For supply chain management (SCM) to be effective, an integrated enterprise resource planning (ERP) system is essential. Using an ERP system depends on many design factors that make the system easier (or sometimes harder) to learn and use. The recently published book Managing Your Supply Chain Using Microsoft Dynamics AX outlines the design factors related to using Microsoft Dynamics AX. This is the second part of an article covering the design factors related to system usage in distribution and manufacturing.
System Usage in Manufacturing Environments
Manufacturing environments transform purchased materials into saleable items. In addition to the above-mentioned factors for distribution environments [see Microsoft Dynamics AX 4.0 for Distribution and Manufacturing Environments],
the major factors shaping system usage include the definition of product structure for standard and custom products, variations in production strategy, project-oriented operations, service-oriented operations, and lean manufacturing practices.
Definition of Product Structure for Standard Products Master bills and master routings define product and process design, and are assigned to relevant manufactured items. A manufactured item can have multiple bill and/or routing versions. Different versions can apply to the quantity being manufactured. Each master bill and routing, and each assigned version, requires an approval to support subsequent use in planning, costing and orders.
Bill of Material Information. Each component defines an item, a required quantity, a component type and other information such as the source warehouse, scrap factors, effectivity dates and the corresponding operation number. The component type indicates whether a manufactured component is make-to-stock, make-to-order or a phantom, and whether a purchased component is buy-to-stock or buy-to-order. The BOM Designer provides a graphical tool for bill maintenance. The component item's auto-deduction policy determines whether consumption is auto-deducted or manually issued. A negative component quantity indicates a by-product component. The component's required quantity can also be based on a calculation formula that employs measurement information about the component and its parent item. A manufactured component can optionally specify a bill version and/or routing version that should be used to produce the component.
Routing Information. Each routing operation defines the operation number, the work center (or work center group), the time requirements and other information such as a scrap percentage and operation description. Each operation also specifies a master operation identifier that can optionally provide default values. The routing operation inherits some information from the designated work center such as the cost categories, auto-deduction policies, and alternate work center information that can be overridden. Separate cost categories and auto-deduction policies apply to setup time, run time, and output units.
Each work center belongs to a work center group, and has a calendar of working times. It can be designated as having finite or infinite capacity for scheduling purposes. For block scheduling purposes, a work center's calendar can indicate blocks of working time with a related property, so that similar operations are scheduled together to minimize setup times.
Order-Dependent Bill and Routing. A production order has a separate order-dependent bill and routing that initially reflect the assigned master bill and routing, and the user can manually maintain this information.
Box: Scheduling Logic based on Routing Information
A production order can be scheduled using forward or backward scheduling logic, with calculation of a variable leadtime based on its routing information. The system supports several advanced scheduling techniques based on routing information. For example, the scheduling logic can assign a specific work center within a work center group or assign an alternate work center to shorten production leadtime. Additional factors considered by scheduling logic include the following.
- Finite capacity
- Finite materials and the linkage of components to operation numbers
- Block scheduling (based on properties) to minimize setup times
- Primary and secondary resources required for an operation
- Crew size requirements
- Production quantity determines which bill and routing version to use
- Work center efficiency and loading percentage
- Cumulative scrap percentages in a multi-step routing
- Parallel and serial operations
- Operation overlap
- Time elements for transit time and before/after queue times
- Remaining time for setup and run time
- Synchronization of reference orders linked to a production order
Planned Engineering Changes Planned engineering changes to an item's bill of material can be identified using three different approaches: the date effectivities for a component, the assigned master bills (bill versions), and the specified bill version for a manufactured component. Planned engineering changes to an item's routing can be identified using two approaches: the date effectivities for the assigned master routings (routing versions), and the specified routing version for a manufactured component. With a date effectivity approach, the specified date on a production order determines which routing version, bill version, and components will be used as the basis for requirements.
Definition of Product Structure for Custom Products The system supports two additional approaches for handling custom products manufacturing: option selection for a configurable item, and a rules-based product configurator for a modeling-enabled item.
Option Selection for a Configurable Item. The user defines its product structure via an option selection dialogue. The master bill defines a bill of options for a configurable item, consisting of common and optional components. The master routing defines common routing operations. The custom product can reflect a multi-level product structure, with option selection of items at each level and direct linkage between production orders.
Rules-Based Product Configurator for a Modeling Enabled Item. The user defines its product structure via a user dialogue defined in a product model. After completing the user dialogue, the product model automatically generates a new master bill and routing, and assigns these identifiers to the originating sales order or production order. It also assigns these identifiers to the modeling-enabled item, or to a newly created item number. The sales price can reflect a cost-plus-markup calculation based on components and operations, or a price calculation within the product model that reflects responses in the user dialogue. The custom product can reflect a multi-level product structure, with direct linkage between production orders.
