However, there are many types of manufacturers — engineer-to-order, hybrid, multiple-division, repetitive, discrete and contract — with new definitions and acronyms arriving daily. To successfully implement and use ERP, they need to know what they want to accomplish in order to select and implement the ERP system with the right bells and whistles.

Engineer-to-order: Where's the BOM?
Lockheed-Martin's Skunk Works has created breakthrough technologies and landmark aircraft such as the U2, F-117A Stealth Fighter and, more recently, the DarkStar Low-Observable Unmanned Reconnaissance Vehicle and the X33 VentureStar�.

From a business standpoint, though, a firm like the Skunk Works is actually a very large engineer-to-order firm, one that must start the build process. Contrary to large production programs, they need to build a bill of materials (BOM) from the bottom up, right off the drawing releases. Yet those that work with prototypes know that BOMs don't exist.

Therefore, such firms must be able to create a built-in link from their ERP system to their CAD system, extracting parts data for a BOM once the drawing is complete. From that point on, both engineering and manufacturing planners can use this integrated database to manipulate the BOM.

Why is that important? With this capability, both can make changes to the BOM during the development cycle. Since such changes affect both departments, everyone is always up-to-the-second on the latest release.

Hybrid Manufacturing: Cost Reporting Duality
Government contractors have learned that relying solely on government business can be dangerous in an era of program cuts and consolidations. They don't want to ignore DoD (Department of Defense) or other government business, but do want to open their doors to commercial opportunities.

To some departments in an organization, that might not make a difference. To others, especially the computer program, it creates a dilemma. Whereas a commercial customer simply wants its suppliers to meet the bid, the DoD insists that the specific costs of every part — including labor — be broken out.

Thus, in a hybrid manufacturing environment, standard costs must be able to be entered by the user or calculated by the ERP system using the BOM and routing for each product. These costs then need to be calculated for all manufactured items using the cost roll-up process. Both single-level (value added at this level) and cumulative (pure) costs must be maintained for material, labor, overhead and subcontract (MLOS). Obtaining data from the active shop floor control module, the routing build-up is used to establish the manufactured item costs (labor and overhead).

MLOS categories need to be maintained for simulated, current, frozen and historical costs. All inventory items must be valued at the end of a specified time period (accounting period) after consolidating the material movement transactions (receipts, issues, scrap, inventory adjustments), labor transactions and standard variance transactions. For the corporation itself, these transactions need to be automatically transferred to the general ledger, making the accounting period close in a menu-driven process.

Multi-Division Companies — The Need to Partition
According to Harvard Custom Manufacturing controller Greg Moffitt, the ability to do multi-division processing is very important. "We're in Salisbury, Maryland. Our corporate headquarters are in Austin, plus we have an affiliate there," said Moffitt. "We also have a plant in Mexico and are acquiring other companies. It seems each has its own costing method. Some facilities do actual, another does standard, and still another uses the project method."

Multi-division processing allows such companies to process multiple divisions of an organization on a single ERP installation. All divisions share a single ERP database and a single set of ERP programs. However, each division's data is maintained with separate integrity.

In Racine, Wis., both Pioneer Products, a repetitive manufacturer of aluminum castings and automotive parts housings, and Peterson Machine Company, a discrete fabricator of bar stock, are able to share a common system and office staff.

From the viewpoint of each division's employees, the systems are separate. The shared office staff logs either Division 1 or Division 2, and the ERP keeps them within that division's books until they log into the other.

According to Pioneer Products' MIS manager Frank Krupkowski, "A multi-division capability is really useful. It helps us draw a line in the sand. There are no gray areas. The fact that one operation is repetitive and the other is discrete is irrelevant."

The Contract Manufacturer — Partitioning Begins at Home
Contract manufacturers must keep customer orders and records separate from each other, but provide overall enterprise computing for themselves. The software must be able to partition job and cost control for the firm's customers as well as be an open system so it can integrate with other systems in the future. Plus, for real-time customer communications, most outsourcing companies want to link or network with their users.

