Subbu Ramakrishnan. Manufacturing Finance with SAP. ERP Financials. Bonn Boston

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1 Subbu Ramakrishnan Manufacturing Finance with SAP ERP Financials Bonn Boston

2 Contents at a Glance 1 Overview of Manufacturing Scenarios Supported by SAP Overview of Finance Activities in a Make-to-Stock Environment Master Data Requirements in Manufacturing Finance Budgets and Standards Actual Cost, Variances and Month-End-Related Activities Actual Costing/Material Ledger Overview of Make-to-Order Production Scenarios Supported by SAP Business Transactions in Make-to-Order Production Make-to-Order Related SAP Configuration Introduction to SAP Financial Performance Management A Annual Planning, Costing, and Closing B The Author

3 Contents Preface Acknowledgements Overview of Manufacturing Scenarios Supported by SAP Make-to-Stock Manufacturing (Discrete Manufacturing) Business Rationale for Using Make-to-Stock Manufacturing High-Level Business Process Implementation Considerations Finance and Controlling Implications Repetitive Manufacturing Rationale for Using the Repetitive Manufacturing Model High-Level Business Processes Implementation Considerations Finance and Controlling Implications Make-to-Order Manufacturing Rationale for Using the Make-to-Order Manufacturing Model High-Level Business Processes Implementation Considerations Finance and Controlling Implications Engineer-to-Order Manufacturing Purpose High-Level Business Processes Implementation Considerations Finance and Controlling Implications Chapter Summary Overview of Finance Activities in a Make-to-Stock Environment Overview of Finance Key Performance Indicators (KPIs) for Manufacturing Plant Budgeting, Planning, and Forecasting

4 Contents Production Plan Based on Sales Plan Raw Material Cost Planning Planning Activity-Dependent Costs Planning Activity-Independent Costs Plan Cost Allocations Activity Price Calculation Product Cost Planning Total Cost of Goods Sold (COGS) Material Cost Processing Cost Variances Other Reserves and Write-Offs Inventory Revaluation Other Manufacturing Scenarios Subcontracting External Processing Chapter Summary Master Data Requirements in Manufacturing Finance What Is Master Data? Benefits of Quality Master Data Master Data Management (MDM) Master Data Governance Master Data Elements in Manufacturing Finance Material Master Data Material Type Configuring Material Types Basic Data View of the Material Master Record Purchasing View of the Material Master Record Material Requirements Planning Views of the Material Master Record Accounting Views of the Material Master Record Costing Views of the Material Master Record Material Master Reporting Bill of Materials (BOM) Bill of Materials Creation: Initial Screen Bill of Materials Creation; Header Overview Screen

5 Contents Bill of Materials Creation; General Item Overview Screen Bill of Materials Creation Item: All Data Screen, Basic Data Tab Bill of Materials Creation Item: All Data Screen, Status/Lng Text Tab Bill of Materials Master Data Reporting Work Center Work Center: Initial Screen Work Center: Basic Data Screen Work Center: Default Values Work Center: Costing Screen Work Center Reports Routing Routing: Initial Screen Routing: Header Details Screen Routing: Operation Overview Routing: Operation Details Routing: Component Allocation Routing: Material Assignment Screen Routing Reports Cost Element Master Data Create Cost Element: Initial Screen Create Cost Element: Basic Screen Create Cost Element: Indicator Screen Create Cost Element: Default Account Assignment Screen Cost Element Reporting Cost Center Master Data Create Cost Center: Initial Screen Create Cost Center: Basic Screen Create Cost Center: Indicators Create Cost Center: Templates Screen Create Cost Center: Address Screen Cost Center Reporting Activity Type Master Data Create Activity Type: Initial Screen Create Activity Type: Basic Screen

6 Contents Activity Type Master Data Reporting Statistical Key Figure Master Data Create Statistical Key Figure: Initial Screen Create Statistical Key Figure: Master Data Screen Statistical Key Figure Master Data Reporting Chapter Summary Budgets and Standards Planning Steps in a Manufacturing Plant Long-Term Planning Functionality Purpose Steps in the LTP Process Cost Center Planning Planning Version Planner Layout Planning Profile Planning Tools Sequence of Planning in Cost Center Accounting Activity Type Planning Planning Statistical Key Figure Activity-Dependent Cost Planning Activity-Independent Planning Transfer Plan Depreciation from Asset Accounting Plan Allocation CO Allocation Using Tools such as Periodic Reporting, Distribution, and Assessment Plan Cost Splitting Plan Activity Price Calculation Important Cost Center Planning Reports Raw Materials and Component Cost Planning Review of Raw Material Requirements from Long-Term Planning Exercise Update of Raw Material Plan Price Update Purchasing Info Record Price Inbound Freight and Purchase Price Variance Materials Management Automatic Account Assignment Determination

7 Contents 4.5 Product Cost Planning Types of Costing Functions Supported by SAP and their Purposes Types of Cost Estimates Supported by SAP and Their Purposes Product Cost Planning Configuration Overhead Surcharge Configuration Origin Group Cost Component Structure Configuration Components of Costing Variants Cross-Company Costing Cost Component Split Special Procurement Types Mixed Costing Enhancements and User Exits in Product Cost Planning Chapter Summary Actual Cost, Variances and Month-End-Related Activities Overview of Cost Object Controlling and Its Integration with Other Application Components Cost Object Controlling Subcomponents Benefits of Cost Object Controlling Integration of Cost Object Controlling Components with Other Application Components Steps in Cost Object Controlling Preliminary Costing Simultaneous Costing Final Costing Process Allocation Revaluation at Actual Prices Overhead Surcharge Calculation Work-in-Process (WIP) Variance Settlement Overview of the Production Process The Production Process Using a Make-to-Stock Scenario

8 Contents 5.4 Master Data Elements in Cost Object Controlling Production Orders Production Order Creation: Initial Screen Production Order Creation: Header Screen (General Tab) Production Order Creation: Header Screen (Goods Receipt Tab) Production Order Creation: Header Screen (Control Data Tab) Production Order Creation: Header Screen (Master Data Tab) Production Order: Statuses Production Order: Settlement Rule Production Order: Preliminary Cost Estimate Production Order: Reporting Selected Logistical Processes and Cost Objects External Processing Rework Order Consignment Subcontracting Cost Object Controlling Configuration Costing Variant for Manufacturing Orders and Cost Collectors Valuation Variant Cost-Accounting-Relevant Default Values for Order Types and Plant User-Defined Error Management WIP-Related Configuration Variance Calculation-Related Configuration Order Settlement-Related Configuration Other Important Reports Reports in the Purchasing Area Reports in Inventory Management Area Chapter Summary Actual Costing/Material Ledger Multiple Currencies/Valuations Actual Costing

