Posted by Diane Ramaglia on Tue, Aug 03, 2010 @ 08:40 AM
Some people do not realize the impact of what happens within an Enterprise Resource Planning (ERP) system when your inventory is not accurate. And when I say accurate; I mean at least 98% accurate.
A common issue at companies is they do not have the disciplines in place to assure inventory accuracy. Some common pitfalls of inventory inaccuracy would be that bills of material (BOM) are incorrect. I have a history working with plastic processing (along with other types of manufacturing) and one thing that throws off inventory is incorrect part and runner/sprue weights in the BOMs. A lot of manufacturers also do assembly/secondary processes and the quantity per could be incorrect in the BOMs. There are two different ways I have seen consumption of materials being completed during production reporting.
One is the function of back-flushing material based on parts produced based on your BOM. Many systems that I have used allow for the back-flushing of their materials when they report production. This is the time when you can catch inventory issues due to BOM inaccuracies. You can check your work center location inventory and verify at the end of shift if the computer matches the actual inventory counts. If not, start weighing your parts and checking your BOM.
The other type of system out there allows you to issue material to a job/work order. The downside to this is you can’t see this inventory since it is typically removed from any on-hand quantities. You have to reconcile at the end of the job/run.
Another common factor with inventory inaccuracy is that your users are not moving material to proper locations based on procedures. If your system allows a location to go negative, it's time to check a negative report and get to root cause of what may have cause this. It can come down to material not being moved or inaccurate BOMs. I hate repeating myself on the BOM issue but I have seen issues time and time again. In fact, I have recently worked with two customers who are struggling with negative locations. If a location is negative and other locations are positive, what is your true on-hand quantities? One can only guess.
What happens within your ERP when your inventory is inaccurate? The system might not generate work/job orders for customer orders if it thinks you have finished goods/work in process stock. If you don’t have the inventory or the work orders you will likely miss shipments. Customers won’t be too happy if you don’t have on-time shipments. In addition, if the work orders are not generated the system will not tell you to purchase material. It’s a downhill spiral from here.
Speaking of purchased material, let’s talk raw materials and purchased on-hand balances. If these are not correct, you will not have product to produce your manufactured parts. You will possibly be expediting material which can become very costly to your company. On top of that, it can cause havoc on the production floor. A scheduler has to decide to keep running parts that might not be due for over a month or lose costly production time by keeping the machine in downtime.
Think of the breakdown for downtime costs due to material inaccuracy in this way: If a machine rate if $50 per hour and your machines sits down for 48 hours, the cost is $2,400 for two days. If that happens weekly, the annual lost utilization is $124,800. That is more than a lot of peoples' salaries on the production floor. For this annual cost, you can justify hiring people to fix the inventory issues.
Add to this cost, other factors such as the cost to deal with machines that need to be changed over quickly to fill an order because your finished goods on-hand counts were inaccurate. How much does it cost your company when you have to switch over jobs that you were not thinking you had to run? What is the time it takes to switch over jobs? Depending on the jobs, setup times can range from one hour to ten hours. That is a lot of downtime for changeovers.
What can you do to start fixing these issues?
- Have the right people handle inventory management – they have to care and be analytical.
- Training/education– you need to make sure that people know what they are supposed to do in the system and what the impacts are if they don’t.
- Get to root cause of the inventory issues and have a corrective action to prevent this from happening again.
- Track the downtime costs due to inventory issues (waiting on material, changeover/setup)
- Create a process to validate bills of material.
- Ensure people are following their procedures.
I hope this helps some of you out there in the manufacturing world.
Posted by Liz Alflen on Thu, Jul 29, 2010 @ 02:33 PM
One unfortunate morning a few years ago, I got an early call at home from my boss informing me that my 1st floor office had been broken into and my computer was stolen. It so happened that I had left my laptop on my desk, hooked to an external monitor, a VOIP phone and a printer. When the burglar alarm/noise-intrusion sensor went off, scaring the intruders into a more heightened sense of urgency, they made a quick grab for my laptop, but ended up dragging along the monitor, the phone and the printer. Pieces of my printer (the paper tray, paper, little broken plastic pieces) were strewn across the parking lot. By the time the police arrived on the scene, the intruders were long gone, miscellaneous plastic parts left behind, and they were likely on the highway headed out of town.
