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Reviewing BOM For Bike and Wheel Assembly Discussion
Demo 6.1: Review BOM for bike and wheel assembly
WORK CENTER
A work center is a location where value-added work needed to produce a material is carried out. It is where specifi c operations, such as drilling, assem- bly, and painting, are conducted. A work center can also be a machine or a group of machines; an entire production line; a work area, such as an assembly area; or a person or group of people who are responsible for completing opera- tions in different parts of the plant. Regardless of its composition, however, it is a resource that can be used for a variety of purposes and for multiple pro- cesses. For the purposes of this chapter, we defi ne a work center as a resource used to produce a material.
Figure 6-6 illustrates the data associated with a work center. The basic data section includes the name and description of the work center and the person or people responsible for maintaining the master data for the center. It also identifi es which task lists can use the work center. A task list is simply a list of operations that are required to accomplish a task. Operations are the specifi c tasks that must be completed, such as drilling, cutting, painting, inspecting, and assembling. Different types of task lists are associated with different processes.
In production a task list takes the form of a product routing or a master recipe. We discuss product routings later in this chapter because they are used in discrete and repetitive manufacturing. Master recipes are used in process
Figure 6-6: Work center data
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188 CHAPTER 6 The Production Process
manufacturing and therefore are not discussed in this chapter. There are many other types of task lists. We will discuss some of them in later chapters in the context of other processes. Others are beyond the scope of this book. Finally, standard value keys are used to assign standard or planned values for the normal time elements—that is, the activities that consume time—associated with the work center. Typical time elements are setup time, processing time (machine and labor), and teardown time. The keys utilize specifi c formulas to calculate how much time must be allotted for each of these elements.
Work center data also include default values for operations performed at the work center. Examples of default values are control keys and wage data. Control keys specify how an operation or a suboperation is scheduled, how costs will be calculated, and how operations will be confi rmed once they are completed in the work center. For example, a control key can indicate that confi rmation of an operation is required and must be printed before the next operation can be performed. Wage data are associated with processes in human capital management, such as payroll.
Available capacity defi nes how much work can be performed at the work center during a specifi ed time. A work center can include more than one resource or capacity, such as labor and machine. In this case, the scheduling basis determines the specifi c capacity to be utilized for production.
A work center is associated with a cost center. Recall from Chapter 3 that a cost center is a container or bucket that accumulates costs that are then allo- cated or further processed by management accounting processes. Costs associ- ated with operations completed in a work center are calculated using formulas that utilize the costs and the standard values associated with each activity type (e.g., setup, labor, and machine).
GBI has three work centers, as illustrated in Figure 6-7 and Figure 6-8. Figure 6-7 shows the layout of the production facility in Dallas. It identifi es the three work centers (ASSY1000, INSP1000, and PACK1000) and the four storage locations (RM00, FG00, SF00, and MI00). All three work centers are associ- ated with one cost center, the production cost center (NAPR1000).
Figure 6-8 provides details of the three work centers. ASSY1000 is the assembly work center. It has 8 hours of labor capacity. Labor is used to complete three operations—stage or prepare materials, construct the wheel assembly, and assemble the fi nished bike. INSP1000 is the inspection work center. Here the bike is placed on a machine that tests its suspension and bal- ance. Meanwhile, the employee visually inspects the entire bike, checking for defects. In contrast to the assembly work center, then, the inspection work center utilizes both labor and machine capacity. Once testing has been com- pleted, the bike is disassembled into the frame assembly and the wheel assem- blies. These components are then packed separately in the fi nal work center (PACK1000), which, like assembly, involves only labor. The fi nal assembly is typically completed at the retailer’s location or by the customer after he or she purchases the bike.
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Figure 6-7: GBI Dallas production facility
Figure 6-8: GBI work centers
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190 CHAPTER 6 The Production Process
Although it might not appear to be simple, bicycle assembly is actually quite straightforward compared to other types of manufactured goods. Imagine the com- plexity of the work centers and tasks involved with assembling a Boeing 757 (Figure 6-9). Aircraft assembly
is so complex and the fi nished good is so large that the work centers actually move from one aircraft to another during assembly, in contrast to the stationary work cent- ers used in our GBI example. Notice the mobile work centers (carts and mobile machines) in the fi gure.
