BOM & Routing Workshop.

BOM & Routing Workshop

Agenda Introduction Purchased Component Item Setups
Basic Cost Calculation in LN Manufactured Item Setups Manufactured Item BOM Setup Manufactured Item Routing Setup Manufactured item additional topics Multi-level manufactured item setups Cost calculation additional topics

Introduction Goals of the training Role as a key user

Goals of the training Develop skills to fully set up a purchased component. Develop skills to be able to fully set up a manufactured item Enter a production order for an item, and be able to test and troubleshoot timing and execution characteristics of the item, BOM, and Route. Understand how to read and troubleshoot a multi-level cost calculation report.

Role as a key user Knowledge of the big picture for cross departmental functionality Build up the new items, BOMs and Routes Identify software functionality gaps during the implementation Test closed gaps (unit testing) and relevant processes (CRP / system testing) during the implementation. New / updated SOPs Train end users just prior to going live.

Our role Provide initial training on LN Item, BOM, Route, Costing, basic Production Execution, and Planning. Provide assistance and suggestions in setting standards, procedures, and rules for the BOM and Route maintenance. Support you as you build up the real BOMs and Routes.

Purchased Item Setups Items - General Conversion Factors
Items - Purchasing Items - Costing Items – Production Items - Ordering

Purchased Item Costing Setups

Items - General Key Fields Item Description Item Type Item Group
Unit Set Inventory Unit

Item Type The Item Type distinguishes how the item will have its cost calculated. Items of type Manufactured have their cost calculated based on the costs of the components in that item’s bill of material and operations costs based on the routing operations of that item. Items of any type other than Manufactured (Purchase, Cost, Service) have their cost calculated using either the simulated purchase price, current purchase price, average purchase price, or latest purchase price. It is defined in the price calculation code which one is used.

(Inventory) Unit of Measure
Inventory quantity is held in this unit. The cost of the item is calculated and held in the system for 1 of the item in its inventory unit. Usage of the item in Bills of Material is expressed in the item’s inventory unit. You often won’t be able to transact in “smaller” units of measure, so make the inventory unit the smallest unit that is needed for the item (ie – don’t make the inventory unit a case if individual packs or boxes will need to be issued, because once it is a case, the smallest unit you’ll be able to transact in is a case). For units that allow fractional transactions (ml, L, fractional each), you’ll have, at most, 4 decimal precision for the unit.

(Inventory) Unit of Measure
Changing the inventory unit is not possible after the item is set up. You must get it right as the item is set up. Think it through carefully. Don’t use EA (Each) as the inventory unit if the item is a liquid measure item, or if the item will be transacted in multiple units (because it is open to interpretation whether an each represents an ml, a pack, a case, …).

Items - General Key Fields Lot Controlled Serialized

Items - General Key Fields Product Class Item Signal Approval Category

Items - General Key Fields Sub-Entities

EXERCISE – Create an Purchased Item in Items General
Select New to Create a New Purchased Component Item My Item Is _________________ Add Description Item Type Purchased Item Group XXXXXX

Conversion Factors Generic conversion factors (not item specific) are predefined (ie – ml to L, grams to milligrams, …) Item specific conversion factors must be set up for an item for any other unit the item will be priced in, purchased in, received in, or otherwise transacted in. The Base Unit of the item is the inventory unit. You are expressing how to convert any other unit to the item’s inventory unit. The Unit is any unit you need to be able to transact the item in.

Conversion Factors The Conversion Factor is what you’d multiple the unit by to get the base unit (for example, if I have 1 case, I multiply by 24 to convert to the inventory unit of pk for packs, because there are 24 packs in a case). Usually, the conversion factor is some whole number greater than 1, because the unit is usually a bigger unit than the base unit. Conversion factors must be approved after they are entered.

Conversion Factors Incorrect conversion factors can be corrected using “Update Approved Conversion Factor”. If you do correct one, you must go back and check if the cost of the item or the current inventory is affected. If you received with the unit affected by the conversion factor, you may have the wrong quantity in inventory when expressed in the inventory unit. If your purchase unit is affected by the changed conversion factor, the cost calculated in terms of the inventory unit is affected by the change.

Conversion Factors – By Item

Conversion Factors – Generic

EXERCISE – Set Up a Conversion Factor for Your Purchased Item
Select New Group and Enter Your Item Select New to Enter a Conversion Enter the Second Unit and Conversion Factor Approve Your Conversion Factor

Items - Purchase The Purchase Unit is simply the unit that defaults on purchase orders, and it has no effect on costing. You can only specify purchase units that are different from the inventory unit of the item for which a conversion factor exists. The Purchase Price Unit is the unit in which the purchase price will be expressed. You can only specify purchase price units that are different from the inventory unit of the item for which a conversion factor exists.

Items - Purchase The Purchase Price is the price, expressed in the purchase price unit. If the purchase price is used to calculate the cost of the item, the price per purchase price unit is converted into the item cost expressed in the inventory unit. If you change the purchase price unit, you must check if the purchase price needs to be changed to be accurate. LN will attempt to automatically change the price based on the conversion factors present. Changing the purchase price for an item that uses the purchase price as the basis for calculating its cost would mean that a recalculation of that item’s cost is needed, along with recalculating the cost of any item that item is used in in manufacturing.

Items - Purchase Key Fields Buy From BP Buyer Purchase Unit
Purchase Pr. Unit Purchase Price Sub. Purch. Price

Items - Purchase Item Actual Purchase Prices
No maintenance is done manually, but LN tracks the actual average purchase price and latest purchase price. Changes in the conversion factor, purchase price, and/or unit could lead to inaccurate average or latest purchase price for costing purposes. Finance would need to be made aware when corrections are made to these data elements, and if the average or latest purchase price are used in the cost calculation, the calculated cost should be checked.

