March 10, 2017
This is Igor Chigrin, a Business Funding Expert from Fair Grant Writing, a Canadian grant writing company. We help businesses grow and solve their most pressing challenges by unlocking their access to the government funding.
Today, we’ll discuss how to avoid a disaster in job estimating and job information management and demystify enterprise resource planning ERP.
As you may know, ERP helps businesses manage the workflow, resources and work efficiently and by the way, there are Canadian government grants that pay for ERP systems and ERP training.
So today, I am excited to have Shawn Coultice, a Branch Manager from Shoptech Industrial Software on this call. Hi Shawn, thank you for coming.
or continue reading the transcript or watch the video below.
Shawn: Hi Igor, thanks for having me.
Igor: Shawn, please tell us a couple of words about yourself and your company.
Shawn: Yes, so my name is Shawn Coultice. I’m the Branch Manager for Shoptech Canada. Shoptech is a software company and we provide an ERP software system to small-to-medium shops in North America. We have around 8,000 shops that are utilizing our software in North America and around 1,000 shops across Canada. The company is a family-owned company with the two Ehemann brothers that started the company around 30 years ago and we’ve grown significantly since then and now 2 products; the E2 Shop System and the E2 Manufacturing System, both focused on helping shops manage their business flow and ensure that they have profitable jobs flowing through the shop.
Igor: Well, thank you Shawn, for the introduction. Now, let’s go straight to the questions that our clients often ask us. I recently spoke to a client in the metal fabrication industry about job estimating and here is the process they are using to quote on their jobs to their clients. First of all, they assume the cost breakdown is 30% material, 30% labour, 30% overhead and 10% profit margin. How accurate is this assumption from your experience
Shawn: That assumption really wouldn’t be very accurate, depending on the complexity of jobs. So, the complexity of a job can significantly increase the labour portion as well as the overhead and it can be quite variable and so, by giving that sort of ratio, it’s a really general sense that leaves a lot of room for inaccuracies and isn’t nearly detailed enough to ensure that you are going to have a profitable job.
Igor: Do you find that this is the traditional way how the jobs are estimated?
Shawn: I don’t know if it would be traditional. I do think that a lot of people will come up with a general idea of what they think the material costs are going to be as well as a general idea of how much time is going to be spent on the shop floor. What I find people generally are doing is they’re not going into the detailed production process of the different steps that the job is going to go through. So, is it going to go through laser engineering, shear cutting, press brake? By identifying the specific machines, you can have a much more accurate estimate for the labour portion of the job as well as pinpoint inaccuracies in your estimating down the road when you are tracking it through production.
Igor: If one uses that general approach, if you will, what are the potential consequences of those generalizations when it comes to estimating?
Shawn: One of the biggest variables in any job would be the labour portion and so, one of the big challenges that people will run into if they do a general hourly labour quote in production, is they are typically underestimating their labour portion and not associating specific costs to labour centres when performing that job on the shop floor and typically what would happen, is they’re either going to underestimate their jobs or overestimate them. When you underestimate the jobs, you likely will win it, but there isn’t going to be much room for profit. If you overestimate your job, well then you’re likely not going to win the bid and you’re going to lose on that work altogether. So, both cases are negative situations and so by going into a little bit more detail and tracking it through production that allows you to ensure profitability on the job as well as pinpoint areas where you can maybe improve on the shop floor or in your estimating process.
Igor: I wonder, is there a way to identify or understand that the estimating is going wrong? In other words, what are the typical signs that one does the job estimating wrong?
Shawn: One sign would be that the jobs aren’t getting out to the customers on time. That would mean that you are underestimating the amount of time it’s going to take through production. Another would be that the jobs aren’t profitable and you’re not making as much money as what you had estimated on individual jobs. One of the biggest challenges is actually seeing on a job-by-job basis whether or not you are profitable. Without a system in place, it is very difficult to pull specific job costing and what ends up happening, is people are looking at the profitability on their monthly P&L statements and so, by having specific job costing, you could see specific jobs and which ones are profitable and where they have been profitable by looking at the detailed labour and materials that are associated with those jobs.
Igor: So, if I understand correctly, there is no way to proactively address this issue, correct? It’s more of a retroactive review of the P&L statement and the actual jobs that are done, but there’s no way to proactively manage it.
Shawn: Yes, absolutely. So, you have no visibility as the job is going through production as to whether or not you’re on schedule or on time, based on your estimate and typically, by the time you do figure out that the job likely is not going to be profitable, you’ve already shipped it to the customer and there really isn’t much you can do about it except take a loss. It is a difficult situation if you don’t have a system in place to manage these types of jobs without accurate job costing.
Igor: Make sense, okay. Now, let’s change direction for our call a little bit. Let’s assume that we’ve done job estimating right. Now, where does the job go from there? I mean, let’s say a typical job management process. How does the job information go from the office to the production floor and back?
Shawn: Great question. So, when you’re doing your estimating correctly, you’re likely going to identify a detailed bill of materials related to the job as well as detailed routing process through production with estimated times of setup and cycle time through each work centre. So, by doing that at the estimating stage in a system like the E2 Shop System, you can take that quote and flip that into an order and produce a job traveler that has all the routing steps indicated on the job traveler that you’ve estimated out along with your estimated times through each one of those work centres. So, by producing that job traveler when you process your order, that’s going to communicate to the shop floor how much time that you’ve allocated for that job to take through production and give them an idea of how much time they have so that they ensure that the job is going to be profitable.
Igor: What are the potential risks if one is not using the system, but rather a pad and paper or a set of documents or worksheets or spread sheets. What are the potential risks if one is using that kind of old-fashioned process, if you will?