Business Processes in Practice 6.4: Aircraft Work Centers
Figure 6-9: Assembling a Boeing 757. ©Kevin Horan/Getty Images, Inc.
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Demo 6.2: Review GBI work centers
PRODUCT ROUTINGS
In our discussion of work centers we defi ned a product routing as a list of operations that a company must perform to produce a material (Figure 6-10). In addition, the product routing specifi es the sequence in which these opera- tions must be carried out, the work center where they are to be performed, and the time needed to complete them. It can also list additional resources, known as production resource tools, which the company needs to complete the operations.
Figure 6-10: Structure of a routing
The left side of Figure 6-10 illustrates the general structure of a routing. Like a BOM, a routing includes a header that contains data applicable to the entire routing, such as status and validity. The routing shows two sequences, each of which identifi es the required operations and the order in which they are performed. All operations in a routing must be performed in some type of
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192 CHAPTER 6 The Production Process
sequence, and many operations can be completed in a variety of sequences. This routing, for example, displays a standard sequence, in which Operation 1 is performed prior to Operation 2, and an alternate sequence, in which Operation 2 is performed fi rst.
The right side of Figure 6-10 shows the routing for GBI’s deluxe touring bike. The routing indicates that operations needed to produce this bike can be performed in only one possible (standard) sequence. For example, the seat is attached to the frame fi rst, followed by the handle bar.
GBI uses prebuilt components such as the brake kit and pedal assembly that it purchases from vendors. If GBI were to manufacture these two com- ponents in-house, then it would have to assemble them from raw materials before it attached them to the bike frame. Signifi cantly, GBI would not have to build either of these components before the other. Instead, it could build them simultaneously, or in parallel. This process is referred to as parallel sequences. As with alternate sequences, parallel sequences are included in the routing.
Given all these options, when and how does a company decide which approach to utilize? The answer is that it selects the appropriate sequence when it actually carries out the production. It bases this decision on factors such as the desired quantities of the product and the equipment and other resources that are available at the time of production.
As we discussed in the previous section, operations are completed in work centers. Thus, a work center must be assigned to an operation. Recall that work centers have standard values keys and formulas to calculate the time needed to complete the steps in each operation. There are three basic time elements in the production process: setup time, processing time, and tear- down time. Setup time involves confi guring the work center and equipment. Processing time can refer both to machine time, which involves the use of a machine for an operation, and to labor time, which is the human work needed to perform the operation. Finally, during teardown time, workers return the machines to their original state—that is, before setup.
Going further, these time elements can be either fi xed or variable. Fixed time elements are independent of how many units of the material are produced, whereas variable time elements represent the time needed to produce one unit of the material. For example, material staging, the operation whereby the component materials are moved from storage and prepared for use, takes the same amount of time for 10 bikes as for 15 bikes. In contrast, the time needed to build the wheel assembly depends on how many assemblies are being pro- duced. Figure 6-11 illustrates the relationship between Operation 80 (test bike) and INSP1000, the inspection work center. It indicates the setup, machine, and labor times for the operation. Recall that INSP1000 has two capacities—machine and labor (001 and 002 in the fi gure). When more than one capacity is available in a work center, the company uses the scheduling basis to determine which capacity it will utilize to complete the production order.
Figure 6-12 illustrates the routing for GBI’s deluxe wheel assembly. The fi gure identifi es the required operations, the work center where the operation will be completed, the times associated with the operation, and the compo- nents assigned to each operation. The wheel assembly has three operations— stage material, assemble components into wheel assemblies, and move to storage—all of which are completed in work center ASSY1000. Wheels are assembled in batches or lots of 50. It takes 5 minutes to stage the materials for 50 wheels, 3 minutes to assemble each wheel, and another 5 minutes to move
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Master Data 193
Figure 6-11: Routings and work centers
Figure 6-12: Routing for deluxe touring wheel assembly
the 50 wheels assemblies into storage. Because these operations are performed manually, they do not involve any setup time. Consequently, all the time spent on these operations is labor time. Overall, it takes 160 minutes (5 � 50*3 � 5) to assemble 50 wheels, an average of 3.2 minutes per wheel.