Items - Purchasing Key Fields Average Pur. Price Latest Pur. Price

EXERCISE – Set Up Item Purchase Date for Your Item
In Sub-Entities Click on Item Purchase Add Business Partner Add Units of Measure Add Purchase Price

Items - Costing Key Fields Material Cost Comp. Operation Cost Comp.
Surcharge Cost Comp. Surcharges by Item Surcharges by Whse.

Items - Costing Key Fields Standard Cost Material Cost Operation Cost
Last Calculation Date

EXERCISE – Set Up Items – Costing for Your Item
In Sub-Entities Click on Item Costing Enter Cost Comp. for Material _______ Enter Cost Comp. for Operation ________ Enter Cost Comp. for Surcharge ________ Select to Allow Surcharges by Item Select to Allow Surcharges by Warehouse

Items - Production Key Fields Direct Process WH Order
Direct Initiate Inventory Issue Specify WH in BOM

EXERCISE – Set Up Items- Production for Your Item
In Sub-Entities Click on Item Production Set defaults for all fields. Set direct initiate on. Set direct process off.

Items – Ordering Key Fields Order Method Warehouse
Order Quantity Settings

Items – Ordering Key Fields Max. Inventory Reorder Point Safety Stock
Order Interval Safety Time Planner

EXERCISE – Set Up Item – Ordering for Your Item
In Sub-Entities Click on Item Ordering Order Method = Lot for Lot Warehouse = 15M001 Fixed Order Qty. = 1 Economic Order Quantity = 500 Maximum Inventory =

Flow of Cost Calculation and Actualization
Cost Calculation and Cost Actualization

Print Multi-Level Cost Price Calculation
Key Fields Calculation Code Item Cost Price Calc Date

EXERCISE – Run a Multi-Level Cost Calculation
Use Calculation Code: STD Enter Your Purchased Item In From –To Range Press Print or Preview

Price Calculation Codes
Key Fields Calculation Code Description Price Priority

EXERCISE Create a cost price calculation code for yourself
Set to use simulated purchase price, then actual purchase price.

Calculating Without Actualizing costs

Viewing the results Any time a calculation is done, the results (per item and price calculation code) are stored in Item – Costing Data, and Cost Prices by Item. Only the latest calculation is stored. You can run a report (which is excel friendly) to output all items that were calculated for a calculation code.

Viewing the Results

Use Your Calculation Code Enter Your Purchased Item In From –To Range
EXERCISE – Calculating Without Actualizing Costs Using Simulation Calculation Code Select Top Down Use Your Calculation Code Enter Your Purchased Item In From –To Range Don’t Select Actualize (you can’t – why not?) Press Calculate Did You Get An Error Report?

Actualize (Standard) Costs
Only the finance cost analyst will actualize in a production environment. You will need to actualize when building BOMs in Staging because: You can’t use items on production orders until their costs are actualized. You can’t simulate inventory value in LN until each items costs are actualized. You can’t perform inventory transactions on items until their costs are actualized.

To Actualize Run the calculate cost and valuation prices with the “Actualize” checkbox checked. You can only turn on the checkbox when you are calculating using the price calculation code defined to be the “actual” calculation code This is set in parameters This is for safety – you can’t accidentally actualize using a price calculation code that is for simulation. Calculating without actualizing has no financial effect in the GL. Calculating with actualizing generates financial transactions for any revaluation of inventory that must be done due to new standard costs.

EXERCISE – Actualizing Costs to Standard
Run the calculate cost and valuation prices with the “Actualize” checkbox checked. Enter Your Purchased Item in the range. View Reports

GOAL ACHIEVED You just created a purchased component item with its standard cost rolled, and it is ready to use on orders. Keep practicing this same process to eventually be able to set one up without needing to refer to the class materials. Can you name each of the steps you took to set the item up?

Actualized (Standard) Costs
Session Shows Standard Cost History with Actualization Date Items - Costing Shows Current Standard Cost Items – Costing Data shows latest calculated cost (not standard)

Flow of Cost Calculation and Actualization
Cost Calculation and Cost Actualization

Why have separate places for calculated and actualized costs?
You want to be able to calculate using simulated data to test effect of labor rate changes. You don’t want to revalue inventory as part of the simulation. You want to make it harder to accidentally revalue inventory when just trying to simulate. You want to keep a history in the system of the labor rates that were used, but also be able to simulate other labor rates to see the effect.

EXERCISE – Find Historical Standard Costs
Go To Session Item Standard Costing Data Press Magnifying Glass Icon Enter Your Part Number View Your Item in Overview Screen Click to Open to Detail Screen

Manufactured Item Setups
Items - General Items - Costing Items – Production Items - Ordering Items – Planning BOM Item Routing Routing Operations Conversion Factors (optional) Items – Purchasing (optional)

Manufactured Item Costing

Items – General Key Fields Item Description Item Type Item Group
Unit Set Inventory Unit

Inventory Unit for Manufactured Items
Just as with purchased type, the Unit is the inventory unit for the manufactured item. Production end item receipts are made in the inventory unit Production component issues are made in the inventory unit Usage of the item as a component in the bills of material in other items are expressed in the inventory unit. Economic order quantity is expressed in the inventory unit BOM quantity and Routing unit are expressed in the inventory unit Cost of production items is expressed in the inventory unit.

Item Type must be “Manufactured” for manufactured items to cost correctly. Item – Purchase data is ignored for costing an item of type “Manufactured”, even if it exists. Manufactured items can be purchased and Purchased items can be manufactured. The Item Type simply determines which method is used to determine the cost of the item.

If you modify the inventory unit for a manufactured item, you’d need to check all the data that builds up the cost of that item and other items affected: The BOM of the item would need to be updated to reflect accurate component quantities per the new unit. The economic order quantity would need to be checked. The quantity of the item in every BOM in which it was a component would need to be checked. The BOM quantity might need to change based on the new unit. The Routing unit might need to change based on the new unit. That item and all items affected would likely need their costs rolled.

