Integrated

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Integrated Production Processes (IPP)
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Learning Objectives

• Appreciate the forces that exist in the
  contemporary production environment and the
  trends that have emerged
• Understand role of enterprise systems in the
  integration of the total manufacturing
  environment
• Understand the key inputs, outputs, data
  processes and terminology included in modern
  integrated production processes
• Understand relationship between IPP and other key
  business process within a manufacturing
  organization, including HRM, Purchasing, OE/S,
  and inventory management
• Understand the role of inventory management
  systems and their relationship to IPP.

IPP
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IPP Process is a Spoke on AIS Wheel

• In this chapter, we give an overview of one
  business process, the integrated production
  process (IPP).
• We break down the basic steps in the IPP,
  highlighting the importance of
• enterprise systems
• automation
• and integration between IPP and the OE/S,
  purchasing, HRM, and inventory management
  processes for success in todays complex, global
  manufacturing environment.

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Global Manufacturing Environment

• Manufacturing is highly sought after by
  developing nations
• Increases wealth and wages of population
• Global increases in manufacturing forces domestic
  companies to become more efficient
• Productivity increases in the U.S. is a bright
  spot

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Manufacturing Pressures

• Drivers of complexity reported by Deloitte Touche
  Tohamatsu
• Pressure to reduce costs
• Pursuit of new markets
• Quickening pace of product innovation

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Pressure to Reduce Costs

• Large retailers are exerting downward pressure on
  prices
• Competition outside the U.S. adds downward price
  pressure
• Moving aspects of the value chain to lower-cost
  countries is often the option taken to reduce
  costs
• Companies move everything from design to raw
  materials supply overseas

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Pursuit of New Markets

• China is a popular new market because of its
  population and favorable business climate
• Expanding into new markets is a significant
  driver of complexity
• Large markets allow manufacturers to recover
  product development costs

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Quickening Pace of Product Innovation

• Innovative new products are demanded in the
  market and drive revenue growth
• Customization of products is required by global
  markets
• Getting innovative products quickly to market
  maximizes revenues

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Successful Companies

• Deloitte Touche report describes the
  characteristics of successful companies
• Improved internal business process
• Better use of technology
• Better general capabilities in critical areas
• Collaboration
• Flexibility
• Visibility
• Technology

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Trends in Manufacturing

• Product innovation
• Production process innovation
• Supply chain management
• Management accounting systems

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Product Innovation

• Enterprise systems facilitate the integration of
  product design, manufacturing and marketing
• Innovation in value chain, from product design
  through purchases and servicing product
• Collaboration between design and manufacturing
  for defect-free products
• Product lifecycle management (PLM) software
  organizes data by product

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Production Process Innovation

• Managing throughput time
• Throughput time is the actual time it takes to
  complete a product from authorization to produce
  to the finished product
• Decreases in throughput time tend to decrease
  work in process and finished goods inventories
• Decreases in inventories means lower costs
• Throughput time has been decreased by switching
  from push to pull manufacturing

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Managing Throughput Times

• Push Manufacturing
• Sales forecast drives production plan
• Goods produced in large batches and inventoried
• Jobs wait between machines
• Similar machines organized into departments
• Worker operates single machine

• Pull Manufacturing
• Demand (sales orders) pull goods into production
• Production runs are short
• Continuous flow from one operation to the next
• Machines organized into small production lines
  called production cells
• Workers are cross-trained on multiple machines
• Reduced WIP and finished goods inventories
• Reduced floor space from better plant layout

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Supply Chain Management

• The combination of processes and procedures used
  to ensure the delivery of goods and services to
  customers at the lowest cost while providing the
  highest value to customers
• Manufacturer must forecast demand, determine lead
  times, monitor inventory levels for numerous raw
  materials, and plan for the manufacture of
  finished goods
• Time and resources necessary to manufacture key
  subassemblies, separately manufactured components
  used in the final product, must be considered
• These subassemblies may be manufactured in the
  same plant as the final product, or they may be
  manufactured in a separate plant across the globe

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Supply Chain Management

• E-Business is increasingly important
• Internet technologies are being linked to
  organizations ERP and supply chain management
  software to provide portals to external
  organizations for safe and secure access of
  critical business information

