ERP software provides visibility into WIP

Current ERP software helps stamping manufacturers track a part’s cost in real time as it progresses through each process. Serialized and bar-coded inventory ensures inventory accuracy.

Manufacturing-specific enterprise resource planning (ERP) systems certainly have evolved over the last decade to meet the needs of stampers and the changing manufacturing industry. For stampers to successfully operate and maintain profitability, it is imperative that ERP costing methods be flexible to meet the needs of what is happening on the shop floor. They must not only capture integral data, but also provide an output that is meaningful and actionable.

Previously when it came to ERP systems for manufacturers, a generic, “one-size-fits-all” mentality prevailed.

Sales orders became work orders that were scheduled for production. Materials and labor were assigned to work orders to track costs. Work orders had to be closed before manufacturers could update inventory and before they could get a clear picture of whether or not the job was profitable. There was little to no visibility into work-in-process (WIP) and outside processor inventory; therefore, tracking costs associated with both were difficult to manage.

With a heavy focus on accounting, many generic ERP systems lacked the shop floor management needed to successfully control operations for manufacturers with multiple processes like metal stampers. They could calculate standard costs for an item, but encountered problems capturing actual costs, especially if a portion of the process was sent to an outside processor, such as during a large production run or for downstream operations like welding and finishing. Without ERP software that manages process costing, figuring out all of a product’s costs could be difficult.

Capturing process costs and inventory management starts with how an ERP system manages the part’s setup. Item setup is integral to getting accurate costs for each process, and it has a major impact on the production control and inventory accuracy.

1. Item Setup: Foundation for Accuracy

A metal stamper’s first step to accurate cost capture is with item setup in manufacturing-specific ERP software. The software must allow stampers to configure all operations for a part (item) in the system, including in-house and outside processes. The more details that can be included at each operation, the better.

Labor, materials, and overhead are the three main areas for cost item setup.

Labor. Labor costs should be categorized by operation. The software should include options for calculating primary and secondary labor, as well as multiple rates for the different types of labor.

Some operations share materials or resources, such as multiple-out dies for different parts. The ERP software should include a way to cost-account for shared materials and resources.

Materials. An operational bill of materials (BOM) needs to include all raw materials and components (Figure 1). It should include options for tracking consumable as well as reusable packaging and containers. ERP systems should also account for and calculate scrap recovery costs for raw materials to ensure a true cost of each operation.

Figure 1
A BOM should include all raw materials, components, packaging and containers, as well as scrap.

Overhead. Imperative for stampers is flexibility. In theory, a component or assembly is quoted to be manufactured at a particular work center using a certain run rate and work center overhead rate. But on the shop floor, machines go down and projects may need to be moved to another work center.

A lot of systems use a companywide overhead rate, but the ability to calculate overhead by work center is beneficial. Adjusting for alternative work centers with different overhead, run rates, setup times, and batch sizes for a job ensures that whichever work center is used, the item costs will always be correct.

For parts with an operation performed outside of the building, ERP systems have to account for the outside processing unit cost and include it as part of the overall item standard cost calculation.

2. Process Costing

Rarely is an entire part order quantity completed, from raw materials through finished goods. That is why process costing is integral for accurate inventory and valuation information, especially when it comes to WIP.

The following example helps explain why process costing is important to stampers. A component or assembly starts with a 10,000-piece batch order at the stamping operation. The next operation for the item is a welding operation, and the next is an e-coating performed by an outside processor. The production run for the weld could be far less than 10,000 pieces, especially if the customer is ordering at a rate of 2,000 pieces per week.

With traditional work order systems in which the production runs are generated from a sales order, jobs would have to remain open until every operation of the 10,000-piece order had been completed.

Alternatively, process costing allows for average costing of the part over time across all production runs within a specified time period, allowing stampers to analyze costs at the process level (stamping, welding, and e-coating).

The beginning point for gathering accurate real cost information starts with the receipt of raw material and the verification of the receipt with the purchase order. Also, ERP systems can take material costing one step further by breaking out material surcharge fluctuations that may or may not be part of a standard cost. Standard cost changes and surcharges have to flow through the system to ensure that inventory costs are accurate.

The benefit of serializing inventory is that raw material or components are always accounted for so that stampers know exactly which materials were used on which job, and their correlated costs. When raw materials such as coil are received, if a serial number does not already exist, it is assigned and used for traceability. This serial number stays with the raw material and is assigned to running jobs. Parts produced also receive a serial number for traceability and improved inventory management. The number stays with the part or assembly until the items are shipped out the door to a customer.

Inventory accuracy is integral to ensure that month-end inventory valuations are correct. One way to ensure precision is by enabling a double inventory count. Double inventory count systems allow companies to compare theoretical (quantity received, consumption based on BOM calculations, quantity shipped) with actual physical inventory based on actual counts, weighted quantities, and serialized inventory.

Figure 2
Serialized inventory simplifies cycle counts and tracks a part, as bar-coded parts can be scanned easily.

Serialized and bar-coded inventory ensures inventory accuracy (see lead image). As material is received, containers are filled with parts, coils are put back into inventory, and items are shipped, all of these occurrences should be recorded, both as a theoretical and a physical transaction. Serialized inventory simplifies cycle counts, because items can be bar-coded and scanned easily using hand-held computers, tablets, and phones to verify and complete counts (see Figure 2).

Using manufacturing ERP software, inventory transactions happen in real time. This eliminates the need for a traditional month-end close to value inventory. Because all transactions are live, inventory valuation reports can be run at any time and can incorporate the most up-to-date information.

Reports also include outside processor inventory. Because the ERP software tracks the movement of raw and manufactured inventory to and from outside processors, stampers can always have an accurate inventory position and valuation.

3. Die and Equipment Cost Management

The one area in a metal stamping environment where traditional job costing using work orders works well is in die and equipment maintenance. Dies and machines are immense assets, and tracking the costs to maintain them is important. Stampers can use planned maintenance and unplanned maintenance work orders to do so.

Ideally, work orders track not only labor, but also maintenance, repair, and operations (MRO) tooling and equipment (see Figure 3). If tooling and equipment costs can be linked to manufactured items, then these costs can be assigned to the actual part’s detailed costs.

The data captured can be useful to tooling and equipment departments so that they can view the costs related not only to the item but to the die or equipment over a period of time, including over its life span. Then they can build in die costs as part of an item’s quote. It also provides information that can assist them in developing maintenance schedules that decrease downtime for both dies and equipment items, resulting in significant cost savings.

Next-generation Manufacturing ERP Systems

The future of ERP systems lies in their ability to improve the ease of information capture and ensure that data is meaningful and actionable.

As the internet of things (IoT) floods the manufacturing industry, ERP systems can provide a platform to improve enterprise connectivity if they are already heavily integrated within a company. ERP systems increasingly have the ability to connect directly to machines to automate data capture.

Using ERP-embedded IoT, stamping manufacturers can distinguish between production and nonproduction downtimes, capture part counts, and minimize data entry errors.

A real-time output on smart TVs on a shop floor can provide operators with immediate feedback on expected and actual run rates. If run rates are not met, expected labor costs will be higher and may affect job profitability.

Figure 3
Die and press maintenance costs can be captured and included in a part’s costs.

Alerts that let shop floor managers know that operators need new material or have a container ready for pickup can reduce downtime and improve cost-effectiveness.

Manufacturing-specific ERP systems and new technologies are helping metal stampers manage costs and will continue to help them compete in the future.

Kelly Ott is sales and marketing manager for ShopEdge Software, 877-417-1212, ext. 21, www.shopedgesoftware.com.