Are you currently using or planning to invest in manufacturing software?
Businesses that use Sage 300 (or any other ERP software) have many options when choosing integrated manufacturing software. Here are three mistakes you need to avoid when using or selecting a manufacturing system.
Mistake #1: Running Manufacturing Software Separate from Sage 300
There are two ways you could run manufacturing systems ‘separate’ from Sage 300.
The first method is to run systems completely separate from each other – If you are running a ‘separate’ manufacturing system, then you are maintaining and managing two sets of books and inventory systems. In this scenario the manufacturing system buys everything, and then produces an end product, and removes it from the inventory. Then you go to the sales system and record the receipt of one finished good item. These are entered as separate transactions in two different systems, and there is no communication between each other.
What’s the problem with this approach? The amount of labor it takes to manage these systems is expensive. Also, the inability for manufacturing to see, what is in inventory already assembled, or for sales to see what is in manufacturing waiting to be assembled is risky. You are also spending time rekeying in sales orders into the sales system.
The second method is to run ‘separate’ yet connected systems – The advantage of this scenario is that this setup allows the manufacturing system to see Sage 300’s inventory, Accounts Payable and Order Entry. It can take over when needed and send information back to sales inventory. So, the inventory inside Sage 300 becomes the sales inventory, and the inventory inside the manufacturing software becomes manufacturing inventory.
What’s the problem with this approach? The biggest issue with this scenario is the need to maintain and manage two completely different inventory systems. Structurally it is no different than the first scenario, everything is brought into manufacturing. The only difference is, it sends its costs to Operational Accounts Payable. You still must manage two inventory systems and your sales department does not have any insight into production. Sales doesn’t know if it has finished goods being developed in manufacturing. Sales also doesn’t know if there are raw materials available for sale.
Mistake #2: Not Establishing Standards For Production Operations and Material Requirements
There are several things to keep in mind when we talk about standards. In this instance, we are talking about standards as a controlled way to do production. Not just manufacturing or assembly of an item. The cost of inventory must be controlled, watched and monitored from the moment you place the purchase order till the moment you ship the finished good.
If costs are not controlled, the value of an inventory item can get skewed, which flows through manufacturing, and would potentially skew the cost of the sale of a product. E.g. This could look like the cost of the product being a lot higher than the actual sales of the product on the books.
Mistake 3# Resorting to Historical Purchasing Patterns Rather Than Using MRP For Materials Planning
When that happens, you’re unable to meet customer demands, and ship a product. If you cannot ship the product, you cannot bill for the same. Without using MRP, the response to the shortage is usually to boost inventory levels. The long-term response to not using MRP schedules is that you will hold somewhere between 50 and 100 percent additional inventory sitting on the shelf.
On average, in a very short period after implementing MRP in a properly designed system we see 25 to 40% reduction in inventory levels sitting on a shelf.
Let’s see this in action to understand how this would really work:
Resorting to Historical Purchase Patterns would look like this: You perceive your run rate on certain raw material to be 100 units per month. So, you buy 100 units per month. The problem is that the product is starting to take off, but you don’t realize the product is taking off, until the 3rd or 4th month. By the 4th month, the run rate is 175 to 190 units a month of raw material.
Just by luck, you’ve been able to keep up at 100 units a month. But suddenly, you experience a shortage. So, in a panic you order more than enough to meet your customers’ demands and express mail the order at an unbelievable shipping cost (compared to the product cost). Using spreadsheets, you try to recalculate the run-rate to figure out how many units to buy.
With MRP, a report will be able to tell you:
- This is how many units you have on the shelf
- Here’s how many manufacturing orders you have in place, that consume the product.
- Here’s how many sales orders I have in place to sell the product, with or without manufacturing an order.
- Here’s where the anticipated shortage is at, and here is what we think you ought to buy, and the lead time you need to buy it.
- The MRP report recommendations depend on the lead time and the optimum buy cycle.
So, if you’re buying nuts and bolts, the MRP report will be able to give you a recommended reorder point for the nuts and bolts, so you don’t fall below the amount needed to maintain a production run, or you don’t order more than you need.
MRP also allows you to cycle count on a less frequent basis, hence minimizing your labor expense. So you manage the total cost of inventory on the shelf, and your labor costs to keep track of items on the shelf by leveraging the information that is inside the accounting and manufacturing software.
Are there any other manufacturing software mistakes you would add to this list? Leave a note in the comments below. For more information on Sage 300 manufacturing software, contact Front Line Systems at 866-435-0243. We look forward to connecting with you.