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Can Construction Accounting Software be Used For Contractors that Also Manufacture?
By admin | April 20, 2009
It is not uncommon to find contractors who manufacture the products they install for customers. Some examples include structural steel, custom cabinetry and furniture, and various kinds of low voltage products. Prospective buyers of software with this profile will often have fabrication and assembly job shops that design the products to the customer’s specifications and then have an installation department to install it at the customer’s site. Providing professional design services and providing estimates and quotes are something that contractors and manufacturers often have in common.
Unfortunately, finding a piece of construction accounting software that covers both sides of the business is not as easily done as it is said. Although both sides of the business deal with job cost, there are several issues that arise when trying to integrate the two sides with one piece of software.
To begin with, construction and manufacturing have different sets of constraints when it comes to scheduling jobs. Manufacturing companies (or parts of companies) deal with machines and individuals in job shops. These shops often have to rush jobs in the cue that arise unexpectedly but nonetheless need to be completed as soon as possible. The software used, therefore, has to have the ability to reflect how these rush jobs impact other jobs. Construction, on the other hand, rarely deals with sudden changes and although lead times are often much longer, a new challenge arises in dealing with numerous other variables, such as subcontracting.
Second the cost accounting is different. Manufacturing job costs include direct labor, direct materials, and some kind of overhead allocation. In manufacturing, work in process costs should be accumulated as the job moves from one work center to another. These costs are assets on the balance sheet until the job is completed and shipped. As a result, the cost of inventory constantly changes as the job progresses. Furthermore, manufacturers need to know job progress and be able to project a promise date to the customer.
Construction projects, on the other hand, recognize revenue and costs on a percentage complete or job complete basis. Most contractors do not record costs until they are actually billed for them, regardless of whether or not the labor has been completed. They are concerned with the cost to date of a project in relation to the estimated budget for the project and monitor under or over billing based on the percentage of the job complete and the percentage of the estimated cost incurred to date. This kind of cost break down simply does not work in a manufacturing environment.
Real time cost data is only possible with the right construction accounting software and the right supporting processes. A good software package will give users the ability to track jobs in a linear fashion as the job moves along.
The construction side of the business usually has to deal with project management issues like change orders, RFIs and submittals, which are not relevant for manufacturing. It may also record retainage for jobs and do progress billing, which manufacturers don’t do.
Last of all, manufacturing jobs require quotes that involve a bill of materials which is not usually done in a construction job. Manufacturers like to use software to keep track of things such as change orders, revision histories, and drawings that are not covered by construction software.
To summarize, one piece of software is not going to be able to be used for both sides of the business. As nice as it would be, the two operations differ so dramatically in terms of “relevant information” that even if software existed capable of serving both sides of a business, chances are it would be such a complex system that usability would be a nightmare. As a result, you will need to invest in separate manufacturing and construction software packages. Consult construction software guides to get a good idea of what kind of solutions might be best for your company.
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