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
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.
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
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.
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.
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
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
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
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