Material Burden on Outsourced Items

Epicor ERP 10
1

I’m hoping someone might have some experience with material burden. We are getting ready to implement material burden rate on our part records and updating the parts standard costs to include material burden. We’ve done just about all of the testing necessary and feel confident in the implementation. The only caveat that remains is related to outsourced items.

For context, we have certain items that we outsource to another facility. The job is set up with subcontract operations. We then create a PO set up as a subcontract operation to account for the labor spent at the facility. The raw material is on our books and accounted for as such.

The raw material is burdened properly and cost rolled up to the finished product. So the outsourced item has that level of material burden on it. However, we would like to add additional burden onto the finished good itself. The reason being, that finished good will have more cost due to the freight expense to bring it back to the warehouse, received and processed, and managed. These activities add more cost than a traditional in house manufactured item, and we would like the material burden to reflect that.

The challenge as I see it is these outsourced parts are not received into the warehouse the same way as a normal purchased item. It is not as simple as having a material burden rate on the finished good as the item is not received in as “Inventory” on the PO but rather a “Subcontract Operation”, at a cost of the subcontract labor.

For now I’m curious if anyone else has utilized material burden, and if so, do you have outsourced items and how do you handle those?

Thanks for any insight you can provide.

2

Hi Tyler. I’m not going to say this can’t be done, but I’ll relay our story in case it helps. Long-story-short… we (using Epicor’s CSG team) were not successful in doing this… but hopefully things may have changed and perhaps you may have better luck.

Okay… now the long version:

Prior to our Go Live, we actually had Epicor’s CSG group build us a customization to handle this type of material burden. Basically, for us, anything that gets “received” gets a material burden applied to it. So, don’t think of it having to hit inventory. Whether you receive something to stock… or receive it to a job (via subcontract) it is still “received” against a PO and THAT is when you can apply burden.

So, we created a UD field which held a “corporate material burden rate”. We had the same approach that it sounds like you do… anything that gets “received” requires additional management/handling and incurs more cost. This is the way we had done things for decades in our legacy system. So, CSG created a BPM where, upon receipt, the BPM would fire with some custom code and apply the “corporate burden rate” to the receipt line. This all worked very well… for about six months. Around September 2022, Epicor changed something in their base code and it blew this customization away.

While troubleshooting/testing, we found that parts would hit inventory without the applied burden. So, we would unreceive them and re-receive them and the burden would be there. So, this was bad.

  • Initial receipt (no burden applied)
  • Un-Receiving would actually pull the material cost AND the applied burden cost out (which would result in a negative transaction balance). For example, if it was a $10 part and a 10% burden… the part would go into inventory @ $10… but would be un-received with a -$11 transaction.
  • Re-Receiving would then go back in at $11… which was correct.

What we found was whatever change Epicor made, either altered when the BPM fired… or it fired but didn’t happen fast enough to apply the burden before the initial “transaction” was recorded.

We found a work around while testing where, if we created the receipt line and “saved” WITHOUT checking the “Received” check box… it would work. So we would have to create the receipt line… SAVE… click the checkbox… SAVE again. If we did it this way, the calculations came out correctly.

I was hoping Epicor could create some kind of script/code for us to manage this automatically… but one of the issues they brought up was they would have problems with “Mass Receipts”. Receiving multiple lines all at once would create issues. They basically threw in the towel and said it wasn’t possible, so we abandoned the customization project.

Now… it may BE possible. I’ve seen some people on this forum that can create miracles! But, in our case, the CSG team said they couldn’t pull it off. We paid them for the initial customization and we had paid for their “customization maintenance” to fix it if it broke after an update (which it did). But they weren’t able to repair it and may have just bailed on it, not wanting to invest more hours since they were on the hook for “maintenance”. Hard to say. I don’t want to discredit them. They had multiple people researching it for a couple months trying to figure it out. But again, ultimately, they said they couldn’t find a way to do it without altering the base code, which, being a cloud customer, wasn’t an option for us.

Epicor at least admitted that they found the developers had changed something in the base code which altered the timing of events in the background… This was evident as the customization worked for months, initially, and then broke.

