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Construction Software Integration Issues - Contractors who Manufacture

By Sheldon Needle

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.

Having one piece of construction accounting software that will cover both ends of the business seems like a sensible way to approach a new software solution. After all, both involve job cost, only one is job cost for manufacturing and the other is job cost for construction. Unfortunately, even though both have job cost tracking needs there are many other issues that make it very unlikely that a single software solution can run both aspects of the business successfully.

First, scheduling manufacturing jobs involves a different set of constraints than construction. You are usually dealing with machines and work centers as well as individuals. Jobs shops often have rush jobs that have to be inserted into the job queue. In turn, the software has to show how other jobs are affected by the change in priorities. This is not something that is feasible for most construction jobs which involve much longer lead times and many more variables (such as using subcontractors).

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. Thus, inventory costs change as the job progresses. Furthermore, manufacturers need to know job progress and be able to project a promise date to the customer.

In construction, revenue and costs can be recognized on a percentage complete or completed job basis. A general contractor often will not record costs until he is invoiced by the subcontractor. He will be most concerned that costs to date on the job are in line with the total projected costs to complete the job, as well as over or under billings on the job based on total projected estimates and actual costs to date. This kind of cost breakdown is not practical in a manufacturing operation.

Construction software records jobs, phases, and cost types in a linear fashion as jobs progress. It is possible to capture costs on a real-time basis as they occur with the right software and processes.

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. Construction management software may also record retainage for jobs and do progress billing, which manufacturers don’t do.

Finally, manufacturing quoting will often involve a multilevel bill of materials which is not normally done for a construction job. Engineer to order manufacturers want to keep track of engineering change orders, revision history, and associated drawings which is not covered by construction software.

In conclusion, although the term jobs and job costs are used in both manufacturing and construction, the fact remains that the nature of the businesses is different. We recommend that each aspect of the business use software specific to its specific needs and pass any transactional information between the two as though they were completely independent businesses. Any intercompany transactions would be eliminated upon consolidation.

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