Figure 6-13 presents the routing for the deluxe touring bike. In con- trast to the wheel assembly, this routing includes 11 steps. Further, the opera- tions are completed in three different work centers: ASSY1000, INSP1000, and PACK1000. Finally, one operation—#80, Test bike—includes a setup time of 2 minutes. This is the amount of time it takes to place the fully assembled bike
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194 CHAPTER 6 The Production Process
on the testing machine. Bikes are produced in batches of 10 or 15. For both quantities the material staging operation and move to storage step opera- tion take the same amount of time (10 minutes and 5 minutes, respectively). The other times in the fi gure are per bike. Thus, it takes 305 minutes2 to make 10 bikes—an average of 30.5 minutes per bike—and 450 minutes to make 15 bikes—an average of 30 minutes. For planning purposes, GBI uses the following data:
The routing indicates how to produce a specifi ed product. The BOM indicates which materials are used to manufacture that product. There is, therefore, an obvious relationship between a BOM and a routing. This relation- ship is defi ned via the component assignment, a technique that assigns compo- nents in a BOM either to a routing or to a specifi c operation within the routing.
Figure 6-13: Routing for deluxe touring bike
2 The total of variable time operations (#s 20-100) for one bike is 29 minutes. For 10 bikes it is 290 minutes and 15 bikes, it is 435 minutes. The fi xed time operations (#10 and #110) take 15 minutes regardless of quantity. Thus total time for 10 bikes � 290 � 15 and for 15 bikes � 435 � 15.
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Master Data 195
Figure 6-14 presents a component assignment that includes three opera- tions in the routing and three materials in the BOM. Material A is assigned to Operation 20, while materials B and C are assigned to Operation 30. The right side of the fi gure indicates that the materials are consumed at the beginning of the operations. Any materials that are not explicitly assigned to an operation are automatically assigned to the fi rst operation and consumed at the beginning of that operation.
Figure 6-14: Component assignment
In addition to indicating how and from which materials fi nished goods or semifi nished goods are produced, the data contained in bills of material, work centers, and routings are used to determine production capacity. Production capacity is a measure of how many units of a material a plant can produce within a given timeframe. For example, GBI’s Dallas plant can produce either 15 bikes or 10 bikes and 50 wheel assemblies per day. Figure 6-15 presents an example of a production plan for the Dallas plant, utilizing its full capacity.
Figure 6-15: Sample GBI production plan
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Demo 6.3: Review routing for a bike and wheel assembly
MATERIAL MASTER
We introduced the concept of the material master in Chapter 2. Recall that the material master data are grouped into different views or segments based on three factors: (1) the process that uses the materials, (2) the material type (e.g., raw materials, fi nished goods), and (3) the organizational level (e.g., differ- ent plants that use the material differently). In addition, the basic data view contains data that can be applied to all processes, material types, and orga- nizational levels. In this section we introduce two additional views relevant to production; specifi cally, material requirements planning (MRP) and work scheduling. Both MRP and work scheduling data are defi ned at the plant level. That is, they are specifi c to each plant. Although the data in these views must be defi ned in the material master to execute the production process, they are more relevant to the material planning process, which determines which mate- rials must be produced and when they must be produced. Consequently, we do not discuss the details of these data instead, we will discuss these data in the chapter on material planning (Chapter 8).
PRODUCTION RESOURCE TOOLS
The fi nal master data relevant to production are production resource tools (PRT). PRTs are movable resources that are shared among different work cen- ters. Examples of PRTs are calibration or measurement instruments, jigs and fi xtures, and documents such as engineering drawings. It is not feasible or eco- nomical to keep these tools in every work center because they are not used very often. Instead, a limited number are available for use in the work centers as they are needed.
PROCESS In this section we will discuss the production process in detail (Figure 6-16). The process begins with a request for production that is typically triggered by another process such as fulfi llment, which needs to complete a customer order (make-to-order strategy), or material planning, which has deter- mined that the company needs to increase inventory levels (make-to-stock strategy).
The request is then authorized for production by the production supervi- sor. The next step is to release the order for production so that the materials needed to produce the bikes are issued from storage. Very often, production involves the use of external systems, such as plant data collection (PDC) sys- tems, that utilize data from the ERP system to execute production on the shop fl oor. In such cases, data about the order are transmitted to the external system. After the fi nished goods have been produced, the actual production is confi rmed in the system, signaling that the steps required to manufacture the materials have been completed. The materials are then moved to stor- age, and the system reports that they are now available for consumption by other processes (e.g., fulfi llment). In addition, several activities are performed
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Process 197
Figure 6-16: The production process
periodically during the process, including overhead allocation, work in process determination, and order settlement. Now that we have a general understand- ing of the various process steps involved with production, we examine these steps in terms of triggers, data, tasks, and outcomes.