EXERCISE - Items – General
Select New to Create a New Item My Item Is _________________ Add Description Item Type Manufactured Item Group XXXXXX

Items – Costing Key Fields Material Cost Comp. Operation Cost Comp.
Surcharge Cost Comp. Surcharges by Item Surcharges by Whse.

EXERCISE - Items – Costing
In Sub-Entities Click on Item Costing Enter Cost Comp. for Material _______ Enter Cost Comp. for Operation ________ Enter Cost Comp. for Surcharge ________ Select to Allow Surcharges by Item Select to Allow Surcharges by Warehouse

Items - Ordering Key Fields Order Method Warehouse Economic Order Qty.
Order Quantity Settings Economic Order Qty. Reorder Point Safety Stock Order Interval

EXERCISE – Items - Ordering
In Sub-Entities Click on Item Ordering Order Method = Economic Order Qty. Warehouse = 15M001 Fixed Order Qty. = 1 Economic Order Quantity = 500 Maximum Inventory =

Items – Production Key Fields BOM Quantity Scrap Factor (default)
Scrap Quantity (default) Specify Warehouse Phantom (default) Backflushing

Items - Production The flag Quantity Dependent Routing must be set by standard to No (unchecked). It is used to indicate whether the default routing is used for costing purposes (when unchecked, which is what we want), or if LN finds the appropriate routing based on the fixed or economic order quantity, and costs based on the routing matching one of those quantities.

EXERCISE Items – Production
In Sub-Entities Click on Item Production BOM Quantity = 1 Scrap Factor = 0 Scrap Quantity = 0 Specify Warehouse = Yes Routing Unit = 1 Backflush Hours = Yes

What is a Bill of Material
A relationship between a manufactured item and its components, expressed with a parent item, component items, and quantities. Structured by Level In LN Purchased Items May Have BOMs

Bill of Material Before maintaining the bill of material, make sure you know both the Economic Order Quantity and the BOM quantity maintained for the manufactured item. Take note of the inventory unit of the manufactured item and each component maintained on its BOM. Do not assume what an ea means unless it is obvious, and there is no other possibility of what it can mean. The quantities are expressed in the inventory unit. Inaccurate quantities will lead to inaccurate costing and planning in LN.

Bill of Material Net Quantity is the quantity needed of the component per the BOM quantity of the manufactured item. It is a variable quantity, meaning that if twice as much of the manufactured item is produced,

BOM – Net Quantity Net Quantity:
Quantity needed of the component per the BOM quantity of the main item.

Items – Production BOM Quantity
Defines the quantity of the main item on the BOM in which every component net quantity is expressed.

EXERCISE – Cost Manufacturing Item with Net Quantity
Create a BOM for Your Manufactured Item Use Your Purchased Item as the Component Use Session Calculate Cost and Valuation Prices with actualize on to Calculate the Cost Check Item Standard Costing Data to see the costs.

EXERCISE – Manufacturing Item with Net Quantity Production Order
In Session Production Orders - Click New Enter Your Manufactured Item as the Item Acknowledge ‘Routing Not Present’ Message Tab to the Quantity Ordered Field Press Default – Your EOQ will be Retrieved Acknowledge Second Routing Warning Tab Until All Date Fields Are Filled Click Save. Order Number ____________ Click On Estimated Materials Tab Note Your Estimated Quantity. How is it Calculated? Double the ordered quantity and save. What happens to the estimated material?

GOAL ACHIEVED You entered a production order to test all the item, BOM, Route, and other master data setups done for a manufactured item. You’ll enter (many) more production orders to test the setups done for manufactured items later in this class. Entering a production order and viewing the quantities, times and hours for different order quantities is the best way to test the manufactured item setups you do.

BOM – Scrap Quantity Scrap Quantity
Fixed Quantity that Adds to the Net Quantity. The Cost Is Divided by the EOQ or FOQ.

Scrap Quantity Scrap Quantity is the fixed quantity that will occur per production order regardless of the quantity of the end item being produced. Our usage of scrap quantity isn’t just for scrap. We use it for any fixed quantity that needs to be maintained (which is common and frequent for us). The cost of the scrap quantity is spread over (divided by) the Economic Order Quantity when calculating the cost per each of the manufactured item.

Items – Ordering EOQ

EXERCISE – Cost Manufacturing Item With Scrap Quantity
In Your Bill of Material, replace the net quantity with a Scrap Quantity Check the EOQ in Items Ordering for Your BOM Component Use Session Calculate Cost and Valuation Prices to Calculate the Cost Check Item Standard Costing Data to See How Your Costs Changed

EXERCISE – Manufacturing Item with Scrap Quantity Production Order
In Session Production Orders - Click New Enter Your Manufactured Item as the Item Acknowledge ‘Routing Not Present’ Message Tab to the Quantity Ordered Field Press Default – Your EOQ will be Retrieved Acknowledge Second Routing Warning Tab Until All Date Fields Are Filled Click Save. Order Number ____________ Click On Estimated Materials Tab Note Your Estimated Quantity. How is it Calculated? Change the production order quantity and save. Check the estimated quantity again.

BOM – Scrap Factor Scrap Factor
Variable Quantity that Adds to the Net Quantity.

BOM – Scrap Factor Scrap Factor is a way to indicate percentage scrap that occurs proportionally with the quantity of the manufactured end item. If twice as much of the end item is manufactured, you can expect twice as much scrap on average. Maintaining 10 net quantity of a component in the net quantity with 20% scrap is the same as 12 net quantity with zero scrap, as far as the quantity that will be planned for the production order.