9 Contents 6.3 Actual Costing/Material Ledger Activation Options Activate Material Ledger Assign Currency Types to Material Ledger Type Assign Material Ledger Type to Valuation Area Configure Dynamic Price Release Define Movement Type Groups of Material Ledger Assign Movement Type Groups for Material Ledger Define Material Update Structure Assign Material Update Structure to a Valuation Area Material Master and Material Ledger Product Cost Planning Using Multiple Valuation Costing Variant Configuration for Group Valuation Future Price Maintenance in Multiple Valuations Release Group Cost Estimate and Legal Cost Estimate Transaction-Based Material Price Determination Single-Level Material Price Determination Multi-Level Material Price Determination Actual Costing Configuration Activate Actual Costing Activate Actual Cost Component Split MM Account Assignment Related Configuration Periodic Actual Costing: Process Flow Material Ledger/Actual Costing Reporting Material Price Analysis Report Material Prices and Inventory Values over Several Periods Valuated Multi-Level Quantity Structure Material Ledger Document Value Flow Monitor Production Startup Chapter Summary Overview of Make-to-Order Production Scenarios Supported by SAP Customer Order Management Process Pre-Sales Activities Sales Order Processing Inventory Sourcing

10 Contents Delivery Billing Payment Make-to-Order Manufacturing Scenarios Supported by SAP Make-to-Order Without Sales Order Controlling, Using Valuated Stock Make-to-Order with Sales Order Controlling, Using Valuated Stock Make-to-Order with Sales Order Controlling Without Valuated Stock Chapter Summary Business Transactions in Make-to-Order Production Business Transactions, Process Flow, and Value Flow Without Sales Order Controlling Using Valuated Stock Master Data Requirements Creation of Sales Order MRP Run and Creation of a Planned Production Order Posting to Cost Centers Raw Material Issue to Production Order Allocation of Activities from Production Cost Center to Production Order Receipt of Finished Goods into Inventory from the Production Order Delivery of Finished Products to Customers Invoice to Customers Month-End Processing: Apply Overhead from Manufacturing Cost Centers to the Production Order Month-End Processing: Work-in-Process Calculation Month-End Processing: Calculate Production Order Variances Month-End Processing: Settlement of Production Orders Business Transactions, Process Flow, and Value Flow with Sales Order Controlling Using Valuated Stock Master data requirements Creation of Sales Order MRP Run and Creation of Planned Production Order

11 Contents Posting to Cost Centers Raw Material Receipt Allocation of Activities from Production Cost Center to the Production Order Finished Goods Receipt into Inventory from the Production Order Delivery of Finished Goods to Customer Invoicing to Customer Month-End Processing: Apply Overhead from Manufacturing Cost Centers to the Production Order and Overhead from Sales and Marketing Cost Centers to the Sales Order Month-End Processing: Results Analysis Calculation Month-End Processing: Variance Calculation Month-End Processing: Settlement Business Transactions, Process Flow, and Value Flow in Make-to-Order Production with Sales Order Controlling Using Non-Valuated Stock Finished Goods Received into Inventory from the Production Order Delivery of Product to the Customer Invoice the Customer Month-End Processing: Apply Overhead from Manufacturing Cost Centers to the Production Order and Overhead from Sales and Marketing Cost Centers to the Sales Order Month-End Processing: Results Analysis Calculation Month-End Processing: Settlement of Production Orders Month-End Processing: Settlement of Sales Orders Other Business Transactions in Make-to-Order Manufacturing Mass Costing of Sales Documents Carry Forward of Open Sales Order Commitments Important Reports in Make-to-Order Manufacturing Sales Order Selection Display Sales Order Item to be Costed Sales Order Summarized Analysis Chapter Summary

12 Contents 9 Make-to-Order Related SAP Configuration Control Parameters and Default Values that Influence Sales- Order-Related Production Check Account Assignment Categories Check Requirements Classes Check Requirement Types Check Control of Requirements Type Determination Selection of Requirement Type through MRP Group Selection of Requirement Type through Sales Document Item Category Basic Settings for Product Cost by Sales Order Define Origin Groups Overheads Configuration Relating to Preliminary Costing and Order BOM Costing Define Cost Components Define Costing Variant for Preliminary Costing and Order BOM Costing Configuration Relating to Unit Costing for Sales Order Items Define Costing Variant for Unit Costing Configuration Relating to Period-End Closing in Sales Order Controlling Results Analysis Settlement Chapter Summary Introduction to SAP Financial Performance Management What Is SAP Financial Performance Management? Components of Financial Performance Management Strategy Management Business Planning Financial Consolidation Financial Information Management Profitability and Cost Management Spend Analytics Chapter Summary

13 Contents Appendices A Annual Planning, Costing, and Closing A.1 Annual Planning and Costing Checklist A.2 Month-End Closing Activity Checklist A.3 Year-End Closing Activity Checklist B The Author Index

14 Selecting the right manufacturing scenario for your business is key to a successful SAP implementation. It is very important to evaluate the business goals and objectives that each scenario supports and make an appropriate selection. 1 Overview of Manufacturing Scenarios Supported by SAP I n t h i s c h a p t e r w e w i l l t a k e a l o o k a t t h e m a n u f a c t u r i n g s c e n a r i o s s u p p o r t e d b y S A P, t h e i r p u r p o s e s, t h e b u s i n e s s p r o c e s s w i t h i n e a c h s c e n a r i o, a n d t h e i m p l i c a - t i o n s o f s e l e c t i n g a p a r t i c u l a r s c e n a r i o f r o m a fi n a n c e a n d c o n t r o l l i n g s t a n d p o i n t. T h e m a n u f a c t u r i n g s c e n a r i o s s u p p o r t e d b y S A P a r e : M a k e - t o - s t o c k m a n u f a c t u r i n g ( a l s o k n o w n a s d i s c r e t e m a n u f a c t u r i n g ) R e p e t i t i v e m a n u f a c t u r i n g M a k e - t o - o r d e r m a n u f a c t u r i n g E n g i n e e r - t o - o r d e r m a n u f a c t u r i n g T h e r e a r e v a r i a t i o n s w i t h i n e a c h o f t h e s c e n a r i o s. T h e s e v a r i a t i o n s w i l l b e e x p l a i n e d w h e n w e d i s c u s s t h e d e t a i l s o f e a c h m a n u f a c t u r i n g s c e n a r i o s. Note You have to take into account the following before deciding on the best option for the organization: The organization s business goals and objectives Flexibility of operation Reporting requirements Cost-benefit analysis of data gathering and data processing 25