Our discussion will use the following make-to-stock GBI scenario. The inventory for the men’s off-road bike (ORMN1000) has fallen below its mini- mum level. Consequently, GBI must produce more of this model. Going further, the company has determined that the optimum quantity for a single production run is 25 bikes. We will assume that the raw materials needed to make these bikes and the needed capacity in the various work centers are both available.
REQUEST PRODUCTION
Figure 6-17 illustrates the elements of the request production step. A request for production is triggered by a need to produce materials. Typically, this trigger is a result of activity in another process. Consider the two production strategies
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198 CHAPTER 6 The Production Process
discussed earlier in this chapter. If the company has adopted a make-to-order strategy, then the receipt of a customer order (fulfi llment process) will trigger the need to produce the materials. If the company has adopted a make-to- stock strategy, then production is triggered by the material planning process, which is concerned with ensuring that suffi cient quantities of materials are always available. Other processes may also trigger production. For example, project management, which involves the building of complex products such as an aircraft, may trigger the production of a component part. Although requests for production are typically triggered from another process, they can also be created manually when there is a need to produce materials independent of other requirements. In our GBI scenario, the request for production is created manually based on a review of inventory levels.
Regardless of the source of the trigger, the outcome of this step is a planned order, which is a formal request for production that indicates what materials are needed, how many units are needed, and when they are needed. It is similar to a purchase requisition (discussed in Chapter 4) in that it does not become a commitment until someone acts on the request.
Data
Various organizational data, master data, and user-specifi ed data are included in a planned order. The key data are listed in Figure 6-18. The individual mak- ing the request specifi es which materials are needed, how many, and when they are needed. At this point the ERP system automatically incorporates both the master data related to the materials and the bill of material in the planned order. The system uses these data, along with confi guration options specifi ed in the system, to calculate additional data, such as order dates and material availability. If the planned order was created by another process, then the user- specifi ed data explained above are provided by the process that created the planned order.
Tasks
The only task in this step is to create the planned order. Planned orders remain in the system until they are acted upon by the authorized person in the com- pany, typically the production manager. The production manager can reject the order, modify it, combine it with other orders, or authorize the production. For our purposes we will assume that he or she authorizes the production. We discuss authorizing production in the next section.
Figure 6-17: Elements of the request production step
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Figure 6-18: Data in a planned order
Outcomes
The obvious outcome of the request production step is a planned order, which is a transaction document. Because this step generates no financial impact, no FI or CO documents are created. Likewise, because there is no movement of materials, no material documents are created. In our example, the planned order will indicate a request to produce 25 men’s off-road bikes (ORMN1000) in the Dallas plant (DL00).
Demo 6.4: Create a planned order
AUTHORIZE PRODUCTION
Whereas a planned order is simply a request, a production order, which is created in the authorize production step, represents an actual commitment to produce a specifi c quantity of materials by a certain date. Numerous resources, such as materials, work centers, and PRTs, are committed to producing the materials specifi ed in the production order. A production order is typically cre- ated by converting a planned order. However, it can also be generated directly without using a planned order. This process is similar to creating a purchase order without reference to a purchase requisition or creating a sales order without reference to a quotation. Figure 6-19 displays the key elements of the authorize production step.
Data
Figure 6-20 illustrates the key data needed to create a production order. Note that much of this information is also included in the planned order. User input is generally needed only if a planned order is not used as a reference or if the data in the planned order, such as quantity and dates, must be changed.
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200 CHAPTER 6 The Production Process
Figure 6-19: Elements of the authorize production step
Figure 6-20: Data in a production order
Typically, a production order includes references to a BOM, routing, work centers, and PRTs to be used in production. As explained earlier in this chapter, a BOM identifi es the materials or components to be used in produc- tion, and a routing identifi es the operations needed to produce the material. Work centers are where the operations are to be performed; they defi ne the capacity requirements for the order.
Figure 6-21 illustrates the structure of a production order. The data contained in a production order are quite extensive. Companies use these data to plan, schedule, and execute the production of the specifi ed material. Specifi cally, a production order includes the following data.
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Process 201
partially confi rmed (PCNF), confi rmed (CNF), partially delivered (PDLV), and delivered (DLV).
