Re: Shop Orders and Inventory Accuracy -- BPCS-L

John;

I have to admit that I had to read your eMail about 5 times to really grasp your concerns. I also read Al comments and I agree with most of his comments. I may not be as specific and detailed as he was, but I'll make some comments and I hope they will help you...

If I could summarize the opening argument in a sentence or two I would say the following: Computer systems have been in existance for a long time. However, in order for them to be effective, complete and accurate data needs to be provided at all times. If your client does not believe this is a MUST, they might as well shut the system down and go back to "hot lists" as they may never realize the benefits of a computerized ERP system.

I strongly recommend to implement an MPS/MRP and Inventory Management and Production Management (widelly known as MRPII) education program at your client right away. Based on your eMail, the things they are trying to do really do not make any business sense and will be impossible to realize (not in this life time anyway). Basic concepts of Inventory Management, Master Production Scheduling, Material Requirements Planning and Production Execution control (including Bills of Materials) may not be understood and if not understood, not considered absolutelly critical for the company to operate and be successfull.

If your business is using an ERP package, and please note this does not only apply to BPCS, there may be many things which are optional. However, there are others which are absolutelly critical for it to work. In BPCS, for example, the features and options functionality in Order Entry is optional as this better applies to certain kinds of industries . Another example could be the drop-shipment funcitonality between Purchasing and Order Entry. You only use these if they are applicable to you.

However, if you are going to use the bare minimum of BPCS production (and you expect it to be any good) you MUST use inventory management, bills of materials, routings and shop floor control. Some people would even argue that the Master Production Schedule (MPS), Material Requirements (MRP) and Capacity Planning (CAP) modules are required. These last three will actually provide the future visibility you need to be on the market with the "right product" at the "right time" and with the "right quantity" (not too little to upset your customers, not too much to upset your financial people by tying up your money in huge volumes of inventory). Please do not kid yourself, if your customer wants the numbers to be accurate, the ones senior executives need to make tough business decisions, you have to have the bare minimum.

If you don't have the bare minimum, how can anyone answer some of the following questions: 1. How much do we have of product "123" ?, where is it ? Is it all selable or do I have some in quarantine ? What is the value of such inventory ? 2. What is my cost (standard or actual it really does not matter much), so I know what is the minimum I want to sell it for so I make my profit targets ? 3. What are my customers ordering ? Of that, how much can I deliver today ? When can I deliver the rest ? 4. How much raw material and/or packaging components do I have, how much do I need and when do I need it; in order to deliver the products just ordered by my number 1 customer ? 5. What are my capacity requirements so I start planning for additional shifts or over time (for example) in order to have the production done just in time for my "peak" seasson ?

In summary, please consider the old "Garbe-in, Garbe-out" phrase. If your client is going to use a computer system to run their business, they need complete and accurate information. If not, well, it is just not worth having it. People will soon find out the data is not accurate and will come up with their own ways of running the operation. Certainly not computerized.

I hope this helps.

Regards,
Jose J. Torres - MS, CISA

From: Al Mac <macwheel99@xxxxxxxxxxx>
Reply-To: "SSA's BPCS ERP System" <bpcs-l@xxxxxxxxxxxx>
To: "SSA's BPCS ERP System" <bpcs-l@xxxxxxxxxxxx>
Subject: Re: Shop Orders and Inventory Accuracy
Date: Thu, 26 Jun 2003 14:00:27 -0500
What can be done in practical terms may vary with BPCS version.

I also work in an environment that is heavily build to order, but also repetitive. In other words, we engineer to customer specifications, and manufacture to their quantities, but each new design gets made a few times before they move on to something else. Which is another reason to seek out an ERP whose PDM interfaces well with either Auto Cad or an engineering design package that is well suited to your industry. This kind of interfacing is pretty rare. Engineer-to-order industry can get good interfacing between two rotten systems (ERP and engineering design) or two good systems that don't talk to each other ... most companies go with the latter. If you had a good interface, that would also take care of most of your engineering auditing.

Sorry in advance if my sarcasm is offensive.

In summary, I think your client is expecting the impossible, and either needs to shop around for another ERP that better fits their corporate philosophy, or needs to have top management exposed to ERP education so they fully comprehend how ERP works, what is doable, and what is not doable with current state of art, and the trade-offs ... if you forget about using some aspect of ERP such as MRP, what are the probable consequences.

I have serious doubts that in the absence of tracking production that the act of driving finished goods negative will give you an accurate cost of goods.

I suggest a COMPROMISE that will get them SOME information without the cost of doing it right, and of course it will not be as accurate as most companies expect.

Create FLAT Product structure with only ONE LEVEL meaning that 100% of what goes into an end item is contained within single BOM. When FG driven negative by shipments, you enter a transaction that consumes all the raw materials that went into making that. Except for scrap and substitutions, this will take care of most of your inventory. Some cycle counting or physical inventory counts still needed.

Have safety stock large enough to cover all WIP and lead times. So if you ship to customer, and the FLAT backflush now tells you sad story about some material consumed, you want enough safety stock to replenish before you not able to meet some future customer order for same or similar part.

Forget about tracking actual costs, just make them the same as standard.

Do they have good enough information on the cost of their labor without using a payroll system? Just have a bucket of money at the time clock for people to dip in and take what they think they earned today, and don't even bother clocking in or out with a time card. Save all that money on paying payroll taxes, and complying with burdensome government regulations. This sounds ridiculous, but I see no difference between this level of insanity and what you say your client is seeking do do. The only difference is in the application.

Do they have good enough inventory and costs on raw materials, and accomplish this without using PUR ACP receipts or 3 way matching? If in fact they do use POs and payables to account for raw material purchased, how do they justify doing that accounting, and not other kinds of manufacturing accounting? So much simpler to send POs that are not connected to anything, receive into inventory without any paperwork whatever the vendors send us, and pay any bills we get without question.

Do they have good enough records on shipments to customers without recording customer orders or doing their shipments and billing through BPCS? Just let the customers pay for merchandise received if they feel like it, because we want to reduce overhead by not tracking this aspect of the business.

If you are going to manufacture something, and expect to capture the costs and inventory implications of that manufacturing without tracking or recording what you are doing, I think you are living in a dream world that does not connect to the current state of art of ERP, let alone be able to pass any kind of accounting audit.

Do the people on the shop floor know how to make the parts correctly without any instructions? Boy, I am sure many other companies want to raid them for such magical employees. In the real world we need a QC department to cope with what is not made right. Eliminating the need for QC will significantly reduce overhead costs.
Hi.

I am looking at a situation that I do not have extensive experience in right now. A client has ceased creating and reporting against shop orders. I have searched the archives and found nothing similar. The client would like to have accurate inventory and costs, but I do not see a way to accomplish this without using shop orders or reporting production.

Right now they drive the FG inventory negative and the cost of sales should then theoretically be accurate. But they also cut back and don't audit the BOMs in BPCS versus their drawing system that generates separate BOMs, routings and drawings. This is being done in a mainly build to order environment. I have considered having the folks here report production using the multi level shop order release and have the production backflushed, but I don't know what else to attempt.

Do you have any ideas how to keep inventory accurate without shop orders and have accurate costs without BOM and Routing audits?
Thanks.
John Kasper
KASP6281@xxxxxxx
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