Not surprisingly, I panicked at this news. What about all my information? My reports? My data? What would I do? How painful would this be?
The local police made note of all the pertinent information but offered little hope for recovery. Our IT department made available an alternate computer for my use while ordering me a new one; I received the usual talking-to about backing-up my data. When I finally got back to work, I quickly found that I wasn’t in too much trouble.
I still had access to our EnterpriseIQ ERP system! They couldn’t take that away from me. I can access the system from anywhere, log in, run a report, review documents, respond to workflows - from anywhere.
Until that day, I hadn’t realized that the bulk of any day’s work was not dependent on my personal computer, my stored information or my reports. Most of any day’s work could be completed by accessing information in EnterpriseIQ, views or reports.
For my purposes related to both Administration and HR, areas I access on any given day include:
And on and on. It was almost disappointing. My data isn’t even really special (although my particular role is); I’m replaceable by someone else (or perhaps multiple individuals) who is (are) trained in the system, can access the same information, and plan equivalent courses of action. One of the tremendous values in having a comprehensive ERP system is in the ease with which I can fulfill my responsibilities, independent of specific hardware or location, as well as the ease with which a “backup” could do the same.
I still try to remember to back-up the data on my personal computer, but I’m confident that most of the information I need at work will be available to me when I need it. It’s nice to NOT worry about something!
Posted by Diane Ramaglia on Tue, Jul 06, 2010 @ 07:10 AM
There is one thing that I am aware of when a consultant comes on-site to assist with an Enterprise Resource Planning (ERP) Implementation, they ask "why" a lot.
I was a customer not so long ago and our project team would get a little frustrated when the consultant kept asking them why we did things a certain way. Now that I am a manager of a Professional Services Group and I have been a consultant for an ERP vendor for the past 6 years, I know why they ask why. They want to understand the reason why you may be doing something a certain way when utilizing your current system and why you might want to do it the same way in a new ERP system. Sometimes it takes your consultant asking "why" five times before they know the "real" reason is discovered of why you may be doing something a specific way.
Manufacturing Resource Planning (MRPII) systems have been around for a long time and a lot of companies have been utilizing the same system for twenty plus years. Older systems definitely have limitations compared to the newer systems available. Older systems often can't be upgraded because of all the numerous changes they had customized way back in the stone ages (kidding of course!). Knowing this, we realize that older MRP systems had limitations that forced users to do things a certain way.
Here are some common answers that consultants get when it comes to asking "Why":
- We have always done it that way. It works for us so why change it.
- I wasn't around when they implemented this system so I have no idea why they've been doing it that way.
- That's the way I was shown so I don't question why we are doing it that way.
- The best one is: Because I want to do it that way!
An ERP consultant is not your enemy; they are there to assist you with best business practices on maximizing the ERP system. They are asking questions to better understand your processes/procedures that will allow them to help you utilize your "new" system. They are not to questioning you just to question you; they want to better understand how they can help you. We understand that you may have done it that way for the past 20 years but things have changed and ERP systems have come a long way in the past 20 - 30 years that you no longer have to process data the same way.
Here is an example of a specific process that a customer had requested recently: They wanted to be able to put a note in a location to explain why they did not want to ship a specific lot of product and they wanted this note to follow through the system. After asking why they needed this note, the main reason was because they did not want to be able to ship this product. Solution, instead of changing the program at a potential thousand dollar cost to the customer, we discussed with them adding an attribute that would simply not allow them to ship this lot. Not being able to ship a lot is much easier to address than changing all the programs that were affected by any inventory transaction within the system.
So think about this and do yourself a favor the next time you are asked to answer the "why" questions because you just might be pleasantly surprised by the results!