This is most important because, once redesign activity is completed by customer engineers and the decision is made to make the updated product, the entire product structure and all associated items masters need to be copied to the production engineering database at the outsourcing manufacturer. This gets new jobs running correctly faster, and eliminates the contract manufacturer from re-entering the data with the associated risk of key entry errors.

At the outsourcing manufacturer, an inventory control module is required that will serve as the hub for all material transactions, monitoring and controlling the execution of the material plan for each customer. It must maintain the inventory attributes for items, allow review of the current time-phased material plan for an item, maintain work orders and purchase requisitions, and record all material movements and stock adjustments for each customer.

Therefore, once items are entered in the production/engineering module, those that will be active are automatically copied to the inventory control item master file. Inventory policies and attributes (e.g., ABS class, ordering policy, safety stock policy) can then be modified or automatically assigned using commodity codes.

Through inventory control, a real-time requirements analysis for each item needed by each customer should be available in date sequence. When developed, each supply/demand record is labeled with the item number driving demand (single-level pegging) and includes the order number and type (e.g., customer order, purchase requisition, work order), due date, order status, and a running inventory balance. Both the customer and the manufacturer can review requirements, enter or alter a work order, perform an outline allocation check, and review shortage information. Any changes made to ensure that supply meets demand would be immediately reflected on the requirements analysis screen. Planners are able to see the impact of any decision — immediately after making it.

At most outsourcing plants, work orders are maintained by inventory control, and the system supports allocation of items on an order-by-order basis. This provides the ability to commit limited supplies to specified orders and protects from over-committing material. Work order allocations are combined with allocations from sales orders, purchase orders and independent demands to determine total commitments. Work order routings, established in the shop floor control module, can be tracked through inventory control for current information on work orders and their stage of production.

Pick lists are typically printed by item number or by bin location. Furthermore, notes entered on the bill of materials can be printed on the pick list, ensuring that this information is reliably communicated from the customer to the contract manufacturer's shop floor.

Because a variety of customers' jobs are running through the facility at the same time, it is highly recommended that all material movements and stock adjustments be processed online, ensuring that the planner is always working with the most current information. For the customers, an audit trail should be maintained by posting all inventory transactions to history, identified by user and date/time.

Outsourcing businesses also require a shop floor control module that provides all of the functions required to manage and control the manufacturing floor, including routing maintenance, labor reporting and scheduling. This is the module that maintains the data to help the manufacturer optimize on-time completions, evaluate plant workload, and determine capacity needs based on the current material plan. It must be integrated with other modules to maintain current work order information at all times.

Likewise, to ensure their own profitability, outsourcing manufacturers want to track performance against routings and past variances. Similar to material costs, routing times need to be rolled up through the manufacturing cost control module to generate new labor and machine time standards for shop floor control, when needed.

With such a system, these manufacturers can generate detailed schedules for released work orders based on the shop calendar. At the same time, the production calendar can be overridden when unplanned production hours are required, thereby maintaining accuracy of production tracking.

Since customers typically dictate delivery dates, these manufacturers can use the system to back-schedule, thereby ensuring they meet their commitments. They can also use the system to assure they meet a customer delivery demand at time of order.

This backward scheduling technique, which calculates the start and completion date of each customer's job in process operation, is based on the due date of the work order. If there is not enough time to complete the order based on the inventory control due date, the system must forward schedule the order based on the routing and calculate a shop floor control completion date. The inventory planner can then see the shop floor control scheduled completions date versus the inventory control due date. Progress is evaluated during the manufacturing cycle, making projected completion dates available to the inventory planner, shop floor supervisor and the customer.

Likewise, dispatch lists for each work center assist in optimizing on-time completions by presenting work orders in a priority sequence. Detailed capacity load reports, available for each work center, express the capacity in either daily or weekly buckets of the scheduled load versus the planned capacity.

