A Help or Hindrance: Is Your ERP System Built for Your Industry? Part 2

A Help or Hindrance: Is Your ERP System Built for Your Industry? Part 2

Part Two: Manufacturing Processes & Production Requirements

Batch processing is one of the simplest manufacturing processes. In some cases, companies using discrete ERP applications to run their businesses are forced to use work-arounds to solve process issues. In batch processing, the company can use either a bill of materials or a formula. However, discrete BOM-based applications have limitations, including units of measure (UOM), material/routing relationships, variable consumption, percentage-based formulations, step consumption, variable output and unplanned co- and by-products.

Organic processors include companies that process meat, pork, poultry, dairy and agricultural products. They manage huge variability in raw materials that range from quality issues, quantity, cost and performance. In addition, these companies are often dealing with “push” supply chains, that is, not demand-driven but supply-driven.

This sector offers extreme challenges when it comes to ERP requirements in planning, scheduling, costing and production reporting. A basic building block of this sector is the inverse BOM or formula. Unlike discrete industries where parts are assembled to produce end items, this process starts with a raw material and disassembles it to produce co- and by-products. Other challenges include co- and by-product management, yield, scrap and waste, inverse BOMs and costing, multiple UOM conversions and catch weight.

High volume repetitive hybrid manufacturing differs from batch processes in that, typically materials are not issued to work orders, but to work centers. A good example of this is a food company manufacturing military meals ready to eat (MRE), using traditional process formulas to make lasagna, chili and other main courses. These items are packaged into reheatable pouches and packed with purchased products from outside vendors (snack packs, juice boxes, candy) into the final MRE. These products are not issued to work orders, but rather to an assembly line, each to a different workstation. As the MRE comes down the line, the worker stuffs products into the box to produce a meal or kit. So in this manufacturing case, the main course uses a batch work order to produce the main item and a high-volume repetitive concept to produce the final kit. An ERP system support alignment of the material consumption to work centers, and allow customers to model their processes. The key to this ERP feature is tying a BOM or formula items to the routing’s work centers. When production is launched, the process batches will be produced, and a simple report by work center allows users to replenish work centers on the assembly line.

High-volume repetitive schedule/release manufacturing is similar to high-volume hybrid but uses pure schedule-based management. A typical example is a chemical process that uses long (week/month) production runs and report daily or by shift. The work order in this case has some limitations. Primarily because setups and cleanups need to be applied (costs) to the entire period’s production, the work order may fall short. The ERP system should allow a user to issue a large work order over time and close partials, by shift or by day. This simulates the schedule/release process, but not 100%. Each shift becomes a lot number (Julian date, with a shift dimension), and reporting can be done at the lot level. This works for production reporting but setup and cleanup costing can be tricky.

A production system based on schedule/release methodology works much like a blanket purchase or sales order. The order number is the consolidation key, and the line number is the individual release. In a production environment, a company would release a work schedule, for the week (or month), with each shift becoming a reportable entity.

Setup and cleanup costs are distributed proportionately across all leases for the week, and as each shift closes a release, reporting can be done against that release for actual/ variances on material and labor. This allows users to manage and report on efficiencies by shift as if each shift were a work order. A sample schedule/release is included below as a reference.

Continuous flow manufacturing is most common in the world of petroleum refining. Most refineries use only the financial applications in an ERP because in a continuous-flow environment, the work order is out of place. A refinery’s key performance indicators (KPI) are based on producing the most product at the lowest costs. Consequently, they will set up the plant to run a specific set of products, over a long period of time, to maximize efficiencies. In some cases they may spend up to two months retooling or setting up the plant before producing any end products, then run the plant continuously for maybe eight months and shut down. The final two months of the year will be spent on equipment change over, cleanup and maintenance. This is an extreme example, but a primary reason a work order based-system won’t work. The long runs, called campaigns, are specific to this sector of process manufacturing.

Another challenge for this industry is the consumption of materials from tanks and silos and correct allocation to the process lots produced. Since all materials are issued and consumed in a continuous flow, it presents a challenge for batch-based systems.

If your company is considering a new ERP solution, basic questions to consider include:

  1. What types of manufacturing processes are used?
  2. What types of processes might be acquired in the future?
  3. What part does manufacturing play in corporate goals?
  4. Is integration to CRM important?
  5. Are multi-language and multi-currency requirements?
  6. How will the ERP solution support the key requirements above?

Next Steps:

This blog is an excerpt from a white paper. Download the full white paper now.

Read Part One: ERP & Different Types of Manufacturers

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