How to Produce the Best Job Cost Estimates
There was a time – not all that long ago – when quoting a manufactured product or service would turn into a guessing game. Yes, it was an educated guess to be sure.
But, depending on the type of industry, your job cost estimates were thought to be accurate if the finished work came out within plus or minus ten percent of the estimate. In today’s highly competitive manufacturing environment, that margin for error is no longer acceptable.
Take the example of a small machine shop. If it happened to be a company that specialized in production machining, the estimator–either a salesperson or a manager—would follow the paper trail to a similar job and build a quotation using that information.
However, estimating became more complicated for jobbing shops where each request-for-quotation represented a unique challenge for the estimator. Many of them used spreadsheets that contained the typical operations that would be required for completing the work. Others tried to equate the requested quote with some past project that was similar. Neither method was accurate, and a certain percentage of those jobs were lost because the estimate was too high and some of the successful bids lost money because the estimate was too low.
MRP systems help take the guesswork out of quoting
You might already know that manufacturing software offers a host of advantages to small manufacturers:
- Managing inventory
- Workforce planning
- Real-time shop floor data
- Workstation capacity
These are some of the features that add value to any manufacturing organization, but this is far from an all-inclusive list. And since your sales department has access to this information anytime and anywhere, you can add one more valuable advantage to the list—estimating.
With all of the data that your salesforce can retrieve no matter where they are, they can supply estimates to both current and prospective customers quickly and correctly. Customers will appreciate a timely response to their requests, and your accounting department will be pleased with the accuracy of the estimates that ultimately add value to the bottom line.
How does MRP help you produce estimates quickly and accurately?
No more guessing at labor and equipment costs
MRP system contains information on the hourly wages of all workers and the hourly costs of operating machinery. It knows the BOM of the product or job that’s being quoted, the production operations that go with it plus the amount of time they take, and the type of machinery needed for each operation and the workers who will be operating them. Because every operation is specifically accounted for, there are no more generic estimates.
You’ll know inventory levels and costs before you submit the estimate
Since your inventory is automatically updated as other departments—purchasing, production, various team members, etc.–use the MRP system, sales can quickly and accurately calculate the cost and lead times for any parts and materials.
There is no longer any need to make customers wait while you check with the inventory manager or the accounting department. And you won’t get tripped up because you used an outdated quote. Everything is in real-time and comes from the same system.
You won’t be making promises you can’t keep
MRP knows your current production schedule. It can instantly show your salespeople all of the company’s orders including production operations that are scheduled, workstations and equipment that are required, and the workers who are assigned to the operations.
With a realistic production schedule as a guide, estimating a delivery date is no longer unreliable guesswork. No one has to connect the dots manually; MRP does it automatically. Sales, production planning, inventory control, purchasing, and shop floor updates are integrated into one tool.
Vendor prices and lead times are already in the system
Any non-stock items that are needed for the estimate have been saved in the MPR, which means you won’t be searching through catalogs or phoning vendors for prices and lead times.
MRP makes providing job cost estimates as easy as booking an order
MRP software can calculate an accurate cost and delivery time estimate based on the most up-to-date information quickly and accurately, providing businesses with a detailed breakdown of all costs. Here’s how it works:
Whether you receive an order or a request for a quotation, today’s top MRP systems simplify the process by allowing you to treat them the same. Once you fill in the information, you will be able to:
- Calculate a quotation
- Estimate a delivery date
- Check the availability of all items
- Enter the terms of the quotation
- Send it to the customer
- Turn it into an order after it’s accepted
- Track it to completion
These are the good old days
When anyone refers to the “good old days,” you can be sure they aren’t talking about providing job cost estimates. Using MRP software for submitting quotations is far superior to those time-consuming and inaccurate methods of days gone by. Having a tool that then takes those successful quotes and turns them into a work order and follows the job to shipping and billing only adds to the convenience and professionalism that these cloud-based, integrated systems can offer to small businesses.