15 1 Overview of Manufacturing Scenarios Supported by SAP 1.1 Make-to-Stock Manufacturing (Discrete Manufacturing) I n m a k e - t o - s t o c k m a n u f a c t u r i n g, p r o d u c t i o n i s b a s e d o n d e m a n d f o r e c a s t a n d i s c a r r i e d o u t w i t h o u t r e f e r e n c e t o a s a l e s o r d e r. S a l e s a r e m a d e f r o m e x i s t i n g i n v e n - t o r y. C o m p a n i e s t r y t o f o r e c a s t t h e d e m a n d f o r t h e i r p r o d u c t s a n d m a n u f a c t u r e a p p r o p r i a t e q u a n t i t i e s t o m e e t t h e d e m a n d a n d a t t h e s a m e t i m e e n s u r e t h a t t h e y a r e n o t c a r r y i n g t o o m u c h i n v e n t o r Forecast-to-stock y. accuracy a n d inventory controlling a r e c r i t i c a l i n m a k e - t o - s t o c k m a n u f a c t u r i n g. M a k e - t o - discrete s t o c k m a n u - f a c t u r i n g ( s e e F i g u r e 1. 1 ) i s c h a r a c t e r i zindividual e d b y or separate unit production. P r o d u c t i o n i s c a r r i e d o u t i n l o t s o r b a t c h e s. M a k e - t o - s t o c k d i s c r e t e m a n-u f a c t u r i n g i s c o m m o n l y u s e d i n t h e c o n s u m e r g o o d s, p h a r m a c e u t i c a l, c h e m i c a l, m e d i c a l e q u i p m e n t, a n d a u t o m o t i v e i n d u s t r i e s, t o n a m e a f e w. Generate demand forecast Carry out material planning Carry out scheduling activities Firm plan and release to production Planning Manufacture Receive shop floor papers Raw material staging Production execution Provide material for quality Carry out in-process quality checks Stock material at plant or distribution center Sales order processing Shipment Billing Quality/Sales/ Dist. Figure 1.1 Make-to-Stock Manufacturing Business Rationale for Using Make-to-Stock Manufacturing T h e b u s i n e s s g o a l s o f u s i n g m a k e - t o - s t o c k m a n u f a c t u r i n g a r e a s f o l l o w s : Improve customer service b y s a t i s f y i n g c u s t o m e r d e m a n d f o r a n o r g a n i z a t i o n s p r o d u c t s i m m e d i a t e l y. W i t h m a k e - t o - s t o c k, t h e r e i s n o c u s t o m e r w a i t i n g t i m e f o r t h e p r o d u c t s t o b e m a n u f a c t u r e d o n c e t h e o r d e r i s p l a c e d. 26

16 Make-to-Stock Manufacturing (Discrete Manufacturing) 1.1 Increase revenue by improving capacity utilization. O n e o f t h e i m p o r t a n t e l e m e n t s o f t h i s m o d e l iplanning s. B e t t e r p l a n n i n g l e a d s t o i m p r o v e d c a p a c i t y u t i l i z a - t i o n. Lower working capital b y i m p r o v i n g c a p a c i t y u t i l i z a t i o n, i n c r e a s i n g i n v e n t o r y t u r n s, l o w e r i n g w o r k - i n - p r o c e s s i n v e n t o r y, a n d r e d u c i n g i n v e n t o r y c a r r y i n g c o s t s. T h i s i s a c c o m p l i s h e d u s i n g p l a n n i n g a n d s c h e d u l i n g t o o l s. Y o u c a n u s e just in time (JIT) i n v e n t o r y m a n a g e m e n t a s w e l l a s kanban i n t h e m a k e - t o - s t o c k s c e n a r i o. Reduce operating costs and increase efficiency b y i m p r o v i n g p r o c u r e m e n t p r o - c e s s e s, r e d u c i n g i n v e n t o r y l e v e l s, a n d l o w e r i n g l o g i s t i c s c o s t s High-Level Business Process B u s i n e s s p r o c e s s e s i n a m a k e - t o - s t o c k m a n u f a c t u r i n g s c e n a r i o a r e a s f o l l o w s : Production planning T h e p l a n n e r s c r e a t e a f e a s i b l e p r o d u c t i o n p l a n a c r o s s t h e o r g a n i z a t i o n a n d d e t e r m i n e t h e n e e d f o r v a r i o u s r e s o u r c e s ( m a t e r i a l s, m a c h i n e s, a n d l a b o r ). Production scheduling D e t a i l e d s c h e d u l i n g i s u s e d t o c o m p a r e t h e a v a i l a b l e c a p a c i t y r e q u i r e m e n t s w i t h r e q u i r e d c a p a c i t y a n d a p p r o p r i a t e l y s c h e d u l e t h e p r o d u c t i o n a c t i v i t i e s. Manufacturing execution M a n u f a c t u r i n g i s c a r r i e d o u t w i t h r e f e r e n c e t o p r o d u c t i o n o r d e r s u s i n g b i l l s o f m a t e r i a l s ( B O M s ) a n d r o u t i n g s. A p r o d u c t i o n o r d e r i s n o r m a l l y c r e a t e d f o r a b a t c h o r f o r a l o t - s i z e. A p r o d u c t i o n o r d e r d e fi n e s w h i c h m a t e r i a l i s t o b e p r o - c e s s e d, a t w h i c h l o c a t i o n, a t w h a t t i m e, a n d h o w m u c h w o r k i s r e q u i r e d. I t a l s o d e fi n e s w h i c h r e s o u r c e s a r e t o b e u s e d a n d h o w t h e o r d e r c o s t s a r e h a n d l e d a n d c o n t a i n s s h o p fl o o r i n f o r m a t i o n f o r m a n a g i n g t h e p r o d u c t i o n. Quality assurance and control C o n t i n u o u s m o n i t o r i n g o f p r o d u c t i o n a c t i v i t i e s h a p p e n v i a q u a l i t y i n s p e c t i o n s. I n s p e c t i o n s c a n b e t r i g g e r e d b y v a r i o u s e v e n t s i n t h e m a n u f a c t u r i n g p r o c e s s s u c h a s o r d e r r e l e a s e a n d g o o d s r e c e i p t, a n d b y r a n d o m e v e n t s. Q u a l i t y c o s t s u n c o v e r e d i n a n i n s p e c t i o n c a n b e t r a c k e d. 27

