project-based erp for dummies

Some 88 percent of companies use some type of ERP, an enterprise resource planning system that integrates a range of business information, from financial to customer to HR, and a lot more. But ERPs are not “one size fits all.” This is especially true among companies that execute projects for external customers.

Project-Based ERP for Dummies introduces the basic concepts of ERP systems that are intended to serve project-based businesses. Check out Article 7 "If You Build It... Project Manufacturing" of the new Project-Based ERP for Dummies article series and see how your business can benefit from a purpose-built ERP system. (And in case you missed it... Article 6: Project-Based ERP for Dummies - Compliance for Government Contracting.)

If You Build It... Project Manufacturing

Examining the Benefits of Integration

Who or what doesn’t benefit from better communication? Here are some of the advantages your manufacturing operation can gain by using an integrated project-based ERP and manufacturing system:

Greater realized efficiency
Decreased costs, more financial predictability, and improved profitability
Increased quality and more consistent processes
The convenience of meeting government contracting compliance needs (if required), right “out of the box”
The ability to deliver on Lean and paperless manufacturing objectives
Traceability of every component produced
Information flowing to all stakeholders
Knowledge of the actual time each operation took and how much it cost
Creation of an actual basis for future work and cost estimation
Increased overall competitiveness

Technical Stuff

Lean manufacturing is a practice focusing on creating value for the customer (click to tweet). The idea is to ferret out and eliminate extraneous activities or wasteful expenses. Value is defined as any action or process the customer is willing to pay for, and the Lean concept strives to preserve value while reducing work. This concept was derived from the highly regarded Toyota Production System.

Understanding Materials Requirement Planning

If your company is in the business of manufacturing things, your daily challenges include ensuring that you have enough of the right parts in inventory. In an ideal world, you would manufacture a product just in time to meet the customer’s delivery dates and your revenue goals and objectives.

The problem is, any project, product, or task can be royally messed up if critical parts or materials aren’t planned and inserted into the manufacturing process at just the right time. Your procurement system helps order and track the purchase of materials and services, and while that tracking is critical, it’s not enough. That’s why companies use materials requirements planning (MRP) capabilities to ensure that the right materials are on-hand, in the right quantities, at the right time, and at the lowest possible cost.

With MRP, planners can find out what actions need to be taken to meet any new demands— or changes in existing demands. Action messages help planners make the right decisions to expedite, reschedule, order, or cancel supply to meet demand. MRP will help you answer the following questions:

What is our demand?
Do we have enough supply? What parts need to be procured or manufactured? What engineering changes are being proposed?
How much supply is required?
When is the supply required?
What action needs to be taken?

Tracking Your Orders

Sales order entry (SOE) lets you track and monitor your customers’ orders for products and services while managing the shipment and invoicing process. Items on sales orders may be recurring, drop-shipped, procured, or manufactured. Sales order entry creates demand in the MRP, which will ensure there is enough supply to meet customer deliverables.

Managing Your Inventory

Inventory offers the ability to track and manage asset inventories, project-owned inventories (these are expensed or work-in -process), and customer- or government-furnished inventories. Rules established by project determine how that inventory can be planned or used.

Tip

You can track lot numbers and serial numbers throughout each inventory transaction, giving full visibility. The inventory posting process generates the necessary general ledger journal entries covering the inventory transactions.

Taking a Look at the Manufacturing System

Manufacturing systems enable you to generate and process manufacturing orders or work orders to build parts. Using bills of materials and routings, manufacturing orders are created complete with requirements and routing operations to perform the production process. The costs of materials, labor, subcontractors, and overhead are captured for valuation of each part manufactured.

The advanced features of a manufacturing system make it easy to propose, design, plan, purchase, track, and manufacture products. This type of system supplies everything from as-built and as-maintained records to systems compliance to cost reporting to the tracing of serial or lot numbers.

Watching Over Production

A manufacturing execution system (MES) provides online, real-time visibility onto the production floor. It streamlines the production process and eliminates waste using work plans, which include documentation, visualizations, work instructions, and routing information. This type of system captures work order status throughout the manufacturing process, and supports quality control and nonconformance findings and results.

Remember

An MES will help you answer the following questions:

What are the production schedule priorities?
Who is working on what?
How close is the work to being completed?
What corrective actions need to be made? When are they required?

