Maintaining Bills and Routings

Maintenance of bills and routings can employ several tools for analyzing and changing information. Planned engineering changes to product and process design can also be identified.

Managing Planned Engineering Changes

Planned engineering changes to master bills can be identified using two different approaches ”start date effectivity for bill versions and start/end date effectivity for bill components ”or a combined approach. Planned engineering changes to master routings can only be identified using one approach: the start date effectivity for routing versions. The due date of a production order determines which components , bill version, and routing version will be used as the basis for requirements and the creation of an order-dependent bill and routing. The master bill and routing, as well as the bill version and routing version, can be manually overridden on a production order line item.

Some engineering changes require immediate implementation and updates to existing production orders. When no activity has been reported , a production order can be refreshed to obtain the latest information defined in the master bills and routings. When activity has been reported, the user must manually update the order-dependent bill and routing on existing production orders.

The status field for a master bill and routing provides one approach to indicate whether it has been certified as complete or is still under development. However, some firms must work with partially defined bills to calculate requirements for long lead-time materials or to perform preliminary cost calculations. Planning and cost roll-up calculations only work with certified bills and routings.

Tools for Maintaining and Analyzing Bills and Routings

Several approaches make bill maintenance easier, such as copying a master bill (or a version of a master bill) and changing one component with another. A master routing (or version of a master routing) can also be copied . The system prevents circular bills. However, an item can be made out of itself when using a production order for rework purposes; the order-dependent bill identifies the item as a component to make the same item.

Analysis tools include online inquires about a component where-used, a master bill where-used, and a comparison of components in multiple versions of a master bill. Standard reports include a costed bill and a comparison between two master bills as of a specified date. Other analysis tools include a where-used inquiry for a master routing.

Planning Data for Suggested Production Orders

Production orders are typically created based on a system-generated suggestion for material replenishment. The replenishment suggestions reflect planning data for a manufactured item, including the primary source of supply, lead-time, reordering policy, and manufacturing policy. Suggestions can be directed to the planner responsible for the item. The previous chapter covered these same planning data for purchased material.

Planner Responsibility

The concept of planner responsibility provides an organizing focus for communicating the need to synchronize supplies with demands. By assigning planner responsibility to items and production orders, suggested action messages can be directed to the responsible planner. Two approaches to indicate planner responsibility are illustrated below.

• General Product Posting Group Field . Using this field to indicate planner responsibility, suggested actions about new and existing production orders can be directed to the planner. It can be optionally overridden on a production order to indicate a change in planner responsibility.

• Product Group Code Field. Using this field to indicate planner responsibility achieves the same results as above.

Chapter 8 provides further explanation of suggested action messages about production orders.

Primary Source of Supply

The primary source of supply for a manufactured item is indicated by the replenishment system policy and by the identifiers for a master bill and master routing.

Production Lead-Time

Production lead-time can be variable or fixed depending on whether routing data exists. Routing data reflects the item s master routing for a new order; it reflects the order-dependent routing for an existing order. The system calculates a variable lead-time based on the routing data; otherwise it uses the fixed lead-time specified for the SKU. The SKU s fixed lead-time is typically expressed in the average number of working days required to produce an average order quantity under average factory load conditions.

Production Lead-Time and Capable-to-Promise Logic

Capable-to-promise (CTP) logic provides one approach to making sales order delivery promises and an approximation of forward finite scheduling. CTP logic calculates the lead-time to produce an item, and the lead-time for components marked as critical, to determine an item s earliest ship date. Production lead-time may be fixed or variable (based on routing data). Calculations for a variable lead-time reflect the routing operations factored by order quantity, available capacity of relevant work centers, and loading for each work center based on its infinite or finite capacity viewpoint.

The lead-time for a critical component depends on its primary source. The system uses production lead-time for a manufactured item and purchasing lead-time for a purchased item. A multisite operation may also have items sourced from another location where the component has a transportation lead-time.

 

Reordering Policy

A reordering policy and order modifiers represent a model of the planner s decisionmaking logic concerning production quantity and reorder cycle. The five replenishment methods for purchased material, explained in the previous chapter, also apply to manufactured items.

Manufacturing Policy

The manufacturing policy determines whether suggested replenishment via production orders will be directly or indirectly linked to sales orders. It also guides selection of an appropriate reordering policy and planning parameters. The implications for a make-to-stock and a make-to-order manufacturing policy are summarized below.

• Make-to-Stock Manufacturing Policy . This policy applies to a stocked item where suggested production orders are indirectly linked to demands via dates. The SKU s reordering policies should reflect time-phased order point or MRP logic, with optional use of order modifiers.

