QuickBooks Manufacturing Tutorial

QuickBooks has a “Manufacturing & Wholesale” edition, but there is a definite lack of documentation on how to actually use QuickBooks in a manufacturing business. This posting is the first in a series that will give you some guidelines on how to best use QuickBooks in a manufacturing environment. I’ll start off with some basics, and work our way up through some more complicated scenarios.

This is a list of the subjects I will cover – please feel free to comment about any subjects you would like to see added to the list, or which you believe are more important. I won’t cover these subjects in the order listed, although I’ll have to start off with some of the basic subjects before I can get into the more complicated ones. I’ll be adding other topics as we go along, based on user feedback. So let me know what you want to see!

• Creating your Bill of Materials (BOM) – strategies for different situations, limits and capabilities (BOM basics,  groups vs assemblies).
• Work In Process.
• Reorder vs. Build Point.
• How to work with highly customized assemblies.
• Working with Outsourced or Subcontract work.
• Pending builds.
• Tracking revisions in BOMs.
• Inventory Costing.
• Understanding the Total Bill Of Materials Cost.
• Shipping Costs and Inventory Valuation.
• Forecasting component demand.
• Dealing with Scrap in manufacturing.
• Manufacturing reports, built in and customized.
• How to use various item “Types” in your QuickBooks Bill of Material
• How to generate job travelers and shop orders.
• ABC Analysis.
• Ways of extending QuickBooks for more complicated manufacturing scenarios.

If you click on the Manufacturing tab in the menu bar you will find a list of my manufacturing tutorial articles.

There are many ways to manage a manufacturing firm, there are many very different kinds of processes that can be called “manufacturing”. Some of my suggestions won’t fit every business – so feel free to tell me if you have a better approach for YOUR business!

Starting with the Basics

I have a mixture of subscribers to this blog, from brand new users to seasoned veterans. So I’ll start with some very basic points for the uninitiated.

Note that I’ll be discussing features in the US Premier and Enterprise editions, and I’ll be using the 2008 version in my examples. If you are using Simple Start or Pro then you really should consider upgrading to Premier or Enterprise. If you are using a non-US version, I’m not sure how much of our discussion will apply to you.

The basic process to get started with assembling items is:

• Create the inventory parts that are components of your assembly.
• Create the inventory assembly and assign it the parts you use.
• “Build” or assemble your inventory assemblies.

Create the Inventory Parts

The first step you need to take is to enable inventory management in your company file. This is not set up by default – and it can be confusing to new users because you will see the item list even if it is not enabled. Select Edit from the main menu, then Preferences. Select the Items & Inventory option, the Company Preferences tab, and put a check mark in the box by Inventory and purchase orders are active.

Now you can add your inventory parts to the item list. While in the item list press cntrl-N to add a new item. Note that you have several different kinds of items – we’ll work just with inventory part items now (discussions on how to use other item types will be in future articles).

For each material item that you use as a component in your assembly, add an inventory part. You can also create non-inventory parts for items that you don’t keep track of by count. Please note that we do not recommend that you enter an on hand value at the bottom of the screen at this time, unless you are starting up QuickBooks for the first time and you have taken a physical count of your inventory.

Create the Inventory Assemblies

After you have created all of your inventory part items, you can add an inventory assembly item for each manufactured item. The primary difference from an inventory part is that you can assign a component list, a bill of materials (or “BOM”). This is a list of all of the parts

In this example, to make one “WHAS” wheel assembly we need two SC-12 screws and one RORO-4 roller.

Build the Assemblies

Now that we have defined the parts and assemblies, we can build the assembly. From the Activities button at the bottom of the item list, click Build Assemblies. In the Build Assemblies dialog you will select the assembly to build and enter the number of this assembly that you want to build. 

When you click either of the build buttons, the program will save this build (if possible, as discussed below). Two things happen now:

1. QuickBooks will remove the qty needed amount of each of the component items (I refer to this as consuming the items in a build).
2. QuickBooks will increase the quantity of the inventory assembly item by the Quantity to Build.

Essentially we are moving the cost of the inventory part assets into the inventory assembly asset.

A few comments on what happens here:

• Note the maximum number you can build… value. QuickBooks won’t let you build an assembly if you don’t have enough parts on hand to build it, This value shows you how many you can build with the parts that you have.
• If you enter a quantity to build that is higher than that maximum, QuickBooks will mark the “build” as Pending. This means that it hasn’t been built, it is waiting to be built. There are reports that list the pending builds.
• When you enter the quantity to build much of the information in this dialog will not be updated until you move the cursor to another field, such as the date or memo. This can be confusing at first. When you move the cursor off that field the qty needed is updated, and the pending stamp could be displayed.
• The Date field is very important. This is the date that the build transaction takes place. This has two important effects:
  • The quantity on hand for the component parts is based on your inventory status as of this date. Sometimes people get frustrated – they look at an inventory report and it says you have enough, but this dialog says you don’t! The issue is usually the dates – if the report is dated after a PO is received, but your build is dated earlier, you might not have had those parts on this date. Adjust the date in either your report, or the build.

As you might expect, the same issue relates to the assemblies you build – they are only available on or after the build date, not before.

This has been a quick overview of how to work with an assembly item and to issue a build. We’ll go into more detail about how to structure the BOM, and use other item types, in the future.

To learn more about using QuickBooks in your manufacturing company, click on the Manufacturing tab in the menu bar.