Integrated
Production
Processes
(IPP)
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Learning Objectives
• 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
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.
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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
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Manufacturing Pressures
• Drivers of complexity reported by
Deloitte Touche Tohamatsu
– Pressure to reduce costs
– Pursuit of new markets
– Quickening pace of product innovation
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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 lowercost countries is often the option taken to
reduce costs
• Companies move everything from design to
raw materials supply overseas
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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
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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
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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
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Collaboration
Flexibility
Visibility
Technology
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Trends in Manufacturing
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Product innovation
Production process innovation
Supply chain management
Management accounting systems
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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
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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
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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
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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
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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
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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
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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
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Integrated Production Process
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The objectives of CAD/CAE are to:
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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
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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
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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
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Generate Master Production Schedule
•
The master production schedule is based on information
from three sources
1. 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
2. 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
3. Finally, the inventory management system also provides
vital inputs to developing a better master production
schedule
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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
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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:
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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
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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
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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
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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)
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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
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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)
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robotics
automated guided vehicles
automated storage/retrieval systems
digital image processors
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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 nonvalue-added activities (moving, waiting,
inspection)
– Zero inventories through closer
relationships with suppliers and quicker
throughput
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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
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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
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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
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Generating Managerial
Information
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Variance Analysis
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Variance Analysis
• Compares actual costs and usage to
standards costs and usage
• Not perfect, but a useful control
measure
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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
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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
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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
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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
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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.
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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
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Inventory Management
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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. 94-2 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
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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
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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
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