Costing out a job is arguably the most important step to do well for any service company. Accurately tracking the material and labour costs is crucial to determining which jobs are profitable. And when you have visibility into into this data, you can make more accurate estimates and proposals for future jobs. Not to mention you get more reliable forecasting and can mitigate cost overruns. What many business owners overlook in tracking their costs is the value of time. It's not because they don't understand the value – they simply don't have the systems in place that clearly illustrate the value.
How does an ERP solution help with job costing?
Gain visibility into labour costs
When it comes to labour costs, the relationship between time and cost is obvious – the more hours put into the job, the higher the labour cost. However, if you're running separate systems for payroll, job management and accounting, the factors that contribute to the number of hours usually aren’t visible. The time capture method simply isn’t sophisticated enough to provide that visibility.
Many job-based service companies have a big hole in their time capture systems. They may have teams out in the field, manually entering their hours on time sheets or time cards. Employees with fixed work sites, like a warehouse floor, may clock in and out, but do they track the time spent on each job throughout the day? The information entered into the payroll system is usually insufficient for tracking a job’s costs.
If you're relying on a payroll system for time tracking, here's how it will fall short when it comes to job costing:
You lack the granularity to allocate time to specific jobs
Payroll and labour reports are often delayed because they're manually compiled
You spend extra time entering and verifying the data
Errors are more common as you're copying from time sheets into your payroll system
You risk losing the only copy of the hours worked – the hard copy time sheet
Your labour data isn't integrated with other systems beyond payroll
Visibility into labour data starts by ensuring that it’s entered only once and flows through to all necessary areas of the business. With SAP Business One for service industries, your team can capture their time via their mobile device in the field. That data is tracked against the applicable job and flows through to both your accounting and payroll teams. Similarly, warehouse staff can be equipped with handheld devices that integrate time capture, order picking and inventory management functionalities.
Once your staff can easily capture their time, it’s easy to tie those hours to specific jobs. This allows for real-time comparisons of projected and actual labour costs. Looking beyond labour, you can can also capture time for equipment against a job, giving you even greater visibility into your job costs.
Optimize material purchasing
The time factor for materials may not be as obvious, but it's just as important. Your material costs can be impacted by both delivery times and your vendor billing cycles.
Integrating accounts payable and receivable with your purchasing system makes your planning process much easier. You get visibility you didn't have before with your accounting, job planning and inventory management data in a single system. You can proactively prevent delays in your jobs due to late arrival of materials. On the flip side, you can avoid inventory carrying costs that come with having materials arrive too early. The goal is to have the right amount of the right inventory at the right time for the right job.
Take it one step further with an integrated CRM. In the planning stages, you can create milestones that integrate information about lead times and vendor credit terms. Reaching a particular milestone will trigger a materials order for future stages of the job, based on the lead time needed. Your customer can be invoiced for the materials immediately or upon some other agreed-upon interval, and the vendor’s payment is issued when it comes due. This allows for just-in-time ordering to rein in the expenses that often accumulate during the mid-stages of a long and complex job.
In effect, managing material costs is accomplished by managing time.
The cost of poor time visibility
Bottom line – spending excess time on a job raises costs. That time can be in literal hours of labour, or it can be time spent idly waiting for the delivery of a key component. Time carries a cost; it could be overtime hours or extra days with a shipment, but it always carries a cost.
Time only becomes expensive, though, when you can’t see how much of it you’re spending. Visibility into labour and material costs is the best way to rein in the cost of time. SAP Business One gives you that visibility, so you can optimize your jobs and maximize your profit.
As one of the top Canadian SAP Business One partners, we know the system inside out. We’re here to guide you through the process – right from evaluation, through implementation and beyond.
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