How to Reduce Variation in Manufacturing Industry?
Variation is one of the most significant challenges in the manufacturing industry while optimizing product logistics, procurement, quality, and delivery.?
ERP for Manufacturing closes the Shop Floor to the Top Floor Gap, connects Independent Departments, improves lead time, makes dynamic BOM, and organizes routing to issue to solve the variation challenge.
Manufacturing and production are undoubtedly the most complex industries that require a near-perfect combination of people, processes, protocols, and parameters – just to make the right product and deliver it on time.
ERP systems are often said to be useful for manufacturing – but how? A specialized ERP system for the manufacturing industry can help your business in multiple ways but this article will focus on the ground reality of the variation Problem associated with the industry.
Firstly, we need to understand the Manufacturing Value chain and life cycle and then the on-ground problems associated with it. Then we would discuss the types of variation associated, different parameters to optimize to counter the variation problem, and finally how each of the variation issues is solved using modules of an advanced manufacturing ERP system.
Understanding the Manufacturing Value Chain
Let's begin with a simplified view of an organization that operates one manufacturing unit. If you examine the entire value chain, you'll notice a diagram given below representing the order-to-cash cycle. This process starts with the collection or reception of orders and concludes with translating those orders into sales and collecting payments.
On the left side, we have the procurement-to-pay process. This process involves requisitions to suppliers, purchase orders, goods receipt notes (GRN), and ultimately, supplier payments.
?At the bottom, you'll find the accounting system, encompassing receivables, payables, and the general ledger.
Challenge in Manufacturing
As we discussed earlies we would mainly focus on challenges and solutions associated with Variations.
Now, the challenge every manufacturing entity facing today in the procurement cycle is to
Why aim for this? Primarily, it's because reducing order turnaround times leads to improved cash flow, while minimizing lead times helps release working capital that may be tied up in inventory.
Challenges 1: Independent Departments
The most significant challenge associated with shorter lead and order turnaround time is the lack of a clear connection between the Procurement-to-Process side and Order-to Cash cycle.
They tend to operate independently due to being distinct departments. There are numerous heuristics applied to determine if inventory levels are appropriate. However, the issue lies in the fact that this analysis is often conducted using disconnected Excel sheets. There's rarely a link between procurement and specific orders, and orders are often placed without considering the available supply.
Challenge 2: Shop Floor to Top Floor Gap
We've observed that activities on the shop floor and management decisions on the top floor are often disconnected. In between them, you'll find a plethora of Excel sheets that rely on heuristics, as mentioned earlier. What exacerbates this problem is that this data is collected well after the actual activities have taken place, making it less reliable and leaving little room for timely decision-making.?
The challenges and friction are amplified several times when there are variations causing a much slow lead and order turnaround time. Let’s understand the variations in manufacturing systems.
What are Variations in Manufacturing System?
Variation in manufacturing are the changes in demand, composition and design of finished products that affect the raw materials, process, machines, and parameters involved in the manufacturing process.
ERP systems for manufacturing units can only function properly if they are implemented in right way to
There are 3 major types of variation that a manufacturing unit could face- one at a time or even simultaneously all.
The first variation we encounter in manufacturing systems relates to the volume of demand a business face. Some companies operate in markets where demand is either seasonal or highly volatile, while others experience consistent volume levels.
This variation gives rise to two primary manufacturing models:
Made to Stock
In cases of consistent demand, businesses can make accurate forecasts and maintain product stock accordingly. This approach involves a production schedule that minimizes buffer stock and is known as "Made to Stock." It represents the simplest manufacturing model.
Made to Order
On the other hand, "Made to Order" manufacturing is more complex. In this scenario, products are not stocked; instead, production occurs in response to customer orders. Decisions must be made regarding capacity, in-house production, or subcontracting.
"Made to order" represents the first level of complexity in a manufacturing system and is commonly found in industries such as auto components, jewelry, and civil supplies.
The next level of complexity in manufacturing systems arises from variations in the composition of the finished product. This variation leads to two distinct manufacturing approaches:
Discrete Manufacturing
In "Discrete Manufacturing" the components in the finished goods remain constant across production batches. This allows for a relatively steady and predictable costing and production model.
Process Manufacturing
In contrast, "Process Manufacturing" involves changes in the mix of raw materials or the proportion of certain components with every batch. This means that the bill of materials (BoM) changes with each production batch.
Process manufacturing is complex because there is no constant costing or production model. The recipe changes with every production run and order. Industries facing these challenges include agrochemicals, foundries, and food and beverages.
The highest level of complexity in manufacturing systems is introduced by "design variation." In certain industries, with every order, the product's design and engineering change significantly. This leads to the development of a manufacturing model tailored to each order's specifications. There are two forms of design variation:
Configure to Order
If the product's design remains somewhat constant, with only minor parameters changing, it is termed "configure to order."
