In the steel and metals industry, estimating and quoting is critical to satisfying customers and protecting thin profit margins. Preparing an accurate ‘time and material’ estimate is fairly straightforward. However, that customer’s quote is based the other business-critical task of job costing. While seemingly similar to estimating, pricing steel fabrication requires a different set of cost considerations.
Each customer job is made up of certain manufacturing and fabrication steps that take time and involve changing inventory conditions and operations. Understanding these time and material costs is essential to protecting profits. In addition, job costing offers additional benefits to steel fabricators that can be realized for years to come. Here are tips for strengthening job costing and getting the most out of your resources and profits.
Why Job Costing is Critical
A series of events must take place before providing an accurate quote to a customer. A customer’s quote is based on an estimate for the time, materials and manufacturing activities that need to be completed for a specific project. However, before all that can be calculated, you need to perform job costing.
Job costing is the careful calculation of the true costs associated with the time, materials and machining that takes place for each project or job. This should include a variety of factors, including the obvious labor and materials, as well as any deviations. It can be challenging to dive deeper and anticipate potential deviations from normal functions. For example, you might consider the cycle speed of a machine that provides a certain throughput or yield. Variations in labor or materials may impact throughput which will alter the time and labor needed to finish a machined task.
One of the most significant benefits to performing job costing is that you are also able to focus on profit margins associated with labor utilization, inventory and materials used, as well as the very specific manufacturing and machining tasks your team performs.
- Hone in on specific tasks, such as machine setup, CNC machining or tooling and determine how long it takes to perform each step.
- Evaluate labor costs during normal hours vs. overtime, or by new employee vs. seasoned employee.
- Consider how material attributes affect the throughput or outcome and how the changing economy is impacting material costs.
If you can measure job costs, they can then be monitored for further improvement and optimization.
Job Costing Supports Accurate Steel Fabrication Pricing
Clearly, there is a lot of data that must be captured and carefully analyzed before understanding job costs. Inaccurate job costing will lead to inaccurate estimates and customer quotes, which then lead to lost profits. To be confident you understand the true costs of your operations, the right technology is essential.
Standard accounting software or basic enterprise resource planning (ERP) systems are simply unable to support the complicated operations for steel fabricators and other businesses in the steel and metals industry. You need a system designed to meet the specific needs of complicated steel businesses and able to simplify complex tasks, such as job costing.
Contact us for more information and tips on how to price steel fabrication and other activities quickly, accurately and profitably.