Shawn: So, what typically would happen is you’re going to have information silos where you have someone that’s doing the quoting, someone that’s doing the orders, someone that’s managing production and they’re all doing that in different systems and so, the challenge is you’re re-entering information multiple times so that increases room for error as well as it takes a significant amount of time to re-enter that information and manage those jobs. So, by having everything within one integrated system, it allows you to manage that process much more efficiently as well as decrease the risk of errors from information from one process to the next such as quoting through to order entry through the scheduling and then onto the production floor as well as purchasing. So, by having that all integrated into one system, it ensures accuracy on the job as well as ensures profitability or visibility of that job as it goes through production.
Igor: If someone uses, let’s say, that old-fashioned approach with pen and paper if you will, is there any way to fix it right away or do some smaller adjustments to at least … maybe not to fix the process and not to avoid the loss of the information, but maybe somehow to minimize the damage?
Shawn: For sure. So, one way that you could do is first of all, when you are doing your estimate, identify the work centres that you expect that job to go through and identify the estimated setup time through that machine and cycle time and have an associated labour rate associated with each one of those work centres and that can help you derive a more detailed estimate and accurate estimate for the job in the first place as well as carry that information forward when you do eventually win the order and put out a job traveler to the shop floor.
Igor: Okay, it makes sense. Now, tell us a little bit about the role of ERP systems in accuracy of estimating and job management.
Shawn: The ERP system provides an integrated system where all the information is going to be entered in one package and so that you don’t have these separate information silos floating around so it creates a significant amount of efficiency between the steps. So, an ERP system will provide a format for you to go and quote out the job and come up with an accurate estimate based on the materials and routing process, carry that forward seamlessly through to the order entry process, generate a purchasing requirement or internal transaction as well as produce your job travelers out to the shop floor and enable you to schedule your shop effectively and get your orders out on time.
Igor: Speaking of materials, by the way, what’s the difference between ERP which stands for Enterprise Resource Planning and MRP which stands for Material Requirements Planning?
Shawn: The ERP system is really a more general look and is going to provide you with not only material planning, but also labour planning and resource planning from a production standpoint, whereas a material resource planning is really more focused on forecasting material requirements and definitely more on the purchasing side and typically, a company that will have EDI requirements or in the automotive industry, will have an MRP requirement where they’re entering in material forecasts which are identifying what they should be purchasing based on forecasted orders from different automotive companies.
Igor: Okay, makes sense. Some of our clients also integrate ERP system with a barcoding process and certain hardware tools like barcode scanners. It allows them to track source materials, parts and finished products inside their facilities, but I wonder, does every shop need barcoding, or it’s not something that is necessary?
Shawn: Smaller shops don’t necessarily need barcoding. The reason I would suggest utilizing barcoding is because you do want to identify how much time is being allocated to jobs and through each process and so by entering in manual time tickets at the end of the day, if you have over 5 employees, it can take a significant amount of time to do that on a daily basis and keep up with it. So, if you have more than 5 employees on the shop floor, I think that the investment in a barcoding aspect where you’re tracking the job and employee’s labour time as well as payroll, significantly cuts down on the amount of administrative work as well as more accurately track those jobs and where they’re at in production on a live basis. So, I think the barcode scanning isn’t necessary, but over 5 employees, I think it adds so much value, that it definitely is worth the investment.
Igor: Okay, good point. There are many different ERP systems and how can our listeners select the right ERP system for their business? What are the main selection criteria?
Shawn: So, I think first they would need to determine what type of business are they? Are they a fabrication company, a machine shop, are they a job shop, are they a distribution company … and look for the appropriate system for their industry. So, the E2 shop system is mainly focused on machine shops, fabrication shops, job shops and some assembly shops. So, that would be the main focus and the industry that we service as well as looking at the company size, so there are different size packages based on the company’s requirement and size. You can look at SAP which is for companies that are quite large, where we can service companies that have 5 employees all the way up to 200-300 employees, so that would be where the E2 Shop system would fall into place. Then, you want to look at what your requirements are. So, what are some of the struggles you are having within your business and identify those and make sure that the software has a solution to address those different areas that you are having problems with.
Igor: Good point. Based on your experience, what are the typical issues of ERP implementation and adoption process and how to avoid them?
Shawn: So, one of the main issues is not having a set individual or a power user that is going to be the main point of contact power user of the system and really understand the whole package. So, I think appointing one or two people that are going to be the project managers for the implementation is very important. Also, taking advantage of all the resources that are provided from online training, classroom training, onsite training as well as converting data – those are all things that are important to take advantage of and will help you utilize the system to its full potential and I think that’s probably the biggest thing I see is people will get the system up and running, but not necessarily use aspects of it and not utilize it to its full potential.
Igor: Okay, interesting. Thanks, Shawn. It was a very good, informative session. I only have one last question for you. How can our listeners get in touch with you if they have any questions?
Shawn: It’s very easy to get a hold of me. You can call our 1-800 number for Shoptech which is 1-800-525-2143 or you can simply email me at email@example.com.
Igor: Okay, fantastic. That was Shawn Coultice, a Branch Manager from Shoptech Industrial Software. Shawn was interviewed by Igor Chigrin, a Business Funding Expert, from Fair Grant Writing.
Remember, at Fair Grant Writing, we help your business grow and solve its most pressing challenges by unlocking your access to the government funding.
If you’d like to learn which government grants can partially pay for your oncoming ERP implementation or training, or any other business projects, give us a call at 647-800-5006 or check eligibility of your business on our website: www.fgwinc.ca/eligibility.
We will talk to you soon. Stay tuned and we’ll have more great interviews in the near future.