• Make-to-Order Manufacturing Policy . This policy applies to manufactured items produced to customer demand where suggested production orders are directly linked to sales orders. The reordering policy typically reflects order-driven logic. A suggested production order automatically reflects changes in the sales order quantity, shipment date, and ship-from location, but manual changes are required after taking action to firm or release the suggested production order.

A make-to-order manufactured product may consist of a multilevel product structure where lower-level components are also produced to customer demand. When these manufactured components are also designated as make-to-order, the suggested production order consists of multiple lines, one for the end-item and one for each make-to-order component. This is termed a multiline production order, and scheduled dates for each line item reflect the product structure dependencies.

Methods for Establishing Direct Linkage Between Production Orders and a Sales Order

The make-to-order manufacturing policy provides one approach (using the planning calculations) to generate a suggested production order directly linked to a sales order. There are two other methods.

• A production order can be directly generated from a sales order regardless of its manufacturing policy. The system automatically creates a separate production order corresponding to each sales order line item for a manufactured item. It also generates an additional line item for each of the manufactured item s components designated as make-to-order. The user can alternatively choose to generate a single production order (termed a project order) with multiple lines that correspond to the sales order line items.

• An item s production order can be manually entered and linked to an existing sales order regardless of its manufacturing policy. The user can manually assign an order number that matches the sales order number. The system generates a multiline production order when the sales order has multiple lines. An additional line is created for each of the manufactured item s components designated as make-to-order.

  The production order initially reflects the sales order quantity, shipment date, and ship-from location, but it can be scheduled independently. With a firm planned or released production order, changes to the sales order (and sales order deletion) require a separate manual update to the production order.

 

Other Planning Data

The scrap percent for a manufactured item increases the required quantity for all components and routing operations. A safety stock quantity and a safety lead-time can also be specified.

Standard Cost Data for Manufactured Items

The standard costs for a manufactured item can be automatically calculated based on item, bill, and routing information. A manufactured item s standard costs consist of rolled costs and single-level costs, where both are segmented into cost elements for material, capacity, subcontract, capacity overhead, and manufacturing overhead.

Approaches to Cost Roll-Up Calculations

The system provides two different approaches to cost roll-up calculations, labeled for simplicity s sake as a direct update approach and a worksheet approach.

• Direct Update Approach. Cost roll-up calculations can be performed for a single item with an immediate update of its standard costs, using the bill and routing in effect as of the system work date. The approach can also be used to calculate and update standard costs for all items within the item s multilevel bill.

• Worksheet Approach . Each standard cost worksheet represents a separate set of cost data for performing cost roll-up calculations. A worksheet contains one or more items. Items can be manually or automatically added to the worksheet, and the system copies each item s standard costs into the worksheet. Work centers can also be manually or automatically added to the worksheet, with a copy of their standard costs. Different costs can be entered for purchased material and work centers, and cost roll-up calculations performed as of a specified date. The worksheet displays the new calculated costs as well as the existing standard costs. The new calculated costs within the worksheet can be optionally copied into the standard costs for the specified items and work centers.

A worksheet has a unique identifier, and multiple worksheets can be defined. For example, one worksheet may represent next year s standard costs while another represents a simulation. The worksheet approach provides a method for preparing and entering mass changes to standard costs, such as periodic updates that reflect roll-up calculations as of a specified date.

Information Used in Cost Roll-Up Calculations

Cost roll-up calculations utilize data from several sources, where the source defines how to categorize costs into cost elements.

• Items . Each purchased component defines a standard cost that is treated as a material cost element. A manufactured item may have overhead costs, expressed as an amount and/or a percentage, that are treated as a manufacturing overhead cost element. A manufacturing item can also have a scrap percentage and an accounting lot size for amortizing fixed costs.

• Bills of Material. Each component defines a quantity per, a component scrap percentage, and effectivity dates. Bill versions also identify a starting effectivity date.

• Internal Work Centers . Each work center defines standard costs for direct time and overhead that are treated as cost elements for capacity and capacity overhead, respectively.

• Internal Routing Operations . Each internal routing operation defines setup and run time within an internal work center. An operation may also identify planned manufacturing scrap either as a quantity or a percentage or both.

• External Operations . Each external operation typically specifies a cost per unit that is treated as a subcontract cost element. In some cases, hourly costs are specified for the external work center and run times specified for the external operation.

• Company Policies . Setup costs can be excluded from cost roll-up calculations for manufactured items. Setup costs reflect an operation s setup time and fixed scrap amount.

Single-Level and Rolled Costs

The rolled costs for a manufactured item are based on the item s entire product structure, and the system retains segmentation by cost element.