EXERCISE – Cost Manufactured Item With Scrap Factor
In Your Bill of Material Add a Scrap Factor Use Session Calculate Cost and Valuation Prices to Calculate the Cost Check Item Standard Costing Data to See How Your Costs Changed

EXERCISE – Manufactured Item with Scrap Factor Production Order
In Session Production Orders - Click New Enter Your Manufactured Item as the Item Acknowledge ‘Routing Not Present’ Message Tab to the Quantity Ordered Field Press Default – Your EOQ will be Retrieved Acknowledge Second Routing Warning Tab Until All Date Fields Are Filled Click Save. Order Number ____________ Click On Estimated Materials Tab Note Your Estimated Quantity. How is it Calculated? Change the production order quantity and check the estimated materials again.

What is a Routing A Relationship Between a Manufactured Item and its Production Process, Expressed with a Parent Item, Task, Work Center and Standard Hours Structured a level at a time

Data for Routings Operation Rate Codes Operation Rates Work Centers
Tasks Machines Item Routings Routing Operations

Operation rate codes Rate Codes User Definable Attach to Work Center

Operation rate codes Operation rate codes define the different available operation rates that can be assigned to work centers. Groups of work centers that are logically part of the same department or that just have the same labor rate can be assigned the same operation rate code, which causes them to have labor at the same rate. Labor rate maintenance is easier and safer with fewer operation rate codes than there are work centers. Finance maintains the operation rate codes. Operations needs to view them when troubleshooting the operation (labor) costs generated for an item.

Price Calculation Codes
For production related costing, price calculation codes are used to be able to simulate the effect of different operation rates for given operation rate codes. One operation rate code is defined in costing parameters as the operation rate code to use to generate standard costs. All other price calculation codes are used to store different operation rates per operation rate code in the Operation Rates session, for simulation purposes.

Operation Rates by Price Calculation Code
Defined by Calc. Code Attached to Cost Comp. Labor Cost Overhead on Labor

Operation Rates by Price Calculation Code
For each operation rate code and price calculation code combination, you define the operation rates. One rate for Labor (direct labor) is defined with the cost component for direct labor. One rate for Overhead on Man Hours is defined with the cost component for overhead labor. Changes to operation rates for a price calculation code that is the actual for standard costing would affect all routing operations tied to work centers that are tied to the operation rate code that was modified. Typically, operation rates will only be modified once per year by finance as part of the yearly cost roll.

Work Centers A Physical Area Used as a Unit for Scheduling and Routing
Defined as Either Labor or Machine Constrained Machines and Labor Within a Work Center are Considered Identical for the Process Essentially a Work Map of the Factory

Work Centers Key Fields Work Center Description Financial Company
Calendar

Work Centers Key Fields Type Backflush Employee Rate Code

Work Centers Key Fields Capacities Resources Capacity Type Planning
Queue Time Wait Time Move Time

Work Centers Work Centers are used on routing operations to indicate where the work takes place. Work centers have an operations rate code specified, which is how the labor rate for the work center is known during cost calculations. Different rates can be defined for different calculation codes. Changing the operation rate code a work center is tied to would have the effect of potentially changing the labor rate of every routing operation for any item that is linked to that work center. Only finance should change the operation rate code of the work center, and they should only do it in rare circumstances when a mass cost roll is planned for the change to take effect.

EXERCISE – Set Up a New Work Center
In Work Centers Select New Enter Work Center ID ________ (6 Digits) Enter Work Center Description Enter Address Code CIT000089 Use Default Enterprise Unit Use Backflush Employee BFE150001 Use Operation Rate Code 002 Enter Basic Week Capacity of 40 Enter Basic Day Capacity of 8

Task Definition An Activity to Manufacture or Repair an Item
Carried Out in a Work Center Can Be Related to Work Center Can Be Related to Machine Has no impact to costing, but it is the primary way you’ll identify what is being done on a routing operation step.

Tasks Key Fields Task Code Description Default Work Center

EXERCISE – Set up a new Task
In Tasks Select New Enter Task ID ________ (8 Digits) Enter Task Description Enter All for Selection Methods Enter Your Work Center As The Default

Item Routings A Manufactured Item Can Have Multiple Routings predefined. Can Auto Select Based on Quantity Can Use a Standard or ‘Shared’ Routing For us, we always create a “001” code routing that is the one used for costing and as the default on production orders. The only other routings we

Item Routings

Routing Operations Routing operations define the steps that will be tracked in LN in the production process for planning, costing, and execution purposes. For a given manufactured item and routing code, individual operations (with a numeric operation code) are defined. During costing, each operation is evaluated for the cost of the operation in the production process.

Routing Operations The task is maintained on an operation to track what is being done. The task has no effect on costing in our setup (changing it will not affect the cost). The Work Center must be maintained. Work center affects the cost because the labor rate per hour is derived from which work center is linked to the routing step.

Routing Operations Cycle time is maintained as the elapsed time to complete the production operation. Production Rate is a convenience field that allows you to maintain how many of the end item can be completed for the operation per hour, and LN will calculate the cycle time for you. Be sure you agree with the cycle time that is maintained, because that is what will be used for planning and costing.

Routing Operations

EXERCISE – Set Up an Item Routing and One Routing Operation with Variable Cycle Time
In Item Routings Press New View Button Enter Your Manufactured Item, Press New Enter Routing Code 001 and Description ‘Standard’ Click Save and go to References – Operations Click New, Then Tab to Task. Enter Your Task Code If Your Task Had a Default Work Center It Entered By Default – If Not, Enter Your Work Center Tab to Cycle Time and Enter a Smallish Number (2) Click Save

EXERCISE – Cost The Manufactured Item
Use Session Calculate Cost and Valuation Prices to Calculate the Cost Check Item Standard Costing Data to See How Your Costs Changed

EXERCISE – Enter Production Order for the Manufactured Item
In Session Production Orders - Click New Enter Your Manufactured Item as the Item Note You No Longer Get Routing Message Tab to the Quantity Ordered Field Press Default – Your EOQ will be Retrieved Tab Until All Date Fields Are Filled Click Save. Order Number ____________ Look At Production Planning Tab Note Your Cycle Time. How is it Calculated?