The MES should be integrated with the manufacturing system. As orders are planned and firmed up through MRP, then released to the shop floor, the MES begins tracking the progress with real-time updates to the manufacturing system.

This integration is often a back-and-forth between manufacturing orders and router steps. That tight integration allows the flow of information and processes from the MES, as depicted in Figure 7-1.

Figure 7.1: Business processes informed by the MES.

Technical Stuff

If you hear people in your manufacturing operation asking about MOM, odds are good that they’re not inquiring about their mother. MOM also happens to stand for manufacturing operations management. It’s the overall manufacturing process viewed holistically, with the goal of optimizing efficiency. This concept encompasses Lean manufacturing practices for effective planning, scheduling, and control of a manufacturing organization.

Remember

A work order or a manufacturing order (MO) tells the factory what it must make. The MO also defines when the product is needed, and it can be generated manually or automatically from a sales order entry. Router steps tell the shop floor the name of the operation, who does the work, and the budget for the work. The details of the process are housed in the MES.

Keeping Time on the Floor

A shop floor time system (SFT) allows you to capture start and stop times for shop floor activities by manufacturing order as well as operation step. The system must support complex pay, overtime, and union rules, as well as be able to handle multiple shifts and schedules. Employee self-service allows workers to make scheduling requests and get manager approval. Tracking labor time for government contractors is a compliance requirement, plus capturing labor at the manufacturing order and operation level helps with future bids and opportunities, because it helps you to cost each part accurately.

Tip

Collecting the time spent by workers on the factory floor can be time-consuming and costly. One way to reduce direct labor costs is to link your MES and SFT solutions together, so that operations are automatically clocked into the time collection system. This is a low-touch or no-touch solution for tracking labor costs, and it eliminates one of the systems with which factory floor workers have to interact.

Sharing Information with Everybody

Remember

In manufacturing, it’s important that all systems work together to ensure on-time and quality delivery. From procurement through shop floor it is imperative that these systems interact seamlessly and provide real-time status and information relating to manufacturing activities. If parts are late or production is slowed, your customers will not get what they need when they want it.

Information from all of the systems mentioned so far must interact so that all moving parts of your manufacturing operations can be informed. For example, production scheduling needs timely information from the factory floor regarding current task status in order to build accurate schedules for future production. That same information needs to be available to procurement to ensure that materials and components will be available when needed. Production, as you can see in Figure 7.2, is the pivotal point for the product life cycle and the supply chain (procurement) (click to tweet).

Figure 7.2: Production is the crossroads of the product lifecycle and the supply chain.

Executing by Automating

Remember

Production managers require real-time visibility of the day-to-day operations on their production floors. Maintaining spreadsheets and reporting operational details after the fact won’t prevent problems and delays or quickly solve them should they occur.

Similarly, shop floor employees’ manual transactions don’t allow managers to easily and accurately monitor labor cost and time utilization reports. If managers must manually ensure their production workers are performing tasks as planned, that can affect product cost, quality, and timely delivery.

Beyond that, a manual process can cost valuable production time waiting on material, machines, or personnel. If parts, people, or equipment aren’t readily available when they’re needed, production comes to a standstill. Quality issues, machinery downtime, shop floor personnel searching for work plans or documentation… these can also stall production.

If your manufacturing is aerospace- or defense-related, you may also face industry traceability requirements that cause shop floor employees to manually enter transactions into multiple systems. That, of course, reduces your labor utilization and slows production. Sounds like a great place for some automation.

A more automated solution not only increases efficiency, it also helps manufacturers deal with change. Successful production management requires the ability to monitor and react quickly to constant change in demand-driven manufacturing environments. These changes can include customer requests, engineering changes, machinery downtime, absentee employees, and many other uncontrollable situations that can result in shop floor bottlenecks. It’s imperative that production managers be able to view these events and reschedule and reprioritize in a timely manner.

Remember

A fully integrated and automated project-based ERP and manufacturing system allows information to flow to all stakeholders. This gives each level in the organization the information needed to operate and manage its piece of the pie.

Figure 7.3 Fully integrated ERP and manufacturing system.

Article 8: Project-Based ERP for Dummies - Six Ways Project-Based ERP Can Make a Difference. Learn more »