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Supply Chain Management

• Supply chain management software provides for
  available to promise and capable to promise
  planning.
• Available to promise planning is accumulation of
  the data on current inventories, sales
  commitments, and planned production to determine
  whether the production of finished goods will be
  sufficient to commit to additional sales orders.
• Addresses the planned production capacity that
  can be used to fulfill additional customer orders
• Capable to promise planning is the accumulation
  of the data on current inventories, sales
  commitments, planned production and excess
  production capacity, or other planned production
  capacity that could be quickly converted to
  production of the desired finished goods
  necessary to fulfill a sales order request.
• Addresses the capacity to divert production
  capacity from other production facilities that
  have not been previously planned for use on
  producing the product needed for an incoming
  customer order

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Management Accounting Systems Trends

• Enterprise software captures data and makes it
  available across the value chain
• Improved systems allow for many more levels of
  analysis
• The emphasis in accounting is moving toward
  analysis and away from transaction processing and
  recording

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Integrated Production Process
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The objectives of CAD/CAE are to

• Improve design productivity
• Reduce design lead time
• Enhance design quality
• Facilitate access to and storage of product
  designs
• Make the design of multiple products more
  efficient by eliminating redundant design effort
• Execute design changes almost immediately through
  the use of electronic messaging to notify the
  shop floor

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CAD/CAE results in several data stores of
information that are used later in the IPP

• Bill of materials Listing of all the
  subassemblies, parts, and raw materials that go
  into a parent assembly showing the quantity of
  each required to make an assembly
• Parts masterThe parts master or raw material
  (RM) inventory master lists the detailed
  specifications for each raw materials item
• Routing masterThe routing master specifies the
  operations necessary to complete a subassembly or
  finished good and the sequence of these
  operations
• Includes the machining tolerances the tools,
  jigs, and fixtures required and the time
  allowance for each operation
• Computer-aided process planning (CAPP) An
  automated decision support system that generates
  manufacturing operations instructions and
  routings based on information about machining
  requirements and machine capabilities
• Work center masterThe work center master
  describes each work center available for
  producing products, including information such as
  the machine available at the station, its
  capacity, its maintenance needs, labor needs to
  operate it, and so on.
• Workstation Assigned location where worker
  performs his/her job
• Work center Group of similar work stations

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Generate Master Production Schedule

• The master production schedule (MPS) is a
  statement of specific production goals developed
  from forecasts of demand, actual sales orders,
  and/or inventory information
• It describes the specific items to be
  manufactured, the quantities to be produced, and
  the production timetable
• Depending on the companys approach, the schedule
  may be based on information about finished goods
  inventory levels and reorder points, sales
  forecasts or actual sales orders coupled with
  inventory levels
• Based on the master production schedule, more
  detailed schedules for ordering raw materials and
  scheduling work center operations are developed

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Generate Master Production Schedule

• The master production schedule is based on
  information from three sources
• The first is actual orders from customers
• Ideally, a manufacturer can cut throughput times
  to the point that they can produce goods only as
  customer orders are received
• Sophisticated demand forecasting models to
  estimate the need for goods
• Use customer data in the enterprise system about
  past sales levels and buying patterns to improve
  forecast accuracy
• Use information from the customer relationship
  management system
• Use data mining to identify patterns and
  relationships in the level of demand
• Finally, the inventory management system also
  provides vital inputs to developing a better
  master production schedule

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Inventory Management

• Inventory Management System
• Provides data about levels of FG inventory on
  hand, and also gathers data about goods scheduled
  to be produced.
• To develop better production schedules, the
  enterprise system tracks inventory data over time
  including lead times, optimal inventory levels,
  frequency of stockouts, and expected quality
  levels all help develop better production
  schedules.
• Global inventory management
• An inventory management approach where inventory
  needs and inventory and production capabilities
  are matched across the entire global enterprise
• Production, planning, and control is a process
  that manages the orderly and timely movement of
  goods through the production process. It
  includes
• Planning material, people, and machine
  requirements scheduling routing and monitoring
  progress of goods through the factory