Calculation of Costs and a Sales Price for a Manufactured Item A BOM calculation function uses bill and routing information to calculate the costs, sales price, and net weight for a manufactured item.
- The cost calculations for purchased material components can be based on each item's inventory cost or its purchase price trade agreement information. The calculations amortize fixed costs over the accounting lot size for manufactured items.
- The sales price calculation reflects a cost-plus-markup approach using the profit percentages assigned to purchased material components and to routing operations.
Production Strategy A make-to-stock production strategy means that an item's production order is indirectly linked to demands via due dates. A make-to-order production strategy reflects direct linkage, where the end-item's production order is linked to the sales order line item. A make-to-order production strategy can also apply to the item's manufactured components. That is, a component type of production means the system automatically generates a production order directly linked to the parent's production order. Likewise, a component type of vendor for a purchased item means the system automatically generates a purchase order directly linked to the parent's production order. Replenishment of stocked components can be based on order point logic or purchase forecasts, and safety stock can be used to buffer anticipated variations in forecasted demand.
Coordinating Manufacturing Activities Planning calculations synchronize production activities to meet demands, and provide coordination via planned orders and suggested action messages. Production schedules and load analysis by work center also act as coordination tools when routing data has been defined.
Planned Production Orders. Planned production orders reflect warehouse-specific planning data for an item, the item's bill and routing information, and the previously described scheduling logic. The user can create production orders from selected planned orders, or use a firming time fence so that the system automatically generates the production orders for an item.
Suggested Action Messages. Planning calculations generate two types of suggested action messages termed actions and futures, as described earlier.
Production Schedules and Load Analysis by Work Center. The production schedule and load analysis represent the same information, and provide coordination at each work center.
Reporting Manufacturing Activities Several types of production activities can be reported against production orders. These activities include started quantities, component usage, and parent receipts. The activities also include reporting of operation time and unit completions when routing data exists. Auto-deduction can apply to material components and routing operations.
Lean Manufacturing Practices The system supports lean manufacturers with auto-deduction of material and resources, orderless reporting of production completions, daily production rates that reflect projected or historical usage, and constraint-based scheduling of manufacturing cells. Delivery promises also reflect the daily production rate.
Project-Oriented Operations Project-oriented operations involve budgeting and tracking actual costs related to material, capacity, and expenses, and handling the project invoicing on a time-and-material basis or a fixed-price basis. The planning calculations can include the project-specific forecasts for material and capacity, as well as the project-specific sales orders.
Service-Oriented Operations Service orders provide coordination of field service and internal service personnel, and close integration with projects. Each service order defines the resource requirements for material, labor and expenses that serve as the basis for estimated costs. Materials can also be identified for shipment to the customer. Repair history can be recorded against the bill of material for items being serviced. Detailed information can also be recorded about the symptoms-diagnosis-resolution of repair problems. Actual resource consumption drives project accounting for invoicing purposes. Service agreements define resource requirements for periodic services, and provide the basis for automatically creating the service orders to perform the services.
Integration with other Applications
The integration with other applications includes e-commerce, CRM and accounting.
Integration with E-Commerce E-commerce builds on the natural design of an ERP system since it provides electronic communication of basic transactions. Dynamics AX provides integrated e-commerce functionality in several ways, including Biztalk transactions and an enterprise portal. The enterprise portal expedites deployment using a role-based approach, such as roles for customers, vendors and employees. The customer role, for example, supports customer self-service so that customers can place orders and even configure custom products. Other roles support information retrieval and task performance by remote users, such as sales tasks to create new quotes, sales orders and customers.
Integration with Customer Relationship Management (CRM) The ability to manage customer relationships is fully integrated with standardized functionality for supply chain management. For example, the CRM activities can lead to sales quotations and sales orders. A campaign can be associated with a project so that all costs can be tracked by project.
Integration with Accounting Applications The integrated accounting applications include payables, receivables, general ledger, and fixed assets.
Concluding Remarks
When reviewing or learning any ERP software package, it is important to understand its underlying design philosophies and how it is targeted towards different manufacturing and distribution environments. It is easy to get bogged down in the details. Some of the key design factors that differentiate Microsoft Dynamics AX have been summarized above. These design factors influence how the system fits together to run a business, especially the key business processes that comprise an overall understanding for managing supply chain activities in manufacturing and distribution.
This is Part Two of a two-part article reprinted from Managing Your Supply Chain Using Microsoft Dynamics AX. Part One covered design factors related to distribution environments.
The book can be ordered on amazon.com.
About the Author
Dr. Scott Hamilton has consulted worldwide with more than a thousand companies and conducted several hundred executive seminars on supply chain management and ERP issues. He also helped design three influential ERP software packages. His books include Maximizing Your ERP System and the APICS CIRM textbook on information systems for manufacturing, and previous books on Microsoft Dynamics AX and Dynamics NAV. Scott can be reached at ScottHamiltonPhD@aol.com or 612-963-1163.