We have Item A that we sell and it’s made of Item X which is the raw material which we purchase. Item A goes through three stages in the manufacturing process ( 1. Rolling 2.Punching 3. Plating). We only consume item X in the manufacturing process. Item X will be consumed at stage 1 and we need to be able to see how items have completed the stage 1. Then these items which had gone through stage 1 will go through stage 2 and finally stage 3. Once the stage 3 is complete the item will become the finished item A. The requirement we have is to see how many items have gone through the steps and to capture the cost of the final finished good – item A.
We use FIFO as the costing method for both purchased items and manufactured items
I’m thinking doing the following setups
- Setups Items A as the finished good
- Setup Item X as the raw material
- Setup separate item cards to output/consume at each stage of the manufacturing process so that we know how many items have been completed. Eg A\ROLLED A\PUNCHED A\PLATED
- Attach three routing step for items A\ROLLED A/PUNCHED A/PLATED to route through the three different stages.
- Create four BOMs. Item A\Rolled will be made of Item X
Item A\Punched will be made of Item A\Rolled
Item A\Plated will be made of Item A\Punched
Item A will be made of Item A\Plated
So when we place a sales order for item A the planning engine will suggest production orders for item A , A\Rolled, A\Punched and A\Plated and it will suggest item X to be purchased.
Why do you need to cost it at each stage?
I would not do it your way. You can track the quantities at each stage of the routing, The costing is not really relevant unless it is of course. The routing would have rolled, punched and plated. What are your times to do this? What is the purpose of the cost tracking at each stage? Do you actually hold independent demand for the three separate stages of the items with item modifiers and holding of stock? Why does a simple routing fail?
The way you are doing it will achieve what you want, but it will be a processing nightmare and the setup for manufacturing becomes more complex. You would need an excellent reason if I was in charge of manufacturing to configure it in way that makes it a processing overhead when teh costing will flow through and the quantity can be recorded in the routing.
The reason why we need to know the cost at each stage is sometimes the production process can stop in the middle for many different reasons…eg defect in raw mat etc… So we need to know the value of the inventory if we have x number of A/Punched items left in stock. Also we need to be able to issue separate job cards for each routing step (we issue the first job card to make rolled items by consuming raw mat X…once this is finished the rolled items go back into stock and the next operation will start within few days etc…so we can issue another job card for punching ) I’ve tried what you mentioned by creating a simple routing and yes we can track the quantity at each stage…but is there a way of issuing job cards fro each routing step by default ? Will this be a modification?
I agree with you saying my setup will be a processing overhead but it gives us 1. production orders for each stage 2. Quantities finished at each routing step and the cost. The only issue I have with this is the way I’ve setup my BOM for the finished product A is not netting the costs of rolled+punched+plated items …reason being finished item A is made of item A\Plated according to the BOM. I’m trying to figure out a way to setup the BOM for my finished item so the system can calculate the unit cost accurately…
Would like to get some ideas of setting up a BOM for this sort of a manufacturing process
If the rolled items do indeed go back into stock and can sit there for days, they can theoretically sit there for weeks, and therefore as I said they can be treated as independent demand. This means you do not have one item. You have a plated item using a punched item. A punched item containing a rolled item and a rolled item containing item X. Each is a separate item stocked and controlled separately rather than being an in-process element of a finished product. In this case the items are just items within BOMs with routes on each level.
The unit cost will be accurate. The rolled item is FIFO, it will get its cost from Item X and labour. The punched item contains the rolled item which has its cost, you then add the labour here to get the punched cost. The plated cost then consumes the punched item (which is already made up of the rolled item costs) and add any labour. Therefore the end costing is correct, or at least should be.
With regards to the job card this would be the ability to print it by operation number, nothing major, but with your independent item treatment your suggestion is the way to go, the item is not process driven as you originally gave the impression, these really are true independent items.
Yes…I was thinking the same as my FG should have the accurate cost…I will need to check this on a fresh database.
Thanks Adam for sharing your thoughts on this …appreciate it.
I have one doubt associated with this scenario. How can we enter & trace labour, energy and other costs involved in a production process(eg:Rolling)?
Labour is the routing, you then apply overheads, if you want them in the cost, into the indirect and overhead settings.