When a curious Realtrac user visits the Costs tab for a Job, they may notice that we offer 3 different methods to calculate the WIP for that specific Job. What's the difference? Why would you use one over another? This article will explain the 3 methods and how they differ. (And if you want the short version, Realtrac would recommend leaving using the "Normal" WIP calculation, unless you're certain another WIP algorithm is appropriate for your job.)
WIP Normal Calculation:
Our
normal WIP calculation considers how many pieces are complete (*), and assigns
a portion of the Total Costs of the Job across the remaining pieces that are
not yet complete. (IE: Whether a part is shipping and/or invoiced is irrelevant
to the WIP calculation.)
Total Cost of the Job * WIP Factor
WIP Factor is 100% - (Quantity Complete / Quantity to Manufacture).
Example. Job currently has Total Costs (Labor + Buyouts) of $1000.
Job currently has 6 pieces complete with a Quantity to Manufacture of 10.
Our WIP Factor is (100% - 60%) == 40% (In other words, 60% of the job is
"done", and the cost for those 6 pieces is now recognized either in
Inventory or on the Invoice the user shipped the parts out on.)
Ergo our WIP is $1000 * 40% == $400. Approximately $400 worth of costs (money
from the owners pocket) is still on the Shop Floor.
* - A part is considered complete when the user marks the piece as good on the
Sigma router operation (typically done via a Shop Floor or Piece Count Panel
client). At that point Realtrac makes an entry in the users Realtrac inventory
to note that the piece is complete on the job. The Quantity Complete for a Job
is shown on the bottom of the Job Order Entry screen.
WIP "Override":
In this mode, we examine the router operations to determine which OP has
counted the most number of good pieces. We then subtract out the number of
units that have been shipped to determine a rough approximation of how many
units are currently being worked on on the shop floor. We then multiply out the
number of units on the floor by the estimated cost the user inputs in the
Override portion of the Cost tab for the Job.
Example. We have a Job that has 3 different router Operations. As it sits right
now OP 10 has marked 15 units complete, OP 20 has marked 14 units complete and
OP 30 has marked 10 units complete. Realtrac would examine these 3 OPs and use
the 15 units for the calculation.
This job has shipped 10 units, so Realtrac would do the math of (15 pieces
complete at OP 10 - 10 units shipped) == 5 units still being worked on on the
shop floor. We would then multiply the 5 units out times the unit cost the user
input and that would be the WIP for the Job. If the user input a unit cost of
$60, the WIP would be 5 units * $60 == $300.
Estimated Cost:
This method may be of use for users that are running long term jobs (generally
thousands of parts being delivered over months or years). The user will also
have to have a strong handle on the per unit cost of the parts.
The formula is: (Total Job Costs) - ( Estimated Per Unit Cost * Quantity
Shipped to Date )
Example. Our job has $100,000 in Total Costs currently. We have shipped 36,000
units so far. The user selects the Estimated Cost option in the Cost tab for
the Job, and inputs their estimated cost of $2.50 per unit. The WIP for this
job would be $100,000 - (36,000 * $2.50) == $10,000 in WIP.