Wednesday, August 10, 2011

Manufacturing and Sales Order Entry Integration

Arguably of lesser importance than integration with the accounting system’s general ledger or sales inventory module, but still of potential importance, is effective integration with sales order entry. Depending on the type of manufacturer, or the number of sales orders you process in any day or week, this may or may not be a significant issue.

The basic concept is that you will create a sales order for some product (or list of products) you will deliver to a customer on a specific date. Customers tend to be fussy about the date part. If these products are things they make rather than purchase for re-sale, then they will need to convert the sales order into some type of production order.

Here’s a question to ask yourself: “If I were to receive 100 orders for the widget I make, would I create 100 production orders? Or would I create one production order for 100 widgets?” The answer will provide you with significant insight into the way your current manufacturing “system” actually works.

If the answer is “Oh, we don’t create sales orders, we just build to replenish our sales inventory” then that’s the end of the story. No integration with sales order entry is necessary. Don’t press the software vendor for it.

If the answer is “Of course, we’d create 100 production orders” then you will certainly want to make sure the manufacturing software has some automated means to create a unique production order from each corresponding sales order. And when it does, make sure the production order includes a reference to the sales order number.

On the other hand, if the answer is “We’d obviously net all the sales orders into one production order for 100 widgets” the problem gets simpler to solve – or a whole lot more complicated – depending on your needs.

Some of the more rudimentary manufacturing systems in the market would simply add up the number of widgets on all the sales orders and produce a production order for the total quantity. That’s the simple part.

But what if each of those sales orders, even the orders placed on the same day, contain various customer ship dates based on either the customer’s need for product or your ability to produce? At this point, three types of manufacturing systems surface:

Good Nets the total sales order requirement and creates a production order for the total required quantity.

Better Nets the total sales order requirement and creates a production order for the total required quantity on the earliest customer ship date.

Best Nets the total sales order requirement and creates one or more production orders for the total required quantity on each customer ship date.

The issue at hand here is whether the sales order to production order conversion process is date sensitive.

Good systems create the production order but ignore the customer ship date issue entirely.

Better systems consider the customer ship date, but avoid thorny scheduling issues by simply using the earliest date.

The best manufacturing systems schedule production orders for that work is completed just in time to meet customer commitments. Software that performs at this level is clearly more expensive than systems that take the easy way out, but considering the objective you set for justifying the cost of a computerized manufacturing control system, it may well be a price you are willing to pay.

Remember our story about the menu-planning disabled shopper? Think what could happen if you could effectively plan your purchasing and production based on actual customer shipments? You could avoid having to horde “just in case” inventory, reduce your storage/warehousing requirements, and build nothing until you actually needed it. How much would all this be worth in monetary terms? Staggering.

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