17 1 Overview of Manufacturing Scenarios Supported by SAP Sales order processing O r d e r s r e c e i v e d f r o m c u s t o m e r s a r e p r o c e s s e d a n d a v a i l a b i l i t y d a t e s c o n fi r m e d t o c u s t o m e r s. D i f f e r e n t o r d e r t y p e s c a n b e s e t u p f o r v a r i o u s s c e n a r i o s. T h e o r d e r s a r e p r i c e d u s i n g v a r i o u s p r i c i n g p r o c e d u r e s s e t u p i n t h e s y s t e m. Shipment T h e p r o d u c t s a r e p r o c e s s e d f o r s h i p p i n g, a n d n e c e s s a r y s a l e s d o c u m e n t s a r e c r e a t e d. G o o d s I s s u e i s p o s t e d, a n d c o s t o f s a l e s i s a c c o u n t e d f o r. Billing T h e b i l l i n g i s p e r f o r m e d a c c o r d i n g t o t h e p r i c i n g p r o c e d u r e s t a t e d i n t h e o r d e r, a n d r e v e n u e i s a c c o u n t e d f o r. Note From a finance and controlling standpoint, manufacturing costs are tracked using production orders. In other words, a production order is the cost object in make-to-stock discrete manufacturing Implementation Considerations Y o u c a n i m p l e m e n t m a k e - t o - s t o c k d i s c r e t e m a n u f a c t u r i n g i f t h e f o l l o w i n g i s t r u e o f y o u r p r o d u c t i o n p r o c e s s : M a n u f a c t u r i n g i s c a r r i e d o u t i n i n d i v i d u a l d e fi n e d l o t s o r b a t c h e s. P r o d u c t s a r e m a n u f a c t u r e d i n s m a l l v o l u m e s a n d m a n u f a c t u r i n g i s f r e q u e n t l y s w i t c h e d f r o m o n e p r o d u c t t o a n o t h e r. Y o u n e e d t h e a b i l i t y t o p r i n t s h o p fl o o r p a p e r s t o m a n a g e p r o d u c t i o n. Y o u n e e d c o s t i n f o r m a t i o n a t t h e l o t - s i z e l e v e l t o t r a c k c o s t s a n d r e d u c e v a r i - a n c e. T a k e t h e c a s e o f t h e p h a r m a c e u t i c a l i n d u s t r y. M a n u f a c t u r i n g o f a n i n d i v i d u a l b a t c h o f a p r o d u c t i s t r a c k e d a n d h a s a u n i q u e b a t c h n u m b e r. T h e b a t c h s i z e s a r e n o r - m a l l y a p p r o v e d b y t h e F o o d a n d D r u g A d m i n i s t r a t i o n ( F D A ). R a w m a t e r i a l s i s s u e s t o t h e fi n i s h e d g o o d s b a t c h a l s o h a v e t o b e t r a c k e d b y b a t c h n u m b e r a s p e r g o o d m a n u f a c t u r i n g p r a c t i c e ( G M P ). E v e r y b a t c h h a s t o b e a p p r o v e d b y q u a l i t y c o n t r o l b e f o r e i t c a n b e s h i p p e d t o c u s t o m e r s. M a k e - t o - s t o c k p r o c e s s m a n u f a c t u r i n g i s, t h e r e f o r e, i d e a l f o r t h e p h a r m a c e u t i c a l i n d u s t r y. 28

18 Repetitive Manufacturing Finance and Controlling Implications T h e i m p l i c a t i o n s f r o m t h e fi n a n c e a n d c o n t r o l l i n g s t a n d p o i n t a r e : Y o u c a n e a s i l y c o m p a r e t h e s t a n d a r d w i t h a c t u a l c o s t s, p e r f o r m v a r i a n c e - a n a l y s i s, a n d t a k e c o r r e c t i v e m e a s u r e s. W o r k i n p r o c e s s ( W I P ) a n d v a r i a n c e s a r e t r a c k e d a t t h e i n d i v i d u a l l o t l e v e l. A n o r d e r e x i s t s f o r e v e r y i n d i v i d u a l l o t o r b a t c h. T h e v o l u m e o f o r d e r-s g e n e r a t e d i s h i g h a n d t h e r e f o r e r e q u i r e s a d d i t i o n a l e f f o r t d u r i n g fi n a n c i a l m o n t h - e n d c l o s e t o p r o c e s s a n d m a n a g e t h e s e o r d e r s. T h e r e c a n b e s y s t e m p e r f o r m a n c e i s s u e s a s s o c i a t e d w i t h l a r g e n u m b e r s o f o r d e r s. T h e r e f o r e, a g o o d a r c h i v i n g s t r a t e g y h a s t o b e i n p l a c e f o r p r o d u c t i o n o r d e r s. Note Process manufacturing is also a make-to-stock scenario. Tool sets are available in SAP systems for managing batch-oriented process manufacturing. Instead of a production order, we use a process order. Some of the master data elements are different. We will go into the details when we discuss master data in Chapter Repetitive Manufacturing R e p e t i t i v e m a n u f a c t u r i n g i s u s e d w h e r e t h e p r o d u c t s b e i n g m a n u f a c t u r e d r e m a i n u n c h a n g e d o v e r a l o n g e r p e r i o d a n d a r e n o t m a n u f a c t u r e d i n i n d i v i d u a l l y d e fi n e d l o t s. L i k e t h e m a k e - t o - s t o c k s c e n a r i o, p r o d u c t i o n h a p p e n s p r i o r t o s a l e s. P r o d u c - t i o n p l a n n i n g i n r e p e t i t i v e m a n u f a c t u r i n g i s d o n e a t t h e p r o d u c t i o n - l i n e l e v e l a n d n o t a t t h e o r d e r l e v e l. M a t e r i a l s u p p l y a n d p r o d u c t i o n c o n fi r m a t i o n a l s o h a p p e n s a t t h e l i n e l e v e l a n d n o t a t t h e p r o d u c t i o n - o r d e r l e v e l. A r e p e t i t i v e m a n u f a c t u r i n g s c e n a r i o c a n b e u s e d i n m a k e - t o - s t o c k p r o d u c t i o n o r i n m a k e - t o - o r d e r p r o d u c t i o n. M a k e - t o - s t o c k r e p e t i t i v e m a n u f a c t u r i n g i s s i m i l a r t o m a k e - t o - s t o c k p r o d u c t i o n e x c e p t t h a t i n s t e a d o f m a n a g i n g p r o d u c t i o n u s i n g p r o d u c t i o n o r d e r s, p r o d u c t i o n i s m a n a g e d u s i n g p r o d u c t c o s t c o l l e c t o r s. A t y p i c a l p r o d u c t c o s t c o l l e c t o r r e p r e s e n t s a p r o d u c t i o n l i n e. I n m a k e - t o - o r d e r r e p e t i t i v e m a n u f a c t u r i n g ( s e e F i g u r e 1. 2 ), a p r o d u c t c o s t c o l l e c t o r i s c r e a t e d f o r t h e s a l e s o r d e r s t o c k a n d n o t f o r a n i n d i v i d u a l s a l e s o r d e r. 29

