ERP Planning Tip #4: Routings – The Final Data Requirement

Routings are the – manufacturing methods – the sequence of steps and related times that are needed to make an item. Production routings specify the ordered list of tasks used to manufacture a product. In addition to the standard routing, a product might have alternate routings (the selection of which depends on the situation). When a production work order is created to manufacture the product, one of the possible routings is chosen.

A typical routing is represented by a series of operation steps. Each step contains a task, various times related to the task (and other parameters), as well as the next operation step in the sequence.

For example:

Operation Description Set-Up Time (hr) Run Time (hr) Next Operation
10 Kitting 1 0 20
20 Painting 0.5 2 30
30 Anodize 0.5 1 40
40 QC 0 0.5 etc…

 

The planning engine use the standard routing to calculate the time it takes to manufacture the product. The costing routines require the routings to calculate the standard cost of the product (discussed below). Several time components depicted in the diagram below make up the calculated lead time and cost.

Definitions

Queue Time The time the items wait (in a queue) to begin the operation (e.g. painting)
Set up Time The time to set up machine(s) prior to the start of the operation. This time is the total for all items in the batch (i.e. changing the paint color in the paint booth)
Run Time The time to produce one item (i.e. paint the item)
Wait Time The time to wait after the operation is completed (i.e. wait for the paint to dry)
Move Time The time to move all items to the next operation’s work center
Extra Lead Time Slack time for internal purposes
Safety Time Additional slack time for internal purposes
Inbound Time Time to inbound the finished products into the warehouse
Outbound Time Time to outbound the finished products from the warehouse to the next requirement

 

Each operation step may contain references to instructions and links to pertinent documents (e.g. drawings or schematics). Operational information, related references and the material list from the item’s BOM can be printed as work order documentation that accompanies the goods as they flow through the shop floor.

No discussion of routings is complete without a discussion of their relevance to costing. Below, we give an introductory discussion of the costing implications.

Costing 101

Many of the time factors that impact planning have costing elements that are used to determine an item’s standard cost.

For example, set-up time and run-time are used to calculate machine and labor-related costs. A man (or machine) occupation factor specifies the number of men (or machines) working in parallel during the operation.

The following table sets out a sample costing scenario.

Labor rate $20/ hour
Machine rate $5/hour
Overhead rate $0
Product standard batch size or Economic Order Quantity (EOQ) 10
Operation set up time 1 hour
Operation run time 1 hour
Man occupation 4 men

 

Set-Up Costs (per item)

machine costs (set up time * machine rate / EOQ) + labor costs (set up time * labor rate / EOQ)

1 * $5 / 10 + 1* $20 / 10 = $2.50Edit

Production costs (per item)

machine costs (run time * machine rate) + [labor costs (run time * labor rate)] * man occupation

2 * $5 + 2 * $20 * 4 = $170

Total operation cost (per item)

set up costs + production costs

$2.50 + $170 = $172.50

Conclusion

The sum of all operation costs plus the material costs from the bill of materials (BOM) represents a manufactured item’s standard cost.

Beyond the scope of this article are methods to specify batch transfer quantities and overlapping of operations (parallelism), yield percentages of operations, BOM component links to operations where they are required, as well as the nesting of operations (for phantoms).

In our next tip, we will discuss the need to record all inventory movements in an accurate and timely fashion.

Your POV (post comments below)

  • How has routings challenged planning accuracy for your organization?
  • How has your organization dealt with complex routing issues, such as overlapping operations?

Would your organization like to reduce supply chain and inventory costs, and improve production efficiency? If so, contact our ERP and operations experts to learn how we can help.

In this series of bi-weekly tips, we break down the secrets to effective replenishment planning and shop scheduling using MRP. Pemeco Consulting is a leading provider of Supply Chain and ERP services. Learn about our ERP Optimization and Training Services and our how our Planning Dashboard can help your organization improve planning accuracy and reduce supply chain costs.