Items - Production The Routing Unit is similar to the BOM Quantity, but it applies to how you maintain variable time (cycle time) on the routing. The routing unit on Items – Production is only a default that is put into the Item Routing when it is created. It is the value on the Item – Routing that matters for costing purposes.

Routing Unit on the Item Routing
The quantity of the manufactured item on which the routing is based.

Routing Unit on the Items – Production

EXERCISE – Cost Manufactured Item After Maintaining Routing Unit
Enter Session Item Routings Do a Find to Retrieve Your Manufactured Item For Routing Code 001 go to Details Change Routing Unit to 100 What Message Did You Get? Go To References – Operations and Check the Cycle Time. Did it Change? Use Session Calculate Cost and Valuation Prices to Calculate the Cost Check Item Standard Costing Data to See How Your Costs Changed

EXERCISE – Enter Production Order for Manufactured Item After Changing the Routing Unit
In Session Production Orders - Click New Enter Your Manufactured Item as the Item Note You No Longer Get Routing Message Tab to the Quantity Ordered Field Press Default – Your EOQ will be Retrieved Tab Until All Date Fields Are Filled Click Save. Order Number ____________ Look At Production Planning Tab Note Your Cycle Time. How is it Calculated?

Setup Time The Setup Time is a fixed amount of elapsed setup that occurs for the operation, regardless of the quantity being produced of the manufactured item It doesn’t matter if 1 or 1000 of the end item are ordered – the setup time would be the same in either case.

Setup Time Normally the Length of Time to Prepare The Work Area to Product the First Piece, but it can be used to maintain any fixed time for the operation. Fixed Time means the time is constant regardless of Order Quantity For Costing, the hours are divided by EOQ for Per Piece Time

EXERCISE – Maintain Setup Time the Routing Operation and Cost the Manufactured Item.
In Routing Operations For Your Item, zero the cycle time and enter the same duration in the setup. Save and Exit Use Session Calculate Cost and Valuation Prices to Calculate the Cost Check Item Standard Costing Data to See How Your Costs Changed

EXERCISE – Maintain EOQ For Item With Fixed Time and Cost the Manufactured Item.
In Item Ordering Data Change The EOQ of Your Item. Save and Exit Use Session Calculate Cost and Valuation Prices to Calculate the Cost Check Item Standard Costing Data to See How Your Costs Changed

EXERCISE – Enter a Production Order for an Item With Setup Time.
In Session Production Orders - Click New Enter Your Manufactured Item as the Item Tab to the Quantity Ordered Field Press Default – Your EOQ will be Retrieved Tab Until All Date Fields Are Filled Click Save. Order Number ____________ Look At Production Planning Tab Note Your Total Production Time. How is it Calculated?

Man Occupation for Setup
Multiplier for Setup Time to get the hands-on labor hours (which is used for costing) If Setup Time is 60 Min. and It Takes Two People then Total Time is 120 (man occupation is 2). If setup time is 8 hours, but only 1 of those 8 needs a person doing work, then man occupation would be 1/8 = .125 Costing uses the man labor hours. Planning and execution dates use the elapsed hours.

Man Occupation for Setup is used a multiplication factor with the setup time to calculate the direct setup labor hours. Multiplying setup time by the man occupation for setup leads to the number of setup labor hours used in the cost calculation. Man occupation for setup can be a fractional number, or alternatively more than 1, when the direct labor hours used for costing needs to be different.

Example – if elapsed setup time on an operation takes half a day (4 hours), but of those hours, an employee is only actively working on the setup for 1 hour, setup time would be 4 hours, and man occupation for setup would be .25. Maintain the right field based on its functionality – not its name. If something in the production processing is “setup”, but the amount of time it takes to “set it up” is variable with the quantity being produced of the end item, then setup time is not the place to maintain it – variable cycle time would be. Otherwise, LN will not plan and cost accurately because the setup time field is only for fixed hours that are not end item quantity dependent.

EXERCISE – Maintain Man Occupation for Setup and Cost Your Item
In Routing Operations Find Your Item Change Man Occupation for Setup to 2 Save and Exit Use Session Calculate Cost and Valuation Prices to Calculate the Cost Check Item Standard Costing Data to See How Your Costs Changed

EXERCISE – Maintain Man Occupation for Setup and Enter Production Order To See the Effect.
You Have Already Changed Man Occupation For Setup in Your Routing In Session Production Orders - Click New Enter Your Manufactured Item as the Item Tab to the Quantity Ordered Field Press Default – Your EOQ will be Retrieved Tab Until All Date Fields Are Filled Click Save. Order Number ____________ Look At Production Planning Tab Note Your Total Production Time. How is it Calculated? In Details Find Man Occupation for Setup

Fixed Duration flag for Cycle Time
Fixed Duration indicates whether this operation always takes the same amount of time (in the cycle time) regardless of the quantity of the end item produced (fixed duration checked), or if the amount of time it will take depends on the quantity of the end item produced (fixed duration not checked). Some operations may have a certain amount of fixed time and some variable. In this case: The fixed time would need to be maintained in the setup time, and the variable time would be maintained in the cycle time with the fixed duration flag off. Or, you could break the operation into 2 separate operations (one for the activity that is fixed duration and the other that is variable with the quantity).

Fixed Duration Flag For Cycle Time
Makes Cycle Time Quantity Independent Cycle time is divided by EOQ for Per Piece Cost if the fixed duration flag is on Set per Operation

EXERCISE – Cost an Item With Fixed Duration Cycle Time.
In Routing Operations Find Your Item Change Cycle Time and Set Fixed Duration. Zero the setup time. Save and Exit Use Session Calculate Cost and Valuation Prices to Calculate the Cost Check Item Standard Costing Data to See How Your Costs Changed Change EOQ in Item Ordering and Repeat Change Routing Unit and Repeat (Hint – Fixed Duration Won’t Be Recalculated)

EXERCISE – Enter Production Orders with Different Quantities and See Effect on the Labor Time.
In Session Production Orders - Click New Enter Your Manufactured Item as the Item Tab to the Quantity Ordered Field Press Default – Your EOQ will be Retrieved Tab Until All Date Fields Are Filled Click Save. Order Number ____________ Look At Production Planning Tab Note Your Total Production Time. How is it Calculated? Now Change Ordered Quantity and Save. Did The Times Change? Why or Why Not.