19 1 Overview of Manufacturing Scenarios Supported by SAP Generate demand forecast Carry out material planning Detailed scheduling by production line Planning Manufacture Production confirmation or production backflush against cost collector Provide material for quality Carry out in-process quality checks Stock material at plant or distribution center Sales order processing Shipment Billing Quality/Sales/ Dist. Figure 1.2 Overview of repetitive manufacturing process Note In the product cost collector, the product, not the individual production lot, is the cost object. In other words, a product cost collector is nothing but a grouping of certain individual lots into one big order. The grouping can be either by production line or by products. The idea is to analyze the cost by period rather than by individual lots Rationale for Using the Repetitive Manufacturing Model T h e b u s i n e s s g o a l s h e r e a r e s i m i l a r t o t h o s e f o r m a k e - t o - s t o c k d i s c r e t e p r o d u c t i o n, a n d t h e y a r e : I m p r o v e c u s t o m e r s e r v i c e b y s a t i s f y i n g c u s t o m e r d e m a n d f o r a n o r g a n i z a t i o n s p r o d u c t s i m m e d i a t e l y. I n c r e a s e r e v e n u e b y i m p r o v i n g c a p a c i t y u t i l i z a t i o n. B e t t e r p l a n n i n g l e a d s t o i m p r o v e d c a p a c i t y u t i l i z a t i o n. L o w e r w o r k i n g c a p i t a l b y i m p r o v i n g c a p a c i t y u t i l i z a t i o n, i n c r e a s i n g i n v e n t o r y t u r n s, l o w e r i n g w o r k - i n - p r o c e s s i n v e n t o r y, a n d r e d u c i n g i n v e n t o r y c a r r y i n g c o s t s. 30

20 Repetitive Manufacturing 1.2 R e d u c e o p e r a t i n g c o s t s a n d i n c r e a s e e f fi c i e n c y b y i m p r o v i n g p r o c u r e m e n t p r o - c e s s e s, r e d u c i n g i n v e n t o r y l e v e l s, a n d l o w e r i n g l o g i s t i c s c o s t s. R e d u c e p r o d u c t i o n c o n t r o l e f f o r t. T h e o n e s u b t l e d i f f e r e n c e f r o m t h e m a k e - t o - s t o c k d i s c r e t e m a n u f a c t u r i n g s c e n a r i o i s t h a t t h e n a t u r e o f r e p e t i t i v e p r o d u c t i o n i s s u c h t h a t t h e r e i s n o c l e a r d i s t i n c t i o n w h e n o n e p r o d u c t i o n l o t e n d s a n d a n o t h e r o n e b e g i n s ( s i m i l a r p r o d u c t s m a n u f a c t u r e d o v e r a l e n g t h y p e r i o d o f t i m e ). T h e r e i s n o n e e d t o t r a c k i n d i v i d u a l l o t s. T h e b u s i n e s s g o a l t h e r e f o r e i s t o r e d u c e t h e p r o d u c t i o n c o n t r o l e f f o r t b y g r o u p i n g i n d i v i d u a l l o t s b y e i t h e r p r o - d u c t i o n l i n e o r p r o d u c t High-Level Business Processes T h e b u s i n e s s p r o c e s s e s s u p p o r t e d i n a r e p e t i t i v e m a n u f a c t u r i n g s c e n a r i o a r e a s f o l l o w s : Production planning E n a b l e s t h e p l a n n e r s t o c r e a t e a f e a s i b l e p r o d u c t i o n p l a n a c r o s s t h e o r g a n i z a - t i o n a n d d e t e r m i n e s t h e n e e d f o r v a r i o u s r e s o u r c e s ( m a t e r i a l s, m a c h i n e s, a n d l a b o r ). Production scheduling D e t a i l e d s c h e d u l i n g i s u s e d t o c o m p a r e t h e c a p a c i t y r e q u i r e m e n t s a n d a v a i l a b l e c a p a c i t y a n d a p p r o p r i a t e l y s c h e d u l e t h e p r o d u c t i o n a c t i v i t i e s. Production confirmation and backflushing P r o d u c t i o n p r o g r e s s i s r e c o r d e d i n t h e s y s t e m u sbackflushing i n g, a p r o c e s s t h a t r e c o r d s m a t e r i a l c o n s u m p t i o n a n d r o u t i n g h o u r s b a s e d ostandard n B O M q u a n - t i t i e s a n d r o u t i n g h o u r s. Quality assurance and control C o n t i n u o u s m o n i t o r i n g o f p r o d u c t i o n a c t i v i t i e s h a p p e n s v i a q u a l i t y i n s p e c - t i o n s. Sales order processing O r d e r s r e c e i v e d f r o m c u s t o m e r s a r e p r o c e s s e d, a n d a v a i l a b i l i t y d a t e s a r e c o n - fi r m e d t o c u s t o m e r s. Shipment T h e p r o d u c t s a r e p r o c e s s e d f o r s h i p p i n g, a n d n e c e s s a r y s a l e s d o c u m e n t s c r e - a t e d. G o o d s I s s u e i s p o s t e d, a n d c o s t o f s a l e s i s a c c o u n t e d f o r. 31