• Material costs represent bill requirements for all purchased components and each component s standard cost inclusive of material- related overheads.

• Capacity and capacity overhead costs represent the time requirements for all internal operations and the relevant work center s costs. Subcontract costs represent routing requirements for all external operations.

• Manufacturing overhead costs represent overheads specified for the manufactured items.

The sum of these cost elements defines the item s standard cost used in valuing inventory transactions and cost of sales. The sum of cost elements for single-level costs and rolled costs are equal. This is because the single-level costs treat all components as a material cost element whether they are purchased or manufactured.

Case Studies

Case #7: Virtual Manufacturing

One division of the All-and-Anything company was moving toward virtual manufacturing with outsourcing of almost all production activities. Items were either purchased complete or subcontracted (with supplied material linked to the outside operation). In both cases, the bill of materials required an additional component type (termed a reference component ) to define components provided by the subcontractor.

With the subcontracted approach, the supplied material and finished goods inventory were stocked at the vendor s location. Purchased material was shipped directly to a subcontractor and sales orders were shipped directly from a subcontractor. Supplied material was auto-deducted based on reported completions and replenished based on SKU planning data. In some cases, the completed units were transferred back to a company location for further processing (such as final assembly and test) before sales order shipment.

Case #8: CAD Integration

The All-and-Anything company required integration between its computer-aided design (CAD) package and information about items, bills, and routings. For standard products, this involved importing bill information from the CAD package into the master bill and viewing the CAD drawing from selected windows . They used a rules-based configurator to define the bill for a custom product and calculate a quoted price and estimated costs. This configuration information could be used by their CAD package to generate 3D models (for viewing) and 2D layout drawings, and cut lists for assisting production personnel in completing the work. This integration helped reduce the elapsed time to prepare sales quotes, the man-hours to define drawings and bills, and the cost of errors (including production rework, field installation services, and customer confidence).

Case #9: Authorized Recipes in Process Manufacturing

The Batch Process company produces batches of bulk chemical and immediately puts it in various bottles with labels and packaging material for each bottle . They have several authorized recipes for each product that reflect variations in batch size. They use bill versions to model authorized recipes, with a specified UM for each bill version indicating batch size.

Case #10: By-Products in Pharmaceutical Products

The Batch Process company produced a pharmaceutical product where the production process resulted in several by-products of lower potency. Each by-product was a different item number, and could be packaged and sold as a different item. The master bill identified each planned by-product as a negative component quantity. The component quantity expressed a ratio (such as .15) indicating the expected by-product output relative to the parent item output.

Case #11: Printed Circuit Boards

The Consumer Products company produced electrical products that required assembly of printed circuit boards from components. Critical components, boards, and end-items require lot tracking and serialization of end-items upon shipment. Using customized bill functionality, the engineering function identified approved vendors for components and specified reference designators for placing components on printed circuit boards.

[2] See www.csbsystems.com for more information.

Case #12: Item Variants in Bills

The Consumer Products company purchased baseball hats in various colors and sizes, and then packaged them together (such as a 24-pack) with a mix of colors and sizes. They used item variants to identify the purchased hats, and a manufactured item for each package (such as the 24-pack). Variants of the purchased item were specified as the bill components of the manufactured item.

Case #13: Engineering Bills vs. Production Bills

The engineering department wanted to define a separate engineering bill and then convert it into a production bill of material. They defined a separate bill version for the engineering bill, and used the certified status to indicate it was ready for use by production. The scheduler defined a cut-over or start date for the new bill version that considered current inventories and other factors.

Case #14: Common Bill for Fabricated Subassemblies

The Equipment company produced different brackets that had identical bills of material, but differed in the number of holes drilled in the bracket. A master bill identified the common bill of material, and was designated as the bill for each bracket item.

Case #15: Cut-to-Size Raw Materials in Fabricated Products

The Fabricated Products company needed to express bill requirements in terms of the number pieces of cut-to-size raw materials, such as steel rod and sheet metal, but did not want to create item numbers for each unique size. They solved the problem using the calculation formula for a component s required quantity. For example, they used the component s required quantity to represent pieces, and the component s physical dimensions to indicate the desired length of steel rod. This approach identified purchasing and stockroom picking requirements for the raw materials, and provided cut-to-size instructions for production.

Case #16: By-Products in Fabricated Products Manufacturing

The Fabricated Products company produced plastic parts where the production process for plastic resulted in reusable scrap (identified by a unique item number) that could be melted down in subsequent runs. The reusable scrap represented a by-product that was identified in the master bill as a negative quantity, and received into stock as a result of a production order.