Man Occupation for Production
Multiplier for Cycle Time If Cycle Time is 5 Min. and It Takes 3 People then the total Labor Time is 15 Min (elapsed time is 5 minutes) For Costing, Time is 15 For Scheduling, Span Time is 5

Man Occupation for Production is used as a multiplication factor with the cycle time to calculate the hands on production labor time needed to complete the operation. It can be a fraction, or can be more than 1 (which would mean more than 1 person works on the operation).

For fixed duration flagged operations, the cycle time multiplied by the man occupation for production is the hands on production time needed to complete a batch with the size of the economic order quantity. The hours used to calculate the cost contribution of that operation to the cost of 1 of the manufactured end item is the (cycle time * man occupation for production) / EOQ, since it is the total time needed divided by how many could be produced. In this way, the fixed duration time is spread, or amortized, over the economic order quantity. For non-fixed duration flagged operations, the cycle time multiplied by the man occupation for production is the hands on production time needed to make the routing unit quantity of the manufactured end item. The hours used to calculate cost contribution of that operation to the cost of the item is the (cycle time * man occupation for production) / routing unit.

EXERCISE – Maintain Man Occupation for Production and See Effect on Costing.
In Routing Operations Find Your Item Change Man Occupation For Production to 3 Use Session Calculate Cost and Valuation Prices to Calculate the Cost Check Item Standard Costing Data to See How Your Costs Changed

EXERCISE – Maintain Man Occupation for Production and Enter Production Orders
You Have Already Changed Man Occupation For Production in Your Routing In Session Production Orders - Click New Enter Your Manufactured Item as the Item Tab to the Quantity Ordered Field Press Default – Your EOQ will be Retrieved Tab Until All Date Fields Are Filled Click Save. Order Number ____________ Look At Production Planning Tab Note Your Total Production Time. How is it Calculated? In Details Find Man Occupation for Production

Scrap Quantity Scrap Quantity is commonly used, and represents more than just “scrap”. It is the fixed number of units (not proportional to the quantity of the manufactured end item being produced) that will be completed, but will not move on to the next operation. A common example would be destructive QC testing of a fixed number of units independent of batch size. If QC always tests 2 units at an operation regardless of whether 500 or 2000 are being made of the manufactured end item, you would maintain a scrap quantity of 2, and LN will plan for 2 extra units to be produced that will not move on from that operation.

Scrap Quantity Entering a scrap quantity can increase the cost of an item, because effectively more materials and labor are needed to make the same amount of end item. Example – if the economic order quantity is 100 for an item with no scrap quantity on any operation, the materials and labor planned are based on a quantity of If a scrap quantity of 2 is entered on the last operation, every operation must plan to produce 102 (except the last one) in order to generate the needed 100 at the end of the order, so the cost will be 2% higher for any material and labor that are variable with the order quantity. If ALL component material and labor are fixed quantity (not in proportion to the ordered quantity), then scrap quantity will not increase the cost of the item.

Production Operation Scrap Quantity
The Expected Loss in Operation. Input Quantity Planned Greater Than Output Quantity Cost Included in Standard Cost.

EXERCISE – Cost a Production Item with Scrap Quantity on a Routing Operation
In Routing Operations Find Your Item Add a Scrap Quantity to Your Operation Save and Exit Use Session Calculate Cost and Valuation Prices to Calculate the Cost Check Item Standard Costing Data to See How Your Costs Changed

EXERCISE – Enter Production Order for an Item With Scrap Quantity.
You Have Already Changed Scrap Quantity For an Operation in Your Routing In Session Production Orders - Click New Enter Your Manufactured Item as the Item Tab to the Quantity Ordered Field Press Default – Your EOQ will be Retrieved Tab Until All Date Fields Are Filled Click Save. Order Number ____________ Look At Production Planning Tab. Open Details On Quantity Tab, View Planned Input and Output Compart to Order Quantity

Yield Percent and Yield Type
Similar to Scrap Quantity Percentage of Operation Quantity Expected to be Lost During Operation. Increases Input Quantity of Operation Yield Type Discrete: Operation Quantity Must Be Explicitly Reported As Good or Scrap Yield Type Continuous: Planned Scrap Quantity Assumed to Disappear. Only Good Quantity Reported.

Yield Percent and Yield Type
Yield Type should be set to “Continuous” in all cases for us. It indicates whether any yield loss is recorded in the system through rejection quantities, or if the quantity is lost directly when reporting operations complete. It would not affect the item cost (just how yield is effectively reported). Yield is used to maintain extra quantity that needs to be planned for in proportion to the quantity ordered of the manufactured end item. If 100 items are ordered on a production order, and an operation indicates 50% yield percentage, the planned input to the operation would need to be 200 in order to get an output of 100. Yield percentage is minimally used in our setups so far. Yield affects cost of the item for any component material and labor that have variable quantities based on the order quantity, since more end item quantity must be planned on the operations before the maintained yield percent in order to yield the full order quantity at the end of the order.

OBJECTIVE ACHIEVED You have now fully set up a manufactured item in LN and have an understanding of the relevant fields you maintain to distinguish: Variable from fixed quantities (material and labor) Elapsed from hands-on labor Typical batch sizes All needed data to be able to produce correctly costed items that also will plan correctly and have accurate data for production execution.

