoft Dynamics NAV base system.

Cost Control’s Job Manager provides a powerful activity-based costing tool that makes it easy to manage resources; track the status of production or service jobs; record consumption and output; schedule job tasks; monitor dates, activity costs, and material requirements; and manage subcontractor activities within a single integrated system. Cost Control Software’s Manufacturing Plus module, however, provides many enhancements to Microsoft Dynamics NAV Manufacturing to provide a better view of production standard costing, current costing, future costing, estimating, and pricing. Many of Cost Control’s enhancements have been added to the Microsoft Dynamics NAV Item Card, Production BOM, and Production Order Card.

We know that you may be in an early stage of software evaluation, and we are here to help you every step of the way. Our software trainers are here to help you today. They do charge for their time, but we fully apply all the fees you pay to your implementation. The best part is that you are guided during your trial by both the software publisher (Cost Control Software) and the top Midwest support center (The TM Group).

Originally published on www.erpsoftwareblog.com.


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