Understanding Manufacturing Types when selecting QuickBooks or 3rd-party Software

by

There’s plenty of confusion around types of businesses that manufacture products and their software needs.  Before a QuickBooks ProAdvisor can make a recommendation on software (QuickBooks or third-party) for an inventory or manufacturing-based client, you need to understand the manufacturing environment the client works in, the process type(s) they employ and the process layout(s) that they use. 

One box (of software) does not fit all. Understanding the business processes is the first step in determining which software is right for them. 

In this article we will discuss these different processes so as to help you to decide when QuickBooks is an adequate fit, or which of several other third-party products might be a better fit.

The Manufacturing Environment

First, consider the manufacturing environment. Does the client create low-volume, highly-specialized products, or does it make high-volume, standardized products, or something in-between? These situations will affect other considerations, like reorder levels, manpower, warehouse space, customer involvement in the engineering phase, etc. Here are the four typical manufacturing environments:

  • Engineer-to-Order (ETO). Usually low volume, with a lot of customer involvement in the design. Products usually require unique engineering design and each order results in a unique set of part numbers, bills of material and routings.
  • Make-to-Order (MTO). This is where the goods are made after the receipt of a customer’s order. The final product might be a combination of standard items with some custom-designed parts. The MTO environment requires stocking standard or optional items, while incorporating engineered parts.
  • Assemble-to-Order (ATO). This is an environment where accessories are stocked in advance of customer orders and assembled when the orders are received. The emphasis here is on stocking both the base units and a percentage of predictable options the client feels the customers will want in the future.
  • Make-to-Stock (MTS). Here, products are usually finished before the receipt of customer orders. The orders are usually filled from existing stock, and production orders are used to replenish those stocks.

The manufacturing environment is usually based on the amount of product customization or standardization, and the volume of goods flowing through the factory. To the manufacturer, they want to keep as little stock on hand as possible to reduce carrying costs, yet still shorten delivery times to their end-customers.

The Manufacturing Process

Now, look at the manufacturing process types employed by the company. This involves the production process that the company has chosen to make their products. The process types fall into these different categories:

  • Project – this is usually a one-off project, like building a ship, a group of homes or an oil well. Materials are delivered to the work site and the work is performed without much movement of the finished good or goods. This is usually the format of an ETO project.
  • Work Center – also called, ‘Job Shop’ or intermittent manufacturing process.  Here, work centers are organized around similar processes, and the products flow between them depending upon the next step in the process. In the case of a machine shop, similar machines are grouped together (i.e., lathes, grinders, mills), and then products move between the groups of machines depending upon the production requirements.
  • Batch Production – this is also ‘job shop’ processing, but here parts are accumulated, produced and processed in a batch or ‘lot.’ A tracking number is applied to all members of the batch so identification of the batch processing date and time can be recorded.
  • Line Production – this is for discrete products that follow a similar production order in a set, repetitive process. It is used primarily in consumer durables manufacturing like car assemblies, refrigerators and some food and beverage processing.
  • Continuous Production – this is a high-volume production line where products flow continuously from one part of the process to another. Products typically include water, gas, chemicals, fertilizers, steel and glass. There is usually a heavy capital investment for this type of business.

The process types affect how raw materials are ordered, how the finished goods are produced, and how delivery to the customer will be made. These, in turn, affect stock levels, purchasing, stocking, assembly, expiration dates and workloads.

Process Layouts

Once the manufacturing environment and process types are understood, a ProAdvisor or manufacturing consultant needs to look at which process layouts are utilized on the shop floor. Is the work area ‘fixed,’ or do the goods move about in a coordinated process? How do the goods move between work centers or processes? Here are the typical process layouts:

  • Fixed-position layout. The product is centered in one place, and the people, machines and tools are brought to and from the product assembly. Usually used in an ETO environment.
  • Functional layout. Machines are usually grouped together and products are steered through each stage in the process. This allows for better utilization of the equipment and a larger volume of products. This layout would typically be used in an MTO environment, usually with work centers.
  • Cellular layout. This is a manufacturing layout that produces families of parts within a group of machines controlled by operations who work only within that line or ‘cell.’ Think of a U-shape layout with machines where the operators can go back and forth between the machines as parts are processed within that area. This reduces processing time and minimizes material-handling distances.
  • Product-based layout. Here, only one product or type of product is produced in a layout where resources are arranged sequentially according to the steps required.  This would be common in line production.

So, how do the manufacturing environments, processes types and process layouts affect the software to recommend to your clients? Most manufacturing software is geared toward one or more of these environments, but rarely all of them. ProAdvisors must take the time to learn about the business and apply their understanding of the capabilities of each software option before making a recommendation.

Using these models, we can see that QuickBooks is sufficient for most MTS or ATO type businesses. The assemblies are standard and reorder points can be used when raw materials are needed. QuickBooks is also ‘OK’ for some batch-type processing businesses, although it doesn’t track expiration dates, but it wouldn’t be able to track the detail necessary for an ETO environment, nor is it suitable for a project-type of business. QuickBooks also has no way to track efficiencies at work stations or ‘cells,’ so it can't really serve most process layouts.

Here are brief synopses of various third-party products that work with different versions of QuickBooks, and the markets they typically serve:

  • BatchMaster. As the name implies, it is designed for work center, batch or line production where lot tracking is essential, in such areas as food and pharmaceutical businesses.
  • SOS Inventory. This program, which syncs with QuickBooks Online, can also handle batch processing, as well as standard assemblies. It also offers work centers tracking.
  • Acctivate Inventory. One of the ERP programs that integrates with QuickBooks Desktop, it can handle batch processing with variable yields for food and pharmaceutical businesses.
  • Fishbowl Inventory. One of the oldest inventory programs, it is best for light assembly manufacturers who need variable Bills of Material. They offer integration with QuickBooks Desktop or QuickBooks Online.
  • MRPEasy. This program syncs with QuickBooks Online and will handle work centers and process manufacturing. 
  • MISys Manufacturing. The desktop version is the grand-daddy of full-body manufacturing programs that sync to QuickBooks Desktop. It includes work center controls and production schedules and would work for most manufacturing environments. They recently began offering integration of their full product with QuickBooks Online.
  • INDUSTRIOS Manufacturing. This is a powerhouse ERP that handles all manufacturing environments and integrates with QuickBooks desktop. While they have announced their intention to integrate with QuickBooks Online, at the time of this article's publication they don't yet offer QBO integration.

Think about the manufacturing environments, process types and process layouts your client is going to need ahead of making a qualified recommendation. Not all manufacturing software is designed to work in every environment. You want to make certain that you assist your client in selecting the product that is most appropriate for their specific requirements.