Manufactured Item Additional Topics
We’ll cover some additional, more advanced topics now like: Sequence numbers in BOMs and Routes Count Points Alternative Materials Standard Routings Phantoms Lead time elements (move, wait, and queue time) Lot Selection in BOMs BOM Loops

Using Sequence Numbers When Changing Routing Operations
Provides Visibility of Historical Changes Provides Costing Integrity of Changes New Sequence Expires Old Sequence Can Be Done at Future Date (Time Phased) Required When Any Costed Element is Changed Work Center (Rate May be Different) Cycle Time Setup Time Man Occupation Scrap or Yield

EXERCISE – Routing sequences
Modify your routing to expire the current sequence and create a new sequence with distinct time data. Enter a production order for your item. Which sequence operation is brought onto the order? Change the reference time to the past when the old sequence was effective and save. What happens to the routing?

Count Points An Operation That Must Be Explicitly Reported before the next operation can be started (reported) Downstream Operations Cannot Be Reported until the count point is reported. Order Completions Cannot Be Recorded until each count point is completed.

Count point Demo Demonstrate How Count points Work
Demonstrate Operation Completions Without Countpoints (subsequence operations can be reported) Demonstrate Operation Completions with a count point (subsequent operations cannot be completed until the count point is).

Alternative Materials
Materials That Can Automatically Be Used Interchangably. Up To 9 Can Be Defined per BOM Position If Inventory Unavailable for Primary, Production Order Will Use Alternate

EXERCISE – Define Alternative Material
In Bills of Material Find Your Item Select Your Component Line (Checkbox) References – Use Up and Alternative Materials Press New to Insert a New Item Enter Part Number of Alternative Save and Exit Enter a production order and test out replacing the out of stock component with the alterative material.

Lead Time Elements Variable Fixed Cycle Time/Operation Rate (Costed)
Queue (Before Operation) Setup (Costed) (After Queue, Before Cycle) Wait (After Cycle – not tied to calendar) Move (After Wait – uses the shop calendar) Example Queue Setup Cycle Wait Move Operation 10

EXERCISE – Use Queue, Wait, and Move to Manipulate Elapsed Time
In Your Routing Add Queue, Wait and Move Time. In Session Production Orders - Click New Enter Your Manufactured Item as the Item Tab to the Quantity Ordered Field Press Default – Your EOQ will be Retrieved Tab Until All Date Fields Are Filled Click Save. Order Number ____________ Look At Production Planning Tab. Open Details On Planning Related Tab, View Planning Dates Notice That Setup And Cycle Haven’t Changed

EXERCISE – Use Man Occupation to Manipulate Elapsed Time
In Your Routing Change Cycle Time To Be Total Elapsed Time in Your Operation (Say Fixed Duration 180) Actual Processing Time is 120 Minutes Change Man Occupation For Production to .66 Now Create Production Order and Check That Schedule Duration of Cycle Time is 2 Hours, while the elapsed time is 3 hours (you didn’t have to use move, wait, or queue time).

Standard Routing A Routing Created to be used for Multiple Main Items
Created Without Reference to Specific Item Shared Between Items Maintain Once Use Many Times Can Be Used For Rework Production Orders

Backflushing Concept Auto Issue of Material or Charge of Labor
Cannot Issue Lot Controlled Material via B/F Useful For Non-Lot, Low Cost Material Issues According to BOM/Allocation Labor Can Backflush Instead of Report Charged to Backflush Employee Happens at Operation Completion

Backflushing Setup (Material and Labor)
Set Material Flags in Item Production Backflush Materials Backflush if Material Set Labor Flag in Item Production Backflush Labor Backflush Employee Set in Work Center Backflush Labor Flag Set in Routing Operation Flags Set Similar Flags in Production Order

EXERCISE – Set Up Labor to Backflush and Create Production Order to Backflush
For Your Manufactured Item Check Item Production Date – Check Backflush Labor In Your Routing Make Sure Your Work Center Has a Backflush Employee In Your Routing Check Backflushing Flag in Details – Operational Tab – Backflushing Create Production Order Using That Routing Code Check Production Order Details – Quantities Tab. Backflushing Hours Should Be Set Check Production Planning – Details – Quantity Tab. Backflushing Hours Should Be Set

EXERCISE – Create a Standard Routing
In Session Item Routings Press New View Tab Twice to Enter a ‘Blank’ Item Standard Routings Display Enter New to Create New Standard Routing Code Enter Routing Code and Description Note Standard Routing Indicator Set Automatically

In Item Routing Press ‘New View’, Enter Your Manufactured Item
EXERCISE – Replace the Item Routing For Your Manufactured Item to Use a Standard Routing In Item Routing Press ‘New View’, Enter Your Manufactured Item Delete the existing 001 item routing. Press New to Create the 001 item routing again. Enter New Routing Code and Description Click on the Standard Routing Checkbox. Note That a New Field Opens Up In the Open Field Enter The Code of The Standard Routing. Save and Exit.

EXERCISE – Standard Routing
Cost and actualize the manufactured item that uses the standard routing Change the standard routing, and re-cost the item. View the standard costs. Enter a production order for the manufacutured item and look at the production planning.

Entering multiple item routings
Only the 001 routing will be used during costing in our setup. Additional item routings can optionally be defined as alternates For when a machine is down. For rework You can select which routing to use during production order entry.

EXERCISE – multiple item routings and costing.
Enter a few more item routings, and define distinct routing operations for each one. Cost your manufactured item. Did anything change in the cost? Enter a production order for your manufactured item. Try different routing codes and view the production planning.

What is a Phantom BOM Definition: An assembly which is defined in the bill of material but is not produced. In execution components are ‘pulled up’ to the next higher level. No planned order or production order. Routing steps also ‘pulled up’ to next level. BOM items and routing steps included in costing.

Exercise – Phantom BOMs
Create two new purchased components (go through all needed steps including costing) that represent 2 different labels that we’ll put on our manufactured item. Create a new phantom manufactured item “label kit” that has a BOM containing the 2 label items. Go through all the needed steps, but no routing is needed. Add the phantom “label kit” on to your original manufactured item. Cost the original manufactured item and view the results. Enter a production order for the manufactured item. What do you see in the estimated materials?

