1. Integrated
Production
Processes
(IPP)

2. Learning Objectives IPP
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

3. 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 today’s complex, global manufacturing environment.

4. 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

5. Manufacturing Pressures
Drivers of complexity reported by Deloitte Touche Tohamatsu
Pressure to reduce costs
Pursuit of new markets
Quickening pace of product innovation

6. 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

7. 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

8. 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

9. 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

10. Trends in Manufacturing
Product innovation
Production process innovation
Supply chain management
Management accounting systems

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

19. Integrated Production Process

21. 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

22. 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 master—The parts master or raw material (RM) inventory master lists the detailed specifications for each raw materials item
Routing master—The 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 master—The 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

23. 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 company’s 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

24. 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

25. 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

26. 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

27. 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

28. 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

29. 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)

30. 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

31. 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

32. 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

33. 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

34. 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

35. 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

37. Generating Managerial Information

38. Variance Analysis

39. Variance Analysis
Compares actual costs and usage to standards costs and usage
Not perfect, but a useful control measure

40. 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

41. 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

42. 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

43. 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.

44. 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

45. Inventory Management

46. 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 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

47. 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

48. 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