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MRP

• Materials requirements planning Uses bills of
  material, raw material and work-in-process
  (RM/WIP) inventory status data, open order data,
  and the master production schedule to calculate a
  time-phased order requirements schedule for
  materials and subassemblies
• Shows when a manufacturing order or purchase
  order should be released so that the
  subassemblies and raw materials will be available
  when needed
• Process involves working backward from the date
  production to determine the timing for
  manufacturing subassemblies and then moving back
  further to determine the date that orders for
  materials must be issued
• In an enterprise system, this process is
  performed automatically using a variety of data
  from the enterprise database, including
• Bills of materials
• Parts master data
• Raw materials and work-in-process inventory
  status data
• Open purchase order data showing the existing
  orders for materials

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Develop Detailed Production Instructions

• Capacity requirements planning (CRP) uses the
  information from the master production schedule
  and time phased order requirements schedule to
  develop detailed machine and labor utilization
  schedules based on available capacity in the work
  center status records
• CRP may lead to modifications to the master
  production schedule or time-phased inventory
  requirements schedule if sufficient capacity does
  not exist to complete these schedules as planned
• Once these adjustments are completed, CRP assigns
  targeted start/completion dates to operations
  (workstations) or groups of operations (work
  centers) and releases manufacturing orders and
  move tickets to the factory

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Develop Detailed Production Instructions

• Manufacturing orders (MOs) Authority for the
  manufacture of a specified product or subassembly
  in a specified quantity and describe the
  material, labor, and machine requirements for the
  job
• The MO is the official trigger to begin
  manufacturing operations.
• When MOs are released, they are generally
  accompanied by move tickets (usually in the form
  of bar code tags) that authorize and record
  movement of a job from one work center to another

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Develop Detailed Production Instructions

• Raw materials requisitions sent to the inventory
  process.
• Triggered by the time-phased order requirements,
  Capacity Requirements Planning (CRP) uses the
  following additional inputs from the enterprise
  system to accomplish its functions
• The routing master, which shows the necessary
  steps and time to complete each one to produce
  the product
• Resource capacity information (i.e., hours
  available each day/week by work center) from the
  work center master data
• Data about the current status of work center
  loads from the work center status data (also
  known as loading data)
• These data can include MOs now at each work
  center, anticipated MOs, backlogs, and actual
  hours ahead or behind schedule.
• This data is supplemented by information from the
  employee/payroll master data that shows available
  labor capacities
• Together, materials requirements planning (mrp),
  CRP, and the process of planning cash flows to
  accommodate needs generated by the production
  schedule is referred to as manufacturing resource
  planning (MRP)

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Flexible Manufacturing Systems

• Flexible manufacturing systems (FMS) are systems
  used to control actual production of the goods
• An FMS is an automated manufacturing operations
  system that can react quickly to product and
  design changes because centralized computer
  control provides real-time routing, load
  balancing, and production scheduling logic
• The goal is to make the plant more flexible,
  achieving the ability to quickly produce wide
  varieties of products using the same equipment

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Components of Flexible Manufacturing Systems

• Computer-aided manufacturing (CAM)
• CAM systems take advantage of integration within
  enterprise systems to automatically incorporate
  design changes made by engineering into
  production processes on a nearly real-time basis,
  therefore decreasing the time to integrate new
  innovations
• The application of computer and communications
  technology to improve productivity by linking
  computer numerical control (CNC) machines,
  monitoring production, and providing automatic
  feedback to control operations
• Machines that use Computer numerical control
  (CNC)
• robotics
• automated guided vehicles
• automated storage/retrieval systems
• digital image processors

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Just-in-time Objectives

• Philosophy that simplifies production and reduces
  inventory
• Zero defects through better design and worker
  inspections
• Zero setup times through better factory design
• Small lot sizes through minimizing throughput
  time and pull mfg.
• Zero lead times through eliminating
  non-value-added activities (moving, waiting,
  inspection)
• Zero inventories through closer relationships
  with suppliers and quicker throughput

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JIT Implementation Features

• Arrange factory in U-shaped work cells to
  optimize material flow
• Assign 1 worker to multiple machines
• Give production workers authority to stop the
  line if they are behind schedule or if they
  discover defects
• Require that daily parts production schedule
  remains constant
• Develop close working relationships with vendors
• Simplify the process for tracking the movement of
  goods through the factory