With the manufacturing cost control module, the outsource manufacturer can establish and maintain inventory and product costs, and evaluate cost standards against actual costs. Such a module will calculate the frozen costs used by accounting as well as the current costs associated with the manufacturing process.

Providing Automated Work Instructions — The Newest Whistle
If, from the very beginning of design or upon implementation of a change order, work instruction assistance can be available at each step in the manufacturing process in the same way that the ERP system sends material changes and needs throughout the corporation, companies could save a lot of money.

From the very beginning, worker accessibility to this information and assistance can be instantaneous, available on demand in a format that conveys easily-understood instructions to individual employees. Instead of memorizing a series of events and hoping employees will remember them, employees are able to update themselves right at their own workstations.

Viewing automated work instructions, they immediately recognize the process, reviewing each step. In only a few minutes, they save their companies the costs of trashing improperly made components and reworking finished products.

Implementing such systems is no problem. Higher level ERP systems employ design engineering and engineering change control modules. They facilitate the development of new product engineering information and the modification of information for existing items and bills of material in an environment free from the disciplines of manufacturing document control. Such modules allow the engineer to develop data to support working models of both parts and bills of material prior to their production releases.

With design engineering and engineering change control, the engineer can define new items and structure bills of material for new products on the design database. Once the design activity is completed and the decision to implement the new or modified product is made, the entire product structure and all associated item masters are copied to the production engineering database.

Such a production engineering module provides for the entry and maintenance of items, structuring the bills of material and implementing engineering change orders. With higher level ERP systems, three part types are specified:

• standard for inventory items

• reference for drawing and other non-inventory documentation

• phantoms for items that exist in engineering design but are not a controlled inventory item in the manufacturing process

Parts are defined as pending or active. Only active parts are automatically copied into other master files to ensure consistency of information across modules and provide data entry and dispersal efficiencies. One of these files would be the automated work instructions.

Ring Those Bells — Blow Those Whistles
The goal of reading the fine print in the selection process and detailing the implementation process is to make sure you've obtained the ERP bells and whistles you need and that, once installed, they play the tune you want.

Functions versus Modules In ERP-speak, functions are what an ERP system does. Modules are the pieces of software that provide functions. When selecting an ERP system, discuss "functions." The ERP provider will show you the module that performs the function. Following are the types of functions that are available in a fully-functioned ERP system:

Engineering: Item Part Number Control Bill of Material Control Complete Engineering Change and Documentation Control Routings Estimating Design Engineering Purchasing: Vendor Performance Purchase Order Management Subcontract Purchase Orders Materials: Inventory Control Master Production Scheduling Material Requirements Planning Lot/Serial Tracking Rough-Cut Capacity Planning Manufacturing: Shop Floor Control Capacity Requirements Planning Project Control Costing: Job Costing Cash Flow Analysis Actual Costs Standard Costs Work Breakdown Structure Finance: Accounts Receivable Accounts Payable General Ledger Multi-Company Consolidation Foreign Currency Conversion Marketing/Sales: Sales Order Management (SOM) Order Configurator Billing/Invoicing Full Sales Analysis Commission Calculation/Reporting Sales Forecasting/Rollups Quoting

Following are the types of modules that will perform functions: • System Control • Basic Manufacturing Production Engineering Inventory Control • Business Planning • Financials Accounts Receivable Accounts Payable General Ledger • Manufacturing Cost Control (Actual or Standard) • Material Requirements Planning • Multi-Division Processing • Project Control • Purchasing/Receiving • Sales Order and Quote Management • Shop Floor Control • Work Breakdown Structure • Data/Labor Collection • Design Engineering • Estimating • Centralized Sales Order Management and Quoting • Centralized Engineering • Centralized Purchasing • Foreign Currency • Lot/Serial Control • Configurator — Sales Order Management • Engineering Change Control

Copyright © 1998 by APICS — The Educational Society for Resource Management. All rights reserved.

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