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If you are an owner or a manager of a job shop or contract manufacturing facility, the old management adage of “you can’t manage what you don’t measure” is more true today than ever before. With the economic uncertainty that still abounds, the demands placed on you by customers for high quality parts at lower and lower prices, and the skills gap between those employees that you might be losing and those available in the workforce, it is critically important to understand the current state of your business through the use of real time key performance indicators or KPIs. The challenge for many job shop owners is understanding first WHAT to measure, then setting a goal or standard METRIC by which your current state is measured against also known as benchmarking, and then putting corrective actions into place to help you achieve or surpass these goals in a regular, sustainable fashion.
You’ve heard it before, the sales pitch that tries to convince you that a particular kind of software will work for any job shop or custom manufacturer. But you also know that shop management software is not one size fits all. Your business needs are unique so it makes sense to choose the software that is compatible with your needs and expectations.
In Part 1 of our article on accurate job costing, we discussed the importance of regularly reviewing the actual costs of your jobs when you are a job shop or contract manufacturer and what to look for in software solutions to help you do so. In this week’s article, we will discuss one element specifically, and that is how to determine the appropriate labor and overhead rates to charge to your jobs.
For many job shop or make-to-order manufacturing shop owners, knowing which jobs made them money during the month is critical information. Yet, even today, many shop owners or accountants can’t tell you which of the jobs they ran were “winners” and which were “losers.” This is often because they are running their business with an accounting system that does a great job of keeping track of the cash and recording the revenues and expenses and generating standard accounting reports like income statements and balance sheets. However, these same accounting systems may not do such a great job of manufacturing job costing.
Job shops and contract manufacturers decide to select shop management software for a variety of reasons. Business growth may lead to the need for an automated solution, manual processes have become demanding, or legacy systems may be regarded as old fashioned and lacking in up to date functionality.
As U.S. manufacturing continues to rebound from the global economic downturn of 2009 and gear up for future opportunities, one thing has become abundantly clear. Manufacturing in North America cannot continue to meet the current and future demands being placed on it without significant investment in its workforce.
Despite the almost “knock-out punch” that it took during the Great Recession of 2009, U.S. manufacturing is experiencing a resurgence and renaissance, of sorts, in the past 12 – 18 months. Companies that off-shored jobs to China are returning to North America after experiencing higher or unexpected engineering or transportation costs and product quality issues with the work that was outsourced. However, it is likely that the face of North American manufacturing will not be the same as it was pre-2009. Shortages of skilled workers will force companies to investigate new and innovative ways to manufacture goods and deliver services.
For the small to mid-sized job shop or contract manufacturer, managing cash flow is critical to survival. Do it correctly, and you can experience slow steady growth as you build the company's net worth. Many shops close not because they run out of work, but because they didn't start out managing their cash well.
If you have owned or managed a job shop for very long, you likely know how difficult it can be to remain competitive in a struggling economy. In situations like this, it is important to leverage what you can to make your business more effective. One area that many job shops can improve on is how they use their job shop software system.
For small and mid-sized job shops, the task of consistently managing sustainable growth can be quite challenging. Granted, when times are good, it is often easy to gain repeat business and sustain growth. For many customers, as long as you ship on time with reasonable consistency and offer a good price, they will continue to place orders. In harder economic times, however, this may not always be enough to keep customers around.
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