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Production Activity Control

Shop floor, work-in-process control, tracking, traceability and activity feedback complete the closed loop of manufac­turing systems. In the QR or consumer/retail product manufacturing plant there are other facilities needed that are not a traditional part of the typical MRP based PAC system.

First, with the flexibility of modern equipment and cellu­lar/group manufacturing organization, there is a need to allow a manufacturing order to handle more than one item or SKU. For example, a cell might produce several "com­ponents" of an "assembly," such as in the apparel sewing "unit." More than one product or article can also be derived simultaneously from the operation of other equipment, such as piece dyeing.

Furthermore, instead of just "send ahead" splits of an order quantity in production, we often process just a small batch at a time of a larger order, for almost immediate use by a downstream operation or department. In addition, the traceability of lot, batch, piece, bundle, container or similar "elements" of a production quantity is required in many organizations. Sometimes these practices satisfy con­sumer protective legislation, or support quality improve­ment practices (e.g., ISO 9000).

This combination of facilities, multiple products, batches, and traceability to multiply levels/units, may necessitate the complete re-design of traditional production activity control software.

Purchasing

Supplier partnerships, quality management and changes in measurements may require enhanced or new system facilities for the procurement function. First, some addi­tional types of purchase orders may be needed to mirror the different types of customer orders discussed earlier (e.g., unconfirmed "product group" orders that reserve capacity).

Supplier certification data should be maintained within the purchasing system. In particular, setup and lot size reduction (and ongoing improvement) is a key element of vendor information for the effective purchasing depart­ment. Quality data, delivery, lead time performance (and progressive reduction) illustrate other information needed to assist procurement and buyer/vendor relationships.

Costing

It is still surprising how few companies have costing systems that adequately support pricing decisions and performance measurements. The application of activity based techniques, to reduce the impact of inappropriate use of indirect or overhead costs, still has a long way to go, but is a strategic necessity. However, the trend to customer order driven production, smaller lot sizes, the "commodity" market conditions and competitive pricing imposed in many industries, all mean that more attention has to be paid to contribution rather than just profit.

Many manufacturers have to accept "competitive" pricing that does not match calculated price or margin. The contribution (agreed price minus variable cost) made to overhead recovery becomes very much more important, on an order by order basis. This analysis may be needed in the sales (order acceptance) department. However, it is just the first aspect of contribution.

The actual contribution that is achieved in any period is dictated by the plant output. This varies according to the product mix that is scheduled. In turn, the ability to achieve contribution is constrained by the capacity and utilization of key resources. Therefore, a system that can calculate expected contribution, based on key resource output with the currently scheduled product mix, is an extremely useful management tool. This is particularly true for a company in the QR environment.

A further facility for cost analysis is the ability to have customized costing elements and terminology, without limitation in number, and then to identify by "levels" that equate to the income statement. These levels have nothing to do with bills of material. Instead, they can be aligned to the company's income statement and structure of cost of sales. For example, direct material costs could be the lowest level with direct labor. Labor overhead, indirect labor could be level two, and manufacturing overhead level three. Therefore, you have allowed cost analysis, queries, etc. that match the cost of goods sold. Level four could be general/administrative, and level five the marketing cost.
Note that in this technique we are not limiting our costing system to just cost of goods sold. Instead we are covering total cost, and revenue planning. Few manufacturing systems can handle this today, but such techniques are needed to support activity based costing.

To Be Continued


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