21 1 Overview of Manufacturing Scenarios Supported by SAP Billing T h e b i l l i n g i s p e r f o r m e d a c c o r d i n g t o t h e p r i c i n g p r o c e d u r e s t a t e d i n t h e o r d e r, a n d r e v e n u e i s a c c o u n t e d f o r. Note From a finance and controlling standpoint, the manufacturing cost is tracked using a product cost collector. In other words, a product cost collector is the cost object with which the costs are tracked throughout the system Implementation Considerations Y o u s h o u l d i m p l e m e n t r e p e t i t i v e m a n u f a c t u r i n g i f t h e f o l l o w i n g i s t r u e o f y o u r p r o d u c t i o n p r o c e s s : S a m e o r s i m i l a r p r o d u c t s a r e m a n u f a c t u r e d o v e r a l e n g t h y p e r i o d o f t i m e. P r o d u c t s a r e n o t m a n u f a c t u r e d i n i n d i v i d u a l l y d e fi n e d l o t s. P r o d u c t s a l w a y s f o l l o w t h e s a m e s e q u e n c e o f p r o d u c t i o n. T a k e t h e c a s e o f a h i g h - t e c h c h i p m a n u f a c t u r i n g p l a n t o r a l i g h t b u l b m a n u- f a c t u r i n g p l a n t. I n o n e p r o d u c t i o n l i n e, y o u n o r m a l l y m a n u f a c t u r e s a m e p r o d u c t f o r f e w d a y s b e f o r e y o u c h a n g e o v e r t o a n o t h e r p r o d u c t. T h e r e i s n o n e e d f o r s e t u p o r c h a n g e o v e r a c t i v i t y. N o b a t c h d i s t i n c t i o n i s r e q u i r e d. S e v e r a l p r o d u c t i o n l i n e s w i l l b e r u n n i n g a t t h e s a m e t i m e. I n t h i s i n s t a n c e, y o u c a n c r e a t e a p r o d u c t c o s t c o l l e c t o r f o r e v e r y p r o d u c t i o n l i n e Finance and Controlling Implications I n r e p e t i t i v e m a n u f a c t u r i n g, p r o d u c t i o n c o s t s a r e t r a c k e d a n d m a n a g e d a t t h e p r o d u c t c o s t c o l l e c t o r l e v e l. I t i s t y p i c a l t o c r e a t e a p r o d u c t c o s t c o l l e c t o r f o r a p r o d u c t i o n l i n e. T h e r e a r e f e w e r p r o d u c t c o s t c o l l e c t o r s. T h e r e f o r e, t h e e f f o r t r e q u i r e d t o p r o - c e s s a n d m a n a g e t h e c o s t c o l l e c t o r s i s m i n i m a l. W I P a n d v a r i a n c e s a r e t r a c k e d o n a p e r i o d b a s i s. T h e W I P i s v a l u a t e d b a s e d o n t h e s t a n d a r d, n o t a c t u a l, c o s t. B e c a u s e t h e p r o d u c t i o n i s n o t t r a c k e d b a s e d o n i n d i v i d u a l l o t s, i t i s n o t p o s s i b l e t o c a l c u l a t e W I P b a s e d o n a c t u a l c o s t. F e w e r p r o d u c t c o s t c o l l e c t o r s m e a n s f a s t e r p r o c e s s i n g d u r i n g fi n a n c i a l m o n t h - e n d c l o s e. 32

22 Make-to-Order Manufacturing Make-to-Order Manufacturing M a k e - t o - o r d e r m a n u f a c t u r i n g i s u s e d w h e r e t h e p r o d u c t s b e i n g m a n u f a c t u r e d a r e c u s t o m i z e d a c c o r d i n g t o c u s t o m e r r e q u i r e m e n t s. S A P s u p p o r t s s e v e r a l v a r i a t i o n s o f m a k e - t o - o r d e r s c e n a r i o s, a s s h o w n i n F i g u r e Controlling by Sales Order Sales Order Stock Valuated Without Mass production make-toorder manufacturing With Complex make-to-order manufacturing Unvaluated Not supported Make-to-order manufacturing without valuated stock Figure 1.3 Overview of Make-to-Order Manufacturing Scenarios Supported by SAP Mass production make-to-order production I n t h i s s c e n a r i o, t h e s a l e s o r d e r d r i v e s t h e p r o d u c t i o n p r o c e s s f r o m a l o g i s t i c s p o i n t o f v i e w. C o n fi g u r a b l e p r o d u c t s w i t h i n d i v i d u a l v a r i a n t s a r e d e fi n e d u s i n g c h a r a c t e r i s t i c s v a l u e s i n t h e s a l e s o r d e r a n d u s e s u p e r B O M s a n d s u p e r t a s k l i s t s. N o c u s t o m e r - s p e c i fi c c h a n g e s a r e e x p e c t e d, a n d t h e c o n fi g u r a t i o n i n t h e s a l e s o r d e r c o m p l e t e l y d e s c r i b e s t h e v a r i a n t. T h e s a l e s o r d e r a u t o m a t i c a l l y c r e - a t e s a p r o d u c t i o n o r d e r, w h i c h t h e n m a n a g e s t h e d i r e c t r e s o u r c e s u s e d t o p r o - d u c e a p r o d u c t. With the use of valuated stock, the focus of the direct, controllable costs incurred during the production process is the production order and not the sales order. B e c a u s e t h e s a l e s o r d e r i t e m i s n o t a c o n t r o l l i n g o b j e c t, m o n t h - e n d p r o - c e s s i n g t a k e s p l a c e n o t o n t h e s a l e s o r d e r, b u t o n l y a g a i n s t t h e p r o d u c t i o n o r d e r. The production orders are processed as in a make-to-stock environment. T h i s m a n u - f a c t u r i n g s c e n a r i o i s u s e d i n a d v a n c e d t e c h n o l o g y i n d u s t r i e s a n d t h e a u t o m o - t i v e i n d u s t r y. Complex make-to-order production I n t h i s s c e n a r i o, t h e p r o d u c t s a r e m o d i fi e d o r e v e n c o m p l e t e l y r e d e s i g n e d i n r e s p o n s e t o a p a r t i c u l a r o r d e r a n d h e n c e c a n n o t u s e t h e p r e d e fi n e d p r o d u c t 33

23 1 Overview of Manufacturing Scenarios Supported by SAP v a r i a n t s. T h i s s c e n a r i o i s a l s o k n o wsales-order-related n a s complex production. The sales order is the focus of the direct, controllable costs. T h e s a l e s o r d e r i t e m f u n c - t i o n s a s t h e c o s t o b j e c t. Make-to-order production without valuated stock T h i s s c e n a r i o i s s i m i l a r t o c o m p l e x m a k e - t o - o r d e r p r o d u c t i o n the, b usales t order stocks are not valuated. S A P r e c o m m e n d s u s i n g t h e m a k e - t o - o r d e r p r o d u c t i o n w i t h v a l u a t e d s t o c k b e c a u s e o f t h e f o l l o w i n g d i s a d v a n t a g e s a s s o c i a t e d w i t h n o n - v a l u a t e d s t o c k : S t a n d a r d c o s t i n g i s n o t p o s s i b l e. B e c a u s e i t d o e s n o t u s e p r o d u c t i o n o r d e r s, v a r i a n c e s c a n n o t b e c a l c u l a t e d. T h e c o s t o f s a l e s i s n o t u p d a t e d i n fi n a n c i a l a c c o u n t i n g u n t i l t h e e n d o f t h e fi n a n c i a l p e r i o d. I n v e n t o r y v a l u a t i o n i s a c o l l e c t i v e v a l u a t i o n, a t o t a l o f a l l p o s t i n g s t o t h e s a l e s o r d e r i t e m Rationale for Using the Make-to-Order Manufacturing Model T h e b u s i n e s s g o a l s o f m a k e - t o - o r d e r m a n u f a c t u r i n g a r e a s f o l l o w s : I m p r o v e c u s t o m e r s e r v i c e b y s a t i s f y i n g c u s t o m e r d e m a n d b y c u s t o m i z i n g t h e p r o d u c t s a c c o r d i n g t o c u s t o m e r s n e e d s a n d r e d u c i n g o r d e r l e a d t i m e. I n c r e a s e r e v e n u e b y i m p r o v i n g c a p a c i t y u t i l i z a t i o n a n d i m p r o v i n g c u s t o m e r r e t e n t i o n. L o w e r w o r k i n g c a p i t a l b y r e d u c i n g fi n i s h e d g o o d s i n v e n t o r y. I n v e s t i n i n v e n - t o r y o n l y w h e n y o u h a v e c u s t o m e r o r d e r s. R e d u c e o p e r a t i n g c o s t s a n d i n c r e a s e e f fi c i e n c y b y i m p r o v i n g p r o c u r e m e n t p r o - c e s s e s, r e d u c i n g i n v e n t o r y l e v e l s, a n d l o w e r i n g l o g i s t i c s c o s t s High-Level Business Processes T h e b u s i n e s s p r o c e s s e s s u p p o r t e d i n a m a k e - t o - o r d e r m a n u f a c t u r i n g s c e n a r i o a r e a s f o l l o w s ( s e e F i g u r e 1. 4 ) : 34

