5 Ways to Improve Job Shop Profitability with Cloud ERP

Leverage dimensional profitability analysis

Getting an accurate picture of job-level profitability is a great first step, but it’s only one piece of the puzzle. It’s also important to gain an understanding of profit margins across broader dimensions, including:

  • Sales by rep or estimator – Who consistently delivers the highest-margin deals?
  • Sales by customer – How are customer accounts doing across the board? How are accounts averaging out from a margin perspective, and how does it compare to prior periods?
  • Sales by customer or product category – Is there a particular line of business or industry vertical that consistently delivers higher margins?

In a make-to-order environment, anomalous jobs often get the most attention. While an extremely profitable order might make you feel great about the customer, and a job at a loss might make you think twice about the relationship, it’s important to look at the overall profitability of an account, especially if the sales volume of that customer is high enough that a single job may be statistically insignificant.

A good ERP system will allow you to report on sales data any way you’d like, allowing you to easily find and replicate positive patterns at the customer, category, or employee level.

Dial in employee retention

Minimizing turnover and retaining top talent means less overhead, increased employee productivity, and better results. But that’s easier said than done!

A simple shortcut can be leveraging ERP data to identify top performers. A good ERP solution will help you identify which employees in each department are shouldering more of the load, consistently performing above budget, or clocking in early. Similarly, these reports may also capture employees with potential who may require coaching or training to succeed in their role.

Analysis from these reports will help you identify where your HR department’s time should be focused, allowing top performers to be rewarded and under-performers to be offered the assistance they need, before turnover can occur.

Collect realtime data from the shop floor

In most job shops, labor and machine time makes up a significant amount of the overall costs of a particular job. That’s why it’s critical to capture accurate time data for every production run. But if you’re relying on information written on a timecard at the end of the day or backflushed hours from the estimate, you’re introducing data that may be dangerously inaccurate.

Manufacturing Execution System (MES) technology allows you to easily capture this data in real-time, as jobs are completed. This means that on every job, you know exactly how much time was spent, down to the second. MES also captures the specific employee who performed the work, allowing you to cost accurate labor rates if you choose. This can be particularly important in environments where work may be completed by an overqualified employee when no one else is available.

MES also allows you to capture scrap data in realtime as it occurs. This means that rather than casting off bad raw materials or parts to a scrap bucket where they can be adjusted out later, the scrap can be captured and, if you choose, costed directly to the job.

Give your estimator the tools to succeed

If the estimate is inaccurate, you’re much more likely to lose money on a job – or lose the job entirely if the estimate is too high. A recent article in Modern Machine Shop identified that the quote-to-booking ratio for top performing machine shops was 70% – a metric that’s hard to meet unless your quoting process is completely dialed in.

Using an ERP-based estimation system instead of Excel will make your estimator’s life easier by allowing them to capture the most up-to-date costs for inventory, apply standardized markups and margins, and more easily ensure that every quote meets your standards before it goes out the door.

Order common parts and raw materials in bulk

MRP (Material Requirements Planning) applications in ERP systems make it easy to report on raw material and subassembly requirements for planned work, with specific ordering dates locked in and many levels of subassembly taken into account. This type of functionality is extremely helpful in planning out what needs to be purchased without extensive planning.

However, always ordering on-the-fly based solely on MRP has its drawbacks, especially if there are particular raw materials or parts that your shop consistently uses on a regular basis. Just-in-time ordering rarely lets you take advantage of vendors’ volume discounts, and put your orders at risk if a stockout or longer than expected lead time affects your delivery schedule.

Luckily, many modern manufacturing ERPs offer extensive purchasing reporting, allowing you to identify commonly used materials and purchase them in advance. This type of approach allows you to ensure that you have inventory available (even if you choose to run lean) and helps you take advantage of improved pricing for larger orders.