Job WIP Functionality in Business Central (Part 1 of 3)
Updated: Aug 17, 2021
Let’s talk about the module within Microsoft Dynamics 365 Business Central called Jobs and whether or not you should be using it. Many organizations call themselves Job Shops but that does not mean they should always be using the Jobs module. In fact, half of the time these organizations should be using the Manufacturing module. A lot of organizations consider themselves a Job Shop because they only make an item when they get an order for it. However, this might mean that you are not a Job Shop but instead a Made-to-Order Manufacturer. So, there’s always an interesting conversation about how companies see themselves and describe themselves but ultimately what it boils down to is the structure of what you’re building.
For example, Orange County Choppers builds dealer production motorcycles as well as custom motorcycles. They most likely have a Bill of Material (BOM) that is a multi-level and structured with a routing process that defines which steps have to be taken. Orange County Choppers is also most likely tracking labor, consumed materials, etc. This process sounds a lot like it could be done through either Business Central’s Manufacturing or Jobs module, so how do you pick and choose which to use? The first question that you need to ask yourself is, “Are you only creating one-off unique projects?” If the answer is yes, you should be using the Jobs module. Orange County Choppers create high-end, customized, one of a kind motorcycles for their clients that require them to fabricate handlebars, gas tanks, air cleaners, and whatever else they need to complete the project, but they also do Made-to-Order Manufacturing with their dealer production line, therefore, they should not be labeled as a true Job Shop.
A true Job Shop would be a motorcycle company that only creates the one-off customized motorcycle. There’s no need for them to go through the process of building a detailed BOM. Why setup all these items and components if you’re going to build them as you go through this job for this job, then they’ll be consumed into the job, and you’ll never build them again.
Another good example is if you’re building a new custom brewery that is going to take several months, and the way you’re billing the customer or when you’re billing the customer does not associate directly with when you’re consuming all of your expenses and costs. For instance, you have to build new custom equipment like tanks, pipelines, and woodwork for a bar, but you also need labor, you need to send some things out for finishing, you have shipping costs to get the custom pieces back from the manufacturer, and you have some other things that you need to hire more service people for. This is a good example of a Job and in this example of a Job we’re going to want to collect a deposit from the customer. This is where Job Work-In-Progress (WIP) comes into play.
How to figure out Job WIP in Business Central
Let’s assume this new brewery will cost $1,000,000 to build (at this price point it’s going to be one really nice brewery). We settled on this number because the first thing we did is set up a new Job in Business Central and associated this job with the customer who is having us build this brewery for them. We then went through and estimated the amount of raw materials needed, outside labor costs, shipping costs, travel expenses, and all other costs associated with the project and came up with the $1,000,000 cost amount.
We then informed the customer that we need a $250,000 deposit because we have to order all of these materials and pay our employees while we are producing the product. Now, in the normal world when we invoice the customer we have to bill them for something and then we book revenue. However, in this case we cannot book revenue just because we charged the customer $250,000 on a deposit invoice. What do you do? Enter Job WIP. Job WIP says that when you bill a customer for something, that doesn’t necessarily mean I’m recognizing revenue or costs. Instead, I have a method that I’m going to set that says how and when we want to book revenue and costs for this job. So, in this example you’d take the $250,000 check from the customer, deposit it, and this is essentially a prepayment from the customer (some call this deferred revenue) that has to be tracked on your balance sheet because we have your money but can’t yet book this as revenue. Now, there’s multiple Job WIP methods that describe how you can go about booking that revenue. This is why the Jobs Module is so useful for companies working on this type of a project.
In Part 2 of Job WIP Functionality we’ll explore some of the different types of Job WIP methods within Business Central.
Stay tuned!