August 16, 2011 8:45 AM

In our previous ERP planning tip, we discussed the bill of materials (BOM), which discussion answered the following questions: which and how many components are needed to produce an item. This tip deals with routings, the final data set-up requirement.

Routings

Routings are the – manufacturing methods – the sequence of steps and related times that are needed to make an item. Production routings specify the ordered list of tasks used to manufacture a product. In addition to the standard routing, a product might have alternate routings (the selection of which depends on the situation). When a production work order is created to manufacture the product, one of the possible routings is chosen.

A typical routing is represented by a series of operation steps. Each step contains a task, various times related to the task (and other parameters), as well as the next operation step in the sequence.

For example:

The planning engine use the standard routing to calculate the time it takes to manufacture the product. The costing routines require the routings to calculate the standard cost of the product (discussed below). Several time components depicted in the diagram below make up the calculated lead time and cost.

Definitions

Each operation step may contain references to instructions and links to pertinent documents (e.g. drawings or schematics). Operational information, related references and the material list from the item’s BOM can be printed as work order documentation that accompanies the goods as they flow through the shop floor.

No discussion of routings is complete without a discussion of their relevance to costing. Below, we give an introductory discussion of the costing implications.

Costing 101

Many of the time factors that impact planning have costing elements that are used to determine an item’s standard cost.

For example, set-up time and run-time are used to calculate machine and labor-related costs. A man (or machine) occupation factor specifies the number of men (or machines) working in parallel during the operation.

The following table sets out a sample costing scenario.

Set-Up Costs (per item)

machine costs (set up time * machine rate / EOQ) + labor costs (set up time * labor rate / EOQ)

1 * $5 / 10 + 1* $20 / 10 = $2.50

Production costs (per item)

machine costs (run time * machine rate) + [labor costs (run time * labor rate)] * man occupation

2 * $5 + 2 * $20 * 4 = $170

Total operation cost (per item)

set up costs + production costs

$2.50 + $170 = $172.50

Conclusion

The sum of all operation costs plus the material costs from the bill of materials (BOM) represents a manufactured item’s standard cost.

Beyond the scope of this article are methods to specify batch transfer quantities and overlapping of operations (parallelism), yield percentages of operations, BOM component links to operations where they are required, as well as the nesting of operations (for phantoms).

In our next tip, we will discuss the need to record all inventory movements in an accurate and timely fashion.

Your POV (post comments below)

• How has routings challenged planning accuracy for your organization?
• How has your organization dealt with complex routing issues, such as overlapping operations?

Blogger Profile: Jonathan Gross
Jonathan manages ERP selection projects drawing upon his experience as a commercial lawyer and his M.B.A. education to help clients select the right-fit ERP systems and negotiate the best deal. He is an industry analyst and advises boards of directors on issues relating to business, strategy and law.

Posted by Sue Ansell at August 16, 2011 8:45 AM

Categories: Enterprise Resource Planning (ERP)

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