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We don’t want a million item codes! (Part 2)

Written by Pieter Hamans on . Posted in Exact Online

In a typical job shop environment, many small orders for unique parts or small series are processed each day. When we also consider all parts quoted for unsuccessfully, the potential to accumulate unique part numbers is dazzling. It comes natural to wonder whether we can quote and produce in absence of a part number. And yes, we can! The first instalment discussed the average costing environment. In this second instalment we elaborate on operating in a standard costing environment.

Recap of the first instalment

As before, you do need a part number. We can re-use this part number in each quotation or shop order. Now it is important to know that it makes a difference whether we proceed order-driven or stock driven.

Stock driven process

We follow a stock driven process if we create shop orders based on reorder policies or from a demand that is not apparent within Exact Online (manually). Typically, this process would be applied to standard products or subcomponents for which we have defined a BOM. We then create a shop order manually or from the Demand planning (do not link sales orders!). It is understood that each stocked item has its own item code and its own, standard, cost price. When we manufacture such a standard item, we experience variations in efficiency (more/less material and hours), resulting in cost fluctuations. The standard cost environment will value the shop order receipts at standard cost price, and enter the difference between standard cost and the actual cost on the manufacturing variance account. This entry happens when the shop order is completed.

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Order driven process

The order driven process presumes that a sales order is linked to the shop order. The product would typically be customized and may be unique or a small series that likely does not repeat. It is pointless to define a standard cost price for such items, or to measure variance with the objective to achieve productivity improvements in the future for the same product. Currently Exact Online receives all products in the standard cost environment at standard cost, regardless or we follow a stock driven or an order driven process. This is going to change. In April we are releasing an enhancement that receives at the projected cost price if the order driven process is followed. A precondition is that we have to receive with the disposition ‘deliver’. If we for whatever reason decide to ‘put in stock’ our receipt, it will happen at standard cost price! The enhancement will usually (note) result in a zero manufacturing variance.

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When we operate with the order driven process, it is understood that all parts are passing through inventory (at projected cost) and result in a cost of goods sold equal to the projected cost. So, even when the same item is re-used in the same sales order, different cost prices are recorded with each order line.

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When parts are returned from the customer, the cost price used in the delivery will be used to record cost of goods sold and inventory value.

Benefit of this enhancement

This enhancement will be beneficial to order driven manufacturers that want to re-use part numbers (‘don’t want to create unnecessary part numbers’) in a standard cost environment. It will be released in April 2015.

More information with Pieter Hamans (pieter.hamans@exact.com).

 

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