Lot Selection Flag in BOM
On Each BOM Line If Item is Lot Controlled Can Set By Default Any Single Specific Value Defaults to Production Order Controls Material Issue Behavior

EXERCISE – lot selection flag
Change a lot controlled BOM component to have “Specific” in the lot selection. Enter a production order for the main item. Try to release the order without first maintaining the lot. What happens? Maintain/create a lot for the component and release the production order.

Operation Linkage for BOM Components
Each BOM Component can be linked to a Routing Op. Time Phases Material Issue To Op Start Date If No Link Material Issues at First Operation If not linked, planned variable quantities may not be correct when the operations have scrap quantity or yield.

Operation Linkage for BOM Components
Example – if I making 100 of something in 3 operations (10, 20, and 30), and scrap quantity of 5 exists in operation 20, then: I must make 105 planned output in operation 10, planned input at operation 20 is 105, planned output at operation 20 is 100, and operation 30 has planned input and output of 100. Materials linked to operation 10 and 20 have net quantity requirements planned based on 105 Materials linked to operation 30 have net quantity requirements planned based on 100.

View Multi-Level BOM

BOM Loops Item Cannot Refer To Itself In BOM Structure
Creates Circular Reference Cannot Cost Cannot Plan LN Session – Detect Loops In BOM

Machines in Routing Operations
Can Create Machines and Reference In Routing Used When Machine Is Capacity Constraint Specify Machine in Operation Specify Machine Occupation If Work Center Capacity Type is Machine, Orders Scheduled by Machine Capacity

Work Center Planned Utilization
Shows Planned Load in Hours Released Production Orders Only Can View by Work Center or Order Can View for Entire Plant

Planning Engine Resource Plan
Similar to Work Center Utilization Shows Planned Load in Hours All Shop Orders AND Planned Order Useful For Long Term Capacity Visibility

Multi-Level BOM Example

How To Define Levels Define the levels one level at a time.
A given manufactured item only has 1 BOM. If the “same” subassembly used in different manufactured items has slightly different components, then it is not the same subassembly. Reasons to have different levels instead of just multiple operations on the same overall end item: The item is produced in bulk and needs to go to inventory to be used on multiple subsequent production orders. The item doesn’t immediately move on to the next task, and expiration tracking is needed. The intermediate item can be sold.

Reading the Multi-Level Cost Calculation Report

Costing Additional Topics
Here are a few advanced topics we’ll cover related to costing: Surcharges Inventory Value Cost calculation methods

Item Surcharges Used by finance – not typically manufacturing.
Surcharges will alter the cost of the item determined by the normal processing (by the amount of the surcharge). Allow Fixed or Variable Charges to Items By Item or Item Group Allow For Targeted Overheads Can Trigger on Issue or Receipt Can Also Set Surcharges by Warehouse

Inventory Value Separate From Cost Development
Can Value By Standard Or Actual Fixed Transfer Price (Standard Cost) Moving Average Unit Cost Last In First Out First In First Out Lot/Serial Cost Can Have Different Value by Warehouse Surcharges by Warehouse Can Be Greater OR Less Than Standard

Effect of Actualizing Costs on Inventory Value
When Standard Cost Actualized Inventory Will Be Revalued Financial Revaluation Transactions Created If Cost is calculated without Actualizing Can See Impact of Cost Change Before Value Change Opportunity to Correct Before Valuation Change

EXERCISE – Change Inventory Value by Changing Cost
Adjust In Inventory for Your Purchased Item Adjustment Happens at Current Standard Change Purchase Cost in Item Purchase Calculate Cost Prices with Actualize Option Single Level For Your Item Only! What Reports Did You Get?

Cost Calculation - Single Level
Calculates For Item Only Does Not Calculate Sub-Components Does Not Calculate Where Used Useful for New Purchased Items

Cost Calculating Bottom Up
Calculates For Item And All Higher Levels of Item Does Not Calculate Where Sub-Components Useful for Significant Change of Single Item With Implications For Higher Levels

Cost Calculating Top Down
Calculates For Item And All Lower Levels of Item Does Not Calculate for items that item the item is a component of. Useful for New Manufactured Items

EXERCISE – Top Down Make a price change to one of your purchase components, and a BOM change on your manufactured item Calculate costs top down for your manufactured item. Which items did it calculate for (use the last date of calculation to be able to see).

EXERCISE – Bottom up Make a change to the purchase price of one of your purchase components. Run a cost roll bottom up for the purchase component. Check to see which items were cost rolled. Make a change to the BOM of your manufactured item. Run a bottom up calculation for the manufactured item. Which component(s) were rolled? Which ones were not? Why?

EXERCISE – Run and Review the Multi-Level Cost Report for a Finished Good Item
Open Session Print Multilevel Cost Price Calculation Price Calculation Code = STD Enter FG Item (Say ) Current Date Check Predefined Order Qty. Main Item Check Include Fixed Costs

GOAL ACHIEVED You reviewed a multi-level cost report, and hopefully are starting to get how to read it and what it is useful for. The multi-level cost report is often a starting point if a given item has a cost that doesn’t look right, but you don’t know where in its multi-level structure that there is a problem. As you become comfortable with the report, it also can be a starting point for process improvement and efficiency improvement. You can see the cost drivers (labor and material) of finished good items, and know where a good use of your time is to target improvements (and where not too waste your time).

CONCLUDING THOUGHTS You’ve been learning a skill. You have a baseline of knowledge reinforced by practice during this training. Don’t let the knowledge slip away. Allocate time to either practice the exercises again, or start building the prototype product for your manufacturing process. It takes time to get good at the skills you’ve learned. With the time spent building manufactured items in LN, you will become faster and it will get easier. We’re here to support you as you have questions. Waukesha and Warren went through the same process, and they are also available to support you now and in the future.

BOM & Routing Workshop.

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