24 Make-to-Order Manufacturing 1.3 Create sales order Availability check Carry out material planning Carry out Scheduling activities Firm plan and release to production Sales & Planning Manufacture Receive shop floor papers Raw material staging Production execution Provide material for quality Finished goods quality checks Material delivered to customers Shipment Billing Quality/Sales/ Dist. Figure 1.4 Overview of Make-to-Order Manufacturing Business Processes Sales order processing A s a l e s o r d e r i s c r e a t e d u s i n g v a r i a n t c o n fi g u r a t i o n. U s i n g v a r i a n t c o n fi g u r a t i o n, y o u c a n c o n fi g u r e c o m p l e x c u s t o m e r r e q u i r e m e n t s. T h e s y s t e m d e t e r m i n e s t h e f e a s i b l e d e l i v e r y d a t e f o r t h e o r d e r. Production planning T h e p l a n n i n g p r o c e s s i s s t a r t e d o n l y w h e n t h e s a l e s o r d e r h a s b e e n r e c e i v e d. Production scheduling D e t a i l e d s c h e d u l i n g i s u s e d t o c o m p a r e t h e c a p a c i t y r e q u i r e m e n t s a n d a v a i l a b l e c a p a c i t y a n d a p p r o p r i a t e l y s c h e d u l e t h e p r o d u c t i o n a c t i v i t i e s. Manufacturing execution P r o d u c t i o n i s c a r r i e d o u t u s i n g a p r o d u c t i o n o r d e r t h a t i s l i n k e d t o a s a l e s o r d e r. Shipment T h e p r o d u c t s a r e p r o c e s s e d f o r s h i p p i n g, a n d n e c e s s a r y s a l e s d o c u m e n t s a r e c r e a t e d. G o o d s I s s u e i s p o s t e d, a n d c o s t o f s a l e s i s a c c o u n t e d f o r. Billing T h e b i l l i n g i s p e r f o r m e d a c c o r d i n g t o t h e p r i c i n g p r o c e d u r e s t a t e d i n t h e o r d e r, a n d r e v e n u e i s a c c o u n t e d f o r. 35

25 1 Overview of Manufacturing Scenarios Supported by SAP Implementation Considerations I f t h e p r o d u c t s b e i n g m a n u f a c t u r e d a r e b a s e d o n c u s t o m e r r e q u i r e m e n t s, t h e n m a k e - t o - o r d e r m a n u f a c t u r i n g s h o u l d b e i m p l e m e n t e d. S A P r e c o m m e n d s u s i n g m a k e - t o - o r d e r p r o d u c t i o n u s i n g valuated stock ( e i t h e r a m a s s p r o d u c t i o n m a k e - t o - o r d e r s c e n a r i o o r c o m p l e x m a k e - t o - o r d e r m a n u f a c t u r i n g ) Finance and Controlling Implications M a k e - t o - o r d e r m a n u f a c t u r i n g h e l p s t r a c k t h e r e v e n u e a n d c o s t s a s s o c i a t e d w i t h a c u s t o m e r o r d e r. T h e d e c i s i o n w h e t h e r t o u s e m a k e - t o - o r d e r p r o d u c t i o n w i t h v a l u - a t e d s t o c k o r m a k e - t o - o r d e r p r o d u c t i o n w i t h n o n - v a l u a t e d s t o c k h a s s i g n i fi c a n t i m p l i c a t i o n s f o r fi n a n c e a n d c o n t r o l l i n g t e a m s. S A P s t r o n g l y r e c o m m e n d s u s i n g m a k e - t o - o r d e r p r o d u c t i o n w i t h v a l u a t e d s t o c k b e c a u s e o f t h e f o l l o w i n g d i s a d v a n - t a g e s a s s o c i a t e d w i t h m a k e - t o - o r d e r p r o d u c t i o n w i t h n o n - v a l u a t e d s t o c k : S t a n d a r d c o s t i n g i s n o t p o s s i b l e. B e c a u s e m a k e - t o - o r d e r p r o d u c t i o n w i t h n o n - v a l u a t e d s t o c k d o e s n o t u s e p r o - d u c t i o n o r d e r s, v a r i a n c e s c a n n o t b e c a l c u l a t e d. T h e c o s t o f s a l e s i s n o t u p d a t e d i n fi n a n c i a l a c c o u n t i n g u n t i l t h e e n d o f t h e fi n a n c i a l p e r i o d. I n v e n t o r y v a l u a t i o n i s a c o l l e c t i v e v a l u a t i o n, a t o t a l o f a l l p o s t i n g s t o t h e s a l e s o r d e r i t e m. 1.4 Engineer-to-Order Manufacturing E n g i n e e r - t o - o r d e r m a n u f a c t u r i n g ( s e e F i g u r e 1. 5 ) i n v o l v e s c o m p l e x e n d p r o d u c t s w i t h m a j o r r e d e s i g n a n d s t r o n g c u s t o m e r - o r i e n t e d p r o d u c t i o n. C u s t o m e r o r d e r s a r e p r o c e s s e d a s p r o j e c t s, a n d c o s t s a r e t r a c k e d u s i n g w o r k b r e a k d o w n s t r u c t u r e ( W B S ) e l e m e n t s. E n g i n e e r - t o - o r d e r i s n o r m a l l y u s e d i n t h e m e c h a n i c a l e n g i-n e e r i n g i n d u s t r y. T a k e, f o r e x a m p l e, t h e p r o d u c t i o n o f t e c h n i c a l l y c o m p l e x t u r b i n e s. S o m e c o m - p o n e n t s a r e p u r c h a s e d f r o m s u p p l i e r s, a n d t h e r e s t a r e m a n u f a c t u r e d i n - h o u s e. E a c h p r o c e s s, f r o m c o m p o n e n t a s s e m b l y t o p l a n t a c c e p t a n c e t o d e l i v e r y t o t h e c u s t o m e r, i s e x t r e m e l y t i m e - c o n s u m i n g. D e l a y s m a y l e a d t o s e v e r e c o n t r a c t u a l p e n a l t i e s a n d t h e r e f o r e s h o u l d b e a v o i d e d a t a l l c o s t s, o r p o s s i b l e d e l a y s s h o u l d b e r e c o g n i z e d l o n g b e f o r e t h e y a r i s e. T h e m a n u f a c t u r e o f t u r b i n e s s h o u l d, t h e r e f o r e, 36