Anyway… we eventually bailed on this. That being said, that was ~September 2022, so they may have fixed the issue (although, I don’t know that it was ever reported as a problem… it just worked differently after their code change)… or perhaps just a fresh set of eyes could figure it out?? But for us (brand new to Epicor and not experienced customizers ourselves) we relied on Epicor and they more or less came back and said they couldn’t make it work without altering the base code… which, again, we couldn’t do since we were cloud.

Don’t want to discourage you from trying… just wanted to share what we went through at the time.

3

Hi David,

Thank you for providing such a detailed response as well as your experience in trying to implement this material burden. Applying the material burden rate to anything being received in is exactly what were have been thinking about, but it sounds like this could get complicated for these outsourced items.

The challenge there is what is “received” into the warehouse for these items is just the subcontract cost of the part, not the full item cost. So it sounds like another customization would be needed to say if the item is outsourced, there would need to be a trigger to apply the material burden rate against the full item standard cost, not just the subcontract cost when the PO is received.

To be honest, in my research it seemed like going this route would likely be a significant challenge for something that may not move the needle much in the total burden cost of the items.

I’m thinking it might be better to instead do some manual adjustments in our regular margin analysis of these specific parts to say what the real burden should be, vs what the system shows for those items.

I am always a bit skeptical about going in and changing/adding code with customizations as I’ve heard they can lead to major headaches and confusion down the line which it sounds like in your case it did.

I’ll continue to see if there is any update out there since your story. Really appreciate your help and insight on this!

Tyler

4

Well, the subcontract should work the same way. You’re not receiving the total cost of the part. So, if your raw material was $1,000… and your subcontract operation was farmed out for $500. Your subcontract PO is only for the $500. So when you receive it, you would be receiving a $500 value to the job.

So, any material burden applied to the Subcontract receipt should be $500 * x%… not $1,500 * x%.

The $1,000 material cost (+ MtlBurden) is already account for when you issue material to the job.

So… you would have a job… $1,000 + X% MtlBurden is issued to the job.
You then have a subcontract operation… when you receive that back… $500 + X% MtlBurden is received to the job.

If you then receive that part to inventory from the job the total cost would be:
Material Cost $1,000 + X% Burden PLUS Subcontract cost of $500 + X% MtlBurden.

5

I definitely understand what you’re saying, and it makes sense from a simple receipt of the subcontract cost from the PO. Where we were thinking about this though, was that the finished good item being received in for the job, while only having the subcontract labor cost on the PO, is really the entire finished good product.

So for example, we are having to pay for the freight expense of this item being sent back to our warehouse. The freight expense includes the cost of shipping the total finished good item, weight and dimensions, not just a portion of it related to subcontract cost. We are capturing our freight cost as part of material burden and allocating it. It seems like in this circumstance, the additional freight expense to be allocated would be understated for this part, as the receipt value for the outsourced items is not including this total cost, and thus non outsourced items would be allocated the additional freight burden.

Hopefully that makes some sense as to how we have been thinking about this. Again, I’m not sure this would really be a feasible option and seems like it could get very complicated. I personally lean towards not going this route, but this is something management has been curious about.

6

Gotcha.

We’ve done a couple different things for this type of charge.

On your subcontract PO… you could also add freight as a LINE misc. charge. If it is a HEADER misc. charge, it might not hit the job… but if it was a LINE misc. charge against a subcontract op… I’m pretty sure it does. You’d have to test to verify.

We also created a part called “FREIGHT”. We can then add that “part” to a customer sales order when we need to. It is a Non-Stock, Purchased part. So we would then create a PO and receive against it when we process the freight invoice.

You could use that approach and add “FREIGHT” to your BOM to land freight costs onto a job. A little spoofy and disconnected that way.

Anyway, I would test adding it as a misc. charge on the subcontract PO line. Pretty sure that works.

7

Ok that is definitely interesting.

I’ll do some testing on this and see what comes up. Adding the LINE misc. charge certainly seems to be the best way to go about adding in these additional costs to the part.

Really appreciate the advice on this David, it’s provided some very useful information!