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Adding Labor and Burden to Item Cost and W/O
08-23-2018, 03:16 AM
Post: #7
RE: Adding Labor and Burden to Item Cost and W/O
Just some thoughts on this:

Routings are a key feature in most ERP systems. They are the sequence of event that components and raw materials go through to become stockable items, containing the details of the Operations, Work Centers, Scrap, and Outside Processing steps. This is a feature that WebERP is currently lacking and would be super nice to have. Properly implemented, Routings (a singular example is sometimes referred to as a ‘router’ or ‘traveler’) provide a richer method for building up the actual costs associated with manufacturing than just assigning a standard cost at the part number level. Routings designate the standard amount of time needed for each operation at each work center. They can be implemented to break up a manufacturing operation into a SETUP stage and a RUN stage. Setup costs would be amortized equally over the batch quantity being produced. The Run costs are the incremental, variable costs associated with producing each item in the batch. The higher the batch/run quantity, the lower the Setup cost per item. Routings also provide a way to reserve work centers for the duration of the operation.

However, implementing Routings is easier said than done, as routings are highly interlinked with many aspects of a manufacturing firm’s accounting system. Apart from the routing-specific changes (create a Routings database table, web pages related to routing management, etc..) we would need to change the nature of work orders. It might be better to have the system automatically generate work order numbers using the 5000-series GL sections as the prefix, with a unique work order number as the suffix. Essentially, work orders would become temporary GL accounts which accumulate cost until they are closed out and their accumulated cost transferred to the Stored Inventory account awaiting sale. This would get into standard vs. actual costing issues, as well.

Beyond that, implementation of Routings would necessitate other non-existent features like LABOR RECORDING. After all, of what use would spending effort to create a manufacturing sequence be if someone were not actually performing and documenting the time and results of the steps. This might look like a screen for workers to log into, select available work orders and log on/off, documenting their completion of various operations.

Consequently, this may imply a PLANNING feature so that work orders are optimally sequenced by a planner who releases them to the work floor.
Labor Recording also assumes that the worker has a Pay Rate of some sort, which means we would need a HUMAN RESOURCES module to manage employees, pay rates, and roles. Not every employee is a direct worker, some are managers, inspectors, office personnel and the like. Their work is normally not directly associated with particular work orders, but get amortized over the whole business in various Overhead Accounts. So, our HUMAN RESOURCES module would need to allow for both Direct and Indirect employee types. Probably also want to make it handle Salaried, Salaried, Non-Exempt and Hourly worker types as well. A way to handle this might be to implement salary levels or grades, each of which have a rate. Employees can then be assigned a grade for use in COGS calculations.

The Accounting functionality of the system would also need to be extended to allow for the creation of various overhead rates. Perhaps a new module/section could be created for General Accounting. In this module, in addition to calculating and setting overhead and labor rates, we might have the ability to review the actual COGS as calculated by closed work orders during the period. We might be able to compare the actual COGS to the current Standard Costs for each part number and choose whether to update (a.k.a. ‘roll’) the standard costs. Such an action usually happens when the sales volume of a part changes drastically, usually during a program ramp up (going from prototypes to normal production) or ramp down (end of life)

So, while ROUTINGS may seem simple to implement at first, we see that it gets complicated really fast. We’ve identified the following additional functionality which may need to be implemented to make ROUTINGS work correctly:
- Labor Recording (logging on/off work orders)
- Planning (work order releases)
- Human Resources (employee types, salary grades)
- General Accounting (centralized rate management, standard cost changes over time, etc…)

Additionally, the following functions might be nice to have:
- Quality Control (SPC, scrap analysis, MRB, internal rework routings & approvals, etc…)

I did start an area PHP user group way back in the day, attain my Zend certification and work as a professional PHP coder from about version 3 - 5, so this is within my capabilities - as soon as I get back up to speed (it's been about 6 or 7 years since I've done serious coding). At the moment, though I'm trying to get a manufacturing business up and running (using WebERP) so the time for coding this is going to be hard to find. I think what I can do is flesh this out a bit - leveraging my experience in accounting, operations, contracts/business and marketing at a Fortune 250 engineering and manufacturing firm - to create a detailed development plan and start eliciting community help for coding.

This sure is a lot of talk, now to see if I can back it up...

- Bryce
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RE: Adding Labor and Burden to Item Cost and W/O - bigpower10 - 08-23-2018 03:16 AM

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