26 Engineer-to-Order Manufacturing 1.4 b e m a n a g e d a s p r o j e c t b u s i n e s s. T h i s a l l o w s o n e t o p l a n a n d m o n i t o r d a t e s, c o s t s, a n d r e v e n u e o n a p r o j e c t b a s i s. I t i s t y p i c a l t o u s e s t a n d a r d p r o j e c t s t r u c t u r e s, s u c h a s p r o j e c t p l a n s a n d n e t w o r k s, a n d s t a n d a r d p r o d u c t i o n d a t a, s u c h a s t a s k l i s t s, p r i c e s, d u r a t i o n, a n d s o o n. Create sales order Create project with clear deliverables and responsibilities Plan material requirements Sales & Planning Engineering Develop technical structure of the product according to requirement Manufacture/ Assemble product against network Finished goods quality checks Material delivered to customers Milestone billing (Resource related and/or fixed price billing) Quality/Sales/ Dist. Figure 1.5 Overview of Engineer-to-Order Manufacturing Business Processes Purpose T h e b u s i n e s s g o a l o f e n g i n e e r - t o - o r d e r p r o d u c t i o n i s t o s a t i s f y c u s t o m e r d e m a n d b y o f f e r i n g c u s t o m e r s c o m p l e x c u s t o m i z e d p r o d u c t s. O r d e r e x e c u t i o n u s i n g p r o j - e c t s y s t e m s g i v e s c l e a r d e l i v e r a b l e s a n d r e s p o n s i b i l i t i e s. E n g i n e e r - t o - o r d e r m a n u - f a c t u r i n g o f f e r s c e n t r a l i z e d c o n t r o l o f c o m p o n e n t s c o n s u m e d d u r i n g t h e p r o j e c t. M i l e s t o n e b i l l i n g f u n c t i o n a l i t y o f f e r s t h e a b i l i t y t o b i l l c u s t o m e r s a s s o o n a s a p r o j - e c t m i l e s t o n e i s r e a c h e d High-Level Business Processes T h e b u s i n e s s p r o c e s s e s s u p p o r t e d i n a n e n g i n e e r - t o - o r d e r m a n u f a c t u r i n g s c e n a r i o a r e a s f o l l o w s : Sales order processing O n e c a n u s e q u o t a t i o n c o s t i n g i n c o n j u n c t i o n w i t h t h e p l a n n i n g o f d e l i v e r y d a t e s. T h i s s c e n a r i o o f f e r s c u s t o m e r - s p e c i fi c p r i c i n g c o n d i t i o n s. 37

27 1 Overview of Manufacturing Scenarios Supported by SAP Project planning T h e c u s t o m e r o r d e r i s p l a n n e d a s a p r o j e c t w i t h c l e a r d e l i v e r a b l e s a n d r e s p o n - s i b i l i t i e s. Advance procurement E n g i n e e r - t o - o r d e r m a n u f a c t u r i n g o f f e r s fl e x i b i l i t y i n p r o c u r e m e n t b y a l l o w i n g a d v a n c e p r o c u r e m e n t o f s u b a s s e m b l i e s. Engineering E n g i n e e r - t o - o r d e r m a n u f a c t u r i n g o f f e r s t h e a b i l i t y t o d e v e l o p t h e t e c h n i c a l s t r u c t u r e o f t h e p r o d u c t a c c o r d i n g t o t h e c u s t o m e r s r e q u i r e m e n t s. O n e c a n a l s o u s e t h e s y s t e m t o g e n e r a t e t e c h n i c a l s p e c i fi c a t i o n s, t e c h n i c a l d r a w i n g s, W B S, B O M s, a n d r o u t i n g s. Production planning T h e s a l e s o r d e r i s u s e d t o p l a n m a t e r i a l r e q u i r e m e n t s, b a s e d o n t h e r e q u i r e - m e n t s f o r t h e fi n i s h e d p r o d u c t s a n d c o m p o n e n t s r e q u i r e d i n t h e p r o j e c t. Manufacturing execution P r o d u c t i o n i s c a r r i e d o u t u s i n g a p r o j e c t s y s t e m l i n k e d t o a s a l e s o r d e r. Project billing E n g i n e e r - t o - o r d e r m a n u f a c t u r i n g o f f e r s t h e a b i l i t y t o d o b i l l i n g b a s e d o n p r o j - e c t m i l e s t o n e s Implementation Considerations I f t h e p r o d u c t r e q u i r e s l a r g e o r d e r - s p e c i fi c p r o j e c t a n d e n g i n e e r i n g s e r v i c e s, t h e n i m p l e m e n t e n g i n e e r - t o - o r d e r m a n u f a c t u r i n g. O t h e r i m p o r t a n t c r i t e r i a f o r i m p l e - m e n t i n g e n g i n e e r - t o - o r d e r i n c l u d e : T h e o r d e r e x e c u t i o n r e q u i r e s a n e x t e n s i v e q u o t a t i o n p h a s e. B o t h i n t e r n a l a n d e x t e r n a l p r o c u r e m e n t a r e i n v o l v e d. Y o u c a n d o m i l e s t o n e b i l l i n g a s p e r t h e p r o c e d u r e l a i d o u t i n t h e o r d e r. Y o u c a n d o e n g i n e e r i n g c h a n g e m a n a g e m e n t t o m a n a g e t h e p r o j e c t Finance and Controlling Implications I n e n g i n e e r - t o - o r d e r m a n u f a c t u r i n g, t h e W B S e l e m e n t i s t h e c o s t o b j e c t. C o s t a n d r e v e n u e a n a l y s i s i s d o n e t h r o u g h a p r o j e c t i n f o r m a t i o n s y s t e m. 38

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