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Record Manufacturing Events

• Shop floor control (SFC) process monitors and
  records status of manufacturing orders as they
  proceed through the factory
• Maintains work center status information showing
  the degree ahead or behind schedule and
  utilization levels
• May use automatic data collection for immediate
  feedback and control such as
• Scanning a bar code label attached to the product
• Entering quality and quantity information through
  workstations located on the factory floor
• Scanning employee badges and touching a few
  places on a computer touch screen to indicate
  labor time the completion of manufacturing tasks
• Raw materials issue and return notices will also
  be recorded

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Generate Managerial Information

• Data collected is usually available in real time
• Can be compared with standards for variance
  analysis in real time
• Managers can take corrective action before they
  even receive the formal variance reports

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Generating Managerial Information
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Variance Analysis
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Variance Analysis

• Compares actual costs and usage to standards
  costs and usage
• Not perfect, but a useful control measure

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1.0 Record Standard Costs

• Standard cost information contained in master
  data
• Each time move ticket data is entered (department
  completes work) WIP is updated
• Issuance of raw materials updates the WIP

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2.0 Compute Raw Material Quantity Variance

• Differences in RM used
• RM are first issued to production in standard
  quantities
• If additional materials are later issued to
  complete the MO we have an unfavorable usage
  variance
• If unused materials are returned to stock we have
  a favorable usage variance
• Reported through the data flows Excess RM issue
  notice and RM returned notice, respectively
• Usage variance multiply the differences in
  quantities by standard unit costs

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3.0 Compute Direct Labor Variance

• Information captured with an employee card swipe,
  a bar code scan of the job order, and a few
  simple entries.
• Data used to compute DL Variances
• Actual pay rates
• Actual hours
• Standard Pay Rates
• Standard Hours
• DL rate variance
• (Actual pay rates standard pay rates) x Actual
  hours
• DL efficiency variance
• (Actual hours standard hours) x Standard pay
  rate

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4.0 Close Manufacturing Orders

• Final move ticket data marks the end of the
  conversion process and the movement of goods to
  the FG warehouse.
• Information processing activities that result
  from the final move ticket are
• Close the cost record maintained in the WIP
  inventory data and compute the standard cost of
  the goods completed.
• Through the data flow GL cost of goods completed
  update, notify the general ledger to make the
  appropriate entries.

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5.0 Compute Overhead Variances

• Usually done at end of an accounting period,
  often monthly
• To compute the manufacturing overhead (MOH)
  variances
• Retrieve flexible budget from the budgets master
  data
• Flexible budget amount is based on the standard
  hours allowed to complete the actual finished
  goods output for the period
• Retrieve actual MOH incurred from the GL master
  data
• Retrieve WIP data to determine the standard hours
  charged to all jobs during the period
• Compute the overhead variance
• Standard hours charged to all jobs x standard MOH
  rate per hour
• Variances are reported to the GL and the
  appropriate managers
• There are nuances between the variances for
  variable overhead and fixed overhead which are
  usually covered in managerial or cost accounting
  courses

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Inventory Management
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Management Fraud

• Inventory manipulation is a prime suspect in
  management fraud
• It is typically a large account where fraud my be
  hidden
• AICPA Practice Alert No. 94-2 lists types of
  inventory fraud
• In general, inventory is overstated using various
  techniques including counting empty boxes and
  consigned goods, falsifying counts, double
  counting goods in transit, false confirmation of
  goods held by others, failure to record payable
  on inventory, falsifying reconciliations

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Inventory Process controls

• Effectiveness of operations
• maintain sufficient inventory to prevent
  stockouts
• maintain sufficient inventory to maintain
  operational efficiency
• minimize cost of carrying inventory
• Maintain accurate perpetual inventory records
  (know what inventory levels exist)
• JIT materials acquisition (no overstocks)
• Internal transfer procedures including global
  inventory management

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Inventory Process Controls

• Efficiency of inventory operations
• JIT materials acquisition including vendor
  managed inventory (VMI)
• Warehouse bin location (optimizes size and
  location of inventory bins)
• Resource security
• periodic physical inventory counts
• locked storerooms