General repetitive application - ERP Tools

A repetitive manufacturer makes high volume products in low variety. Most commonly this type of manufacturer competes in the market based on price and/or lead-time response. The manufacturing strategy utilized to meet the market is usually make to stock, configure to order, or assemble to order. The ability to promise delivery to the customer accurately is very important for the repetitive manufacturer. Less important is the ability to track costs to a specific production unit. Costs are considered over a period of time rather than for a particular unit. Bills of material (BOMs) have relatively few levels and routings are fixed and reliable. This is a very different environment from the traditional discrete job shop for which Material Requirements Planning (MRP) was originally developed. The discrete job shops have a wide variety of potential routings, capacity planning is a major challenge and costing is accomplished by job. Clearly these two different environments require different tools. The full functionality of the ERP tools with repetitive manufacturing capability can really help that type enterprise be more effective and profitable.

In a repetitive manufacturing operation, the conversion process is accomplished through a very predictable series of sequential operations. Work in progress is relatively low and these sequential operations are highly dependent on each other. Forcing repetitive manufacturing approaches into job shop oriented computer systems is possible. A barrier to a successful fit is the amount of paperwork and transactions. Since the lot sizes are so small, the amount of paperwork is quite large since a unique order is still expected for each production lot that is released in a discrete manufacturing system. If the same process of paperwork and transactions are used to build repetitive product as discrete product in a job shop, the production workforce is soon buried under a mountain of paper.
U = annual expected usage in units
S = setup cost in local currency
I = inventory carrying cost expressed as an annual percentage
C = cost of the item in local currency

Although the economic order quantity (EOQ) formula is very old and many consider it obsolete, it helps make the point of why different management processes are needed to support the repetitive operation. Even though this formula may not be explicitly used to calculate the lot size, an effective management process does this kind of analysis to determine the optimal lot size. A repetitive manufacturer wants to have very small lot sizes with the eventual goal of producing in lot sizes of one as close as possible to market demand. This formula can also be analyzed in reverse to identify the factors that must be changed to allow these small lot sizes to be achieved in a cost-effective manner.

Changes in lot sizes should have no significant impact on annual usage. The total demand is not dependent on the production lot size. Given that the inventory carrying cost is typically a fixed overhead cost divided by production volume, this factor should also not be affected by a change in lot size. The same is true for the cost of the item. The case could be made that one of the expected benefits of reducing lot size is that quality should improve. This should benefit product cost. However, in the short term, a decision to reduce lot size will not have a major impact on the product cost. Therefore, the only factor that can be adjusted to reduce the cost impact of the decision to produce in smaller lot sizes is the cost of setup. A significant part of the setup cost is the fixed time and expense required to issue work orders, transact parts, close paperwork, and perform all the other routine expectations that are found in a job shop. This cost is not dependent on the number of parts on each work order, but rather is directly related to the number of orders processed. The repetitive manufacturer has no time for all this nonvalue-added activity for each individual part in lot sizes of one. The process must be reengineered to provide the required information without the nonvalue-added cost.

Since the product is built in high volume through a repetitive process there is a not a requirement for a detailed level of progress reporting since this feedback does not add value, only cost. Detailed progress reporting is required in a job shop where the level of work in progress varies based on the product mix at that point in time. This detailed progress reporting is a key success strategy to manage the work in progress inventory asset in a job shop. However, in a repetitive manufacturer the manufacturing process can be thought of as a river that continuously flows at a relatively stable level. When the flow of inputs is balanced with the flow of outputs, the overall level in the river stays constant. The water level in the river reflects the lead-time through the plant and the inventory in the operation. Since the lead-time for a repetitive manufacturer is so short, the work in progress is very low. Critical feedback processes for the repetitive enterprise include the ability to report rate variances in addition to the expected cost variances. The repetitive sequential operations are directly related to each other; if one operation stops, the balance of the line soon stops. Piles of inventory are not allowed to build up between operations. This stable level of work in progress simplifies the control and reporting systems. Some ERP software companies have developed true repetitive systems. True repetitive systems have rate-based production scheduling and backflushing capability. This backflushing can occur at a paypoint partially through the routing or simply at the end of the process. The system does not create work orders in the background. When a job shop system attempts to masquerade as a repetitive system this background creation of work orders is common practice. The creation and processing of work orders in the background can consume a great deal of computer power and processing time. A real risk exists that insufficient computing capacity may have been provided to support the implementation.

Traditional systems can still be used with some minor modifications to answer these specific needs. One method is to plan production in weekly rate-based buckets using the order modifier on the item master called period of supply or days of production. This allows the MRP function to total requirements for the next week and plans an order for release on the first day of the week. The traditional system then does all the background planning and transactions that would have been completed for a job shop. All materials are scheduled to be available at the beginning of each week. For most companies weekly delivery is a major improvement over the current processes. If the enterprise is capable of receiving parts more frequently than once per week per part number, then this system will quickly become difficult to manage. The processing time and computing power required are much larger than expected for the number of transactions entered. True repetitive systems have simplified the internal processing of the system to really reflect the overall repetitive manufacturing process.

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