May Blog Series: A Recipe For...
Insights from: Greg O'Neal (Fullscope Supply Chain Management Specialist)
The IHS Chemical Week 100 Anniversary issue noted, "…a generally stronger economy in the second half of the decade is expected to drive chemical plant operating rates to levels that improve margins across the industry." This expected increase in production emphasizes the need for manufacturers in this sector to properly address software needs.
Chemical manufacturers face distinct industry challenges due to the nature of the products they produce and have a continual need for innovative product formulas and recipes. With today's market pressures, they need to streamline operations, while meeting quality, safety and compliance requirements, which can be a burdensome task without the proper software. Microsoft Dynamics AX offers a comprehensive set of features designed to help chemical manufacturers gain control of operations. This blog will specifically address co-products.
Co-products can often be reused in future production, but as stated in the msdynamicsworld.com article How Chemical Manufacturers Can Use Microsoft Dynamics AX to Manage Co-Products, "co-products have implications for formula definitions, cost calculations, master scheduling logic and production reporting in an ERP system." Dynamics AX lets a formula to be configured to produce a primary finished product and has the ability to track, analyze, attribute costs and credit the values of co-products to the appropriate finished goods—all in an effort to help improve decision making. The AX user interface offers a simple way to help manage, define and cost multiple outputs from a single production process so the inventory status is correctly documented.
The co-product cost allocation feature in AX is set up through the Inventory and warehouse management form, which allows the user to allocate costs associated with each batch order. The following types of co-product cost allocation are available:
None: There is no applicable cost allocation.
Manual: A cost allocation percentage is specified in the corresponding cost allocation percent field.
Total Cost Allocation (TCA): All calculations are based on the reported quantity that is reported as finished using dollarized weighting. Percentages are automatically estimated or a suggested cost allocation can be found in theEstimate cost form.
To create a co-product formula version or related formula, one must already exist and be a production type of Co-product. The following is the procedure to create a co-product:
1. Click Inventory and warehouse management > Common > Formula.
2. In the upper grid, select the formula.
3. In the Versions grid, select the formula version item.
4. Click Co-products. The Co-products form is displayed.
5. Press CTRL+N to add a new line.
6. In the Item number field, select the item number for the co-product.
7. In the applicable quantity field, enter the number of units or catch weight units for the item.
8. Optionally, change any of the default values in the remaining fields as applicable for the item.
If two co-products have been added to the formula with the respective quantities, using a Cost Allocation method of TCA allows the system to estimate the Cost allocation percentage (shown above) for each of the co-products.
One by-product has also been added to the formula with its estimated quantity (based on the formula size). Since there are costs associated with the disposal of this by-product, a Burden has been selected. Burden methods can be: None, Percent, Per series, Per quantity, or Recycled.
In this example, the Burden method has been set to Per Series with a Burden Amount of 0.10. This configuration allows a cost of 0.10 to be applied for a quantity of 2 per 100 of the finished product produced. If the production size was 100 lbs and a quantity of 5 lbs of the by-product was actually produced, then the Burden Amount would be 0.25.(0.10/2*5). Since it was estimated that an output of 2 lbs would cost 0.10 for disposal, the quantity of 5 would cost 0.25 for disposal, based on a Per Series Burden Method.
Microsoft Dynamics AX was designed with the chemical manufacturer in mind. This allows chemical manufacturers producing various co-products to properly plan, execute, report, and cost those outputs accurately. For more information on how Dynamics AX can help your chemical manufacturing business, contact us today.