Engineer to Order
If the design varies substantially for each order, with differences in dimensions, raw materials, thermal profiles, and more, the manufacturing process itself changes with each order. This is known as "engineer to order." Industries operating in the "engineer to order" complexity realm include construction businesses, leather, textiles, and more.
These variations in manufacturing systems can significantly challenge execution and necessitate customized strategies to effectively manage the associated complexities. Understanding and adapting to these variations is crucial for success in the manufacturing industry.
Understanding Complexities of Each Variation with Parameters
There are crucial parameters associated with each variation that need to be optimized, aligned, and integrated within your business processes to provide true value in terms of business visibility, lead time reduction, lower turnaround time and cost reduction.
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These parameters are:
Lead Time of Inventory – For Demands Variation
Lead time in inventory refers to the duration it takes to procure or produce goods from the point of order placement to their availability for use or sale. The lead time of your inventory is a critical factor, especially in made-to-order businesses.
When a customer places an order, the volume of the order you accept should depend on your capacity to deliver which makes analyzing capacity essential.
In situations where your internal capacity may not suffice, decisions to subcontract should be made. In such cases, understanding the lead time in which subcontractors can turn around manufacturing becomes paramount to deliver the order in time.
Additionally, you need to assess your internal systems' lead time for product turnaround and the lead time for raw material deliveries. Optimizing lead times is a primary consideration in made-to-order scenarios for shorter cashflow.
Bill of Material Management- For Composition Variation
In Process Manufacturing, where there is high variation in the bill of materials, the focus is on creating a dynamic system. This entails having a system that can formulate recipes based on specific parameters.
The system should be able to advise on the formulation of the recipe for product manufacturing and predict inventory consumption based on this formulation. Dynamic bill of material management is crucial for efficient process manufacturing.
A dynamic Bill of Materials (BOM) is a BOM that can change or adapt based on various factors or parameters, such as product variations, configurations, or production conditions, allowing for real-time adjustments to the list of components and their quantities required for manufacturing different product variants or under different circumstances.
Routing Management – For Design Variation
Routing refers to the process of determining and specifying the sequence of operations, workstations, machines, tools, and resources required to transform raw materials or components into a finished product.
Routing management is particularly vital in Engineer-to-Order situations, where design variations are frequent. With each design change, manufacturing operations undergo significant alterations, affecting sequence, labor allocation, and machine allocation. Optimization efforts center around streamlining routing to enhance efficiency both in terms of time and overhead costs.
ERP Modules and Their Roles in Optimizing Manufacturing Parameters
When discussing the three dynamic parameters - lead time, bill of material, and routing - within the context of an ERP (Enterprise Resource Planning) system, it's crucial to understand the specific roles that different ERP modules play in optimizing these parameters. Let's explore each of these modules and their functions:
In situations where lead time is dynamic, the Supply Chain Management (SCM) system takes center stage.
Whether you have a network of subcontractors or an internal vertical integration of production with multiple units, the SCM system integrates subcontractors and internal units into a unified production thread. This integration enables real-time tracking of inventory at various checkpoints, leading to optimized lead times and inventory currency.
When dealing with a Dynamic Bill of Material where the composition changes with each product, the Material Resource Planning (MRP) system becomes essential.
An MRP system operates based on standard recipes for different products and efficiently schedules production and raw material procurement using these recipes. It automates the calculation of raw material consumption and orchestrates job orders and purchase orders to suppliers with minimal human intervention.
In scenarios where routing or manufacturing operations are dynamic, particularly in engineer-to-order situations, the Capacity Planning system is most important.
This system helps identify machines with idle time and allocates operations based on incoming orders. It allows for a more flexible routing system by recognizing idle periods in each machine's schedule and allocating operations accordingly for each order received.
All in All?
As you can see how each variation is associated to a parameter and how modules of manufacturing ERP System optimize these parameters.
All the modules, people, systems, and processes must be connected in a single thread using an ERP System to make it more proactive, responsive, and flexible for manufacturing.
HostBooks Cloud 360 offers 16+ dedicated modules for small and medium-sized manufacturing units that could be up and running within weeks.
FAQs
ERP (Enterprise Resource Planning) systems in manufacturing integrate software, systems, process and people that manage every aspects of manufacturing operations. They are used for:
What is the difference between Manufacturing ERP and Manufacturing Execution Systems (MES)?
Which is the best ERP system for manufacturing companies?
ERP that have dedicated modules for Manufacturing like MRP, production floor management, Some popular ERP systems for manufacturing industry are:
What are the major Modules of ERP for Manufacturing?
ERP systems for manufacturing typically consist of various modules, including:
What is the Material Resource Planning (MRP) method?
Material Resource Planning (MRP) is a method used within ERP systems for managing and optimizing inventory and production. It includes:
MRP helps manufacturers plan efficiently, reduce excess inventory, and ensure timely availability of materials for production. It plays a crucial role in managing the supply chain and optimizing production processes.?
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