Figure 6-21: Structure of a production order
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Tasks
As we discussed earlier, the principal task in the authorize production step is to create a production order. There are several possible scenarios for performing this task. We have already seen that a production order can be created with or without reference to a planned order. Further, planned orders can be converted individually, collectively, or partially. With individual conversion, one planned order is converted to one production order. In collective conversion, multiple planned orders are processed at once, that is, collectively. The outcome can be one or multiple production orders. Finally, in partial conversion, only a portion of the quantities listed in the planned order are included in the production order. Partial conversion often generates multiple production orders, each one reflecting a partial quantity of the material in the planned order.
Another task in creating a production order is to select the appropriate master data, such as BOM, routing, and PRTs. Recall that a routing identifi es the operations needed to produce the material. In some cases the ERP system automatically selects an appropriate routing. The system then transfers the operations from the selected routing into the production order. A routing can also be selected manually. In these cases the system displays the available task lists or routings for the material, and the person creating the production order decides which one is most appropriate. Signifi cantly, it is possible to cre- ate a production order without specifying a routing. In this case, the system automatically generates a default operation, which is incorporated into the production order.
Recall that the BOM identifi es the components needed to produce the material. Once again, the system automatically selects a suitable BOM and transfers the components into the production order. If a BOM is not available, then the components must be added to the production order manually.
Now consider a scenario in which (1) the production order is created with reference to a planned order and (2) the planned order includes the BOM and the routing data. In this case the system automatically transfers these data into the production order. Note that the actual BOM and routing data are not retrieved again from the material master. Rather, the data pertaining to the components and operations are copied directly from the planned order into the production order. Further, once these data have been incorporated into the production order, they are not automatically retrieved from the material master again, even when either the BOM or the routing changes. To refl ect changes to the BOM and routing data, the system must be manually instructed to re-read or retrieve these data.
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Process 203
A final task is to assign components and PRTs to specifi c operations. For example, the routing for the deluxe touring bike illustrated earlier in Figure 6-13 indicates that different components are assigned to different operations. Typically, components are automatically assigned by the ERP system, based on the data in the routing. However, they can also be manually assigned or reassigned to specifi c operations as needed. Any component or PRT that is not assigned to a specifi c operation is automatically assigned to the fi rst operation.
Outcomes
The creation of a production order generates several outcomes, including scheduling, availability checks, reservations, preliminary costing, and creating necessary purchase requisitions. The scheduling function calculates the dates when the various operations are to be performed and the capacities that are needed in the work centers. The scheduling function uses data from the pro- duction order (e.g., quantity and dates) and work center parameters previously discussed (e.g., control keys and standard value keys) to complete this task. If the scheduling data in the production order (e.g., dates) are subsequently changed, the system can be configured to automatically reschedule the order.
In addition, the system performs an availability check to determine whether the resources (components, PRTs, and capacity) needed to execute the production order are available. If they are, then the system creates mate- rial and machine reservations to set aside the necessary resources so they can- not be used for other purposes. Unlike scheduling, availability checks usually are not repeated automatically if the production order is changed. Rather, the system must be instructed manually to perform this check.
Finally, the preliminary cost estimates for the production order are calculated. Typical costs include direct costs, such as materials and production, and indirect costs in the form of overhead. Material costs are based on the costs of the components assigned to the production order; these costs are maintained in the material master for each material. Production costs are based on data in the work center such as activity types and formulas that identify which activi- ties (e.g., labor and setup) are required and in what quantities.
If the production order requires nonstock items, such as consumable materials, then the system automatically generates purchase requisitions to acquire them. We discussed the purchase of consumable materials in Chapter 3, in the sections on account assignment categories. Recall that to purchase con- sumable materials, an account assignment category is required in the purchase order. In the context of production, the appropriate account assignment cat- egory is production order (F), and the production order number is included in the purchase requisition. The production order acts as a cost object. Recall from Chapter 3 that a cost object is something that absorbs costs or to which costs can be allocated.
In addition, production sometimes involves operations that are per- formed by another company. For example, a component might have to be painted or polished by a business that specializes in these tasks. For these operations the company issues a purchase requisition. The requisition will indicate sub-contracting as the item category (see Chapter 4 for a discussion of item categories). Once again, the production order is included in the requisi- tion as the cost object.
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