Re: Purchase parts/services same as sales?

[Keith Nybakke <..hidden..>]

Title: Re: [Ledger-smb-users] Purchase parts/services same as sal

At 4:12 PM -0800 1/15/07, Josh Berkus wrote:

> I think that it may not cover a lot of
> cases.  Let's not rush this.

I agree.

This is a vexing set of problems.

Before working out a solution, please give just a little more consideration to the problem.

There are basically two pools of resources that we tap. One is labor and the other is materials. In a job shop, these are just lumps. The labor has no value until it is expended on a specific job, before which it was simply an expense. Materials are very similar. They don't have value beyond their costs until they are transformed by labor into something of value to the customer.

I am seeking a solution that captures the actions that add value but generally ignores the non-value-added states of labor and inventory. You may think of this as activity-based costing and you wouldn't be too far off.

The points in a job shop work flow that are important to capture are:

> quotes/estimates/proposals
>
> sales orders or work orders or job orders (they all have
> basically the same information, just different formats)
>
> productive labor expended on specific jobs
>
> materials consumed by specific jobs
>
> shipments
>
> invoices
>
> payments
>

Of course, the last three are easy. Any accounting system can capture those. In fact, there are hundreds of accounting programs for conventional manufacturing or conventional service but not very many for job shop work flow.

Labor and material consumed by a job can be accounted for. But, because each job is different, the material cannot be part of a typical assembly bill-of-material like those prepared for stock items. If there is a bill of material and an assembly, it is short-lived and is of no further use after the product is shipped.

I understand that a similar bill of material might be generated for a similar project in the future, but it really is not related to any previous bill of material, even if it is identical to some previous bill of material. I think this is important. It is tempting to think that we can just create a template or something and then modify some things to make it unique. It is much better to make the construction of every unique bill of material so easy that re-using previous bills of material doesn't provide any benefit.

And beyond that,  we can have the situation where we can relate to inventory or materials as a lump of assets to pull from as needed without the need for any bill of material.

If you can view inventory as just a lump of material, then the material can be consumed by specific jobs as needed.

Accounting for that material as raw material inventory and as a not-for-resale asset makes the most sense to me.

This allows me to purchase these materials using a conventional purchasing system with part numbers and standard prices, but I don't track the material out of inventory in the conventional manner with pick lists or part kits. I just increase my inventory when a shipment arrives and I reduce my inventory when a shipment is made to a customer. The job tracking information (work orders) will be loaded with material consumption numbers as the material is consumed, but not as part of a scheduled assembly.

This is another key difference between conventional manufacturing and job shop production. We care whether we have enough material, but we can't schedule its consumption, like with an MRP system. We purchase common materials as needed, using a system like a kanban or demand flow. Unique materials are purchased for jobs specifically and only when a sales order says its okay to buy the unique material.

So, to sum up, I need a system that records quotations, turns them into sales orders and allows manual entry of labor and material consumed, by job. This is a job shop system, in its simplest form.

Should I keep working with Ledger-smb, or am I describing something that is not part of 2007 work?

Thanks and best regards,

Keith