CLOCK-LIKE PRECISION AND CONTROL FROM ANYWHERE WITH THE CLOUD

From light Manufacturing to Wholesale to eCommerce, Order Time from NumberCruncher provides powerful control over orders, customers, and inventory in a single, easy system from any device, anywhere in the world. anytime, anywhere.

An important tool for manufacturers is the Bill of Materials also known as the BoM or recipe.     The bill of materials is a listing of the raw materials and work in progress and the quantities of each needed to manufacture a finished product.      The bill of materials has multiple purposes including:

• Pricing: A labor and overhead element can also be included in the bill of materials. By listing each raw materials and associated labor you can derive a cost for your products. You then compare that to the market price to ensure you will be producing profitablly.
• Production: The BoM is the basis for manufacturing the product. It is used for pick sheets and routing. It can also be used for raw material back flushing.
• Purchasing: The BoM is used to forecast the raw materials demand based on the quantity of finished products that needs to be produced.

Indented bill of materials

The term indented bill of materials refers to a product that has multiple stages of production. The typical manufacturing process has at least one work in progress stage and packaging stage.   At each stage the product is inventoried which implies that a seperate SKU or Item should be created for each stage. The indented bill of materials will show a hierarchical nature of a finished goods with the top level reprsenting the finished product which may be comprised of raw materials and work in progress. The following is an example of 2 stages in production:

• Batch: The raw ingrdedients are mixed and one or more batches are created. Lot or batch #s are used to distinguish between batches made at different times. The bill of materials will contain the raw materials necessary to create the batch.
• Package: The batch will be combined with other raw materials to create the finished product. The bill of materials will contain the quantity per of the batch necessary to create a unit of the finished product.

Routes vs. Stages

A stage is different than a route.   A route refers to a step in the production process to achieve a certain stage.  For example in producing the batch there may be mutiple steps including pouring, mixing, cooking, cooling etc.   You draw the line between a step and a stage by determining if you need to keep track of the inventory of work in process (WIP). If you need to inventory WIP then it should be a stage and it should it have its own SKU and bill of materials.  Otherwise it should be a route or step.

A sales order is an internal document that records a sales to be made in the future. It helps the company plan for the resources that are required (inventory or labor) to complete the sale. The sales order records a customer's originating purchase order; in other words the customer's purchase order is the originating document which triggers the creation of the sales order. The sales order, sometimes abbreviated as SO, may be for products and/or services. Each sales order should have on it an order number, the customer name, billing and shipping addresses, customer purchase order number, order date, special instructions, due date and a listing of products and services together with their quantities and prices. A sales order is primarily used in the wholesale, distribution and manufacturing industries.

So you may be asking, why don’t I just do an invoice or sales receipt and bypass the sales order altogether? In certain circumstance, you can bypass the sales order if the sales is immediate (e.g. in retail). In all other cases a sales order should be created.

Typically, after the sales order is created, a pick ticket is generated to instruct the warehouse on which product to pick. Once the packing list is created you may determine which products are on ‘back order’.

The sales order is tremendously useful as a planning tool. With the sales order you can

1. estimate future sales
2. helps you estimate profitability on an order before accepting the order
3. can be used send out an order confirmation
4. assist customer service in tracking order status
5. determine what stock needs to be ordered from suppliers
6. for manufacturers, the sales orders can be used to plan production orders.
7. determine your order fulfillment efficiency: e,g, Lead time - the time between the date that your customer placed the order and
8. determine back orders - how many orders have shipped completed

All Orders by NumberCruncher is an inventory and order management system that help you manage sales orders.

“Why can’t I just tell the customer when their shipment is going out the door” exclaimed Harry.  “Their order has been sitting there for 2 weeks and stills no shipment; they’re our biggest customer!”

Everyone on the room was very quiet not wanting to send Harry over the edge. Finally Kelly spoke “Well it seems there were a bunch of sales orders that came in before theirs so when we received the purchase order from the supplier we filled those orders first”.  There was no way to tell that product should have been shipped to a different customer.

Something struck a chord in Jack’s mind. “You know the guys down the street had the same problem until they started using All Orders by NumberCruncher.”   Jack continued, “When they create a sales order for certain customers in All Orders, they link it to a purchase order.  Once they’re linked to one another the quantity on the purchase order is reserved for that customer and it cannot be diverted to another customer.  In addition, the links to the sales order are visible on the purchase order so it’s easy to tell which orders should be filled when a purchase order is received.”

Everyone, including Harry, was impressed.    “What are we waiting for?” said Harry, “Let’s get a demo of All Orders ASAP!”

A reorder point is great tool to identify which products to order from your suppliers.   Generally the reorder point is defined as lead time demand plus safety stock.     So lets say your lead time is 30 days and during that period your usage will be 70 units and safety stock is 30 units making the reorder point 100 units.    Now lets assume you have 105 units in stock and your next PO will be in 30 days.     This product will not be flagged for reorder because it is not below the reorder point.   By the time you issue your next purchase order,  you will have 35 units left or 15 days supply but the product will not arrive for another 30 days which will result in back order of 35 units!   

To avoid this issue, safety stock should include a factor for order cycle which is generally demand until the next order cycle.  Revisiting the above example, if the reorder point where to include 170 units then the product would be flagged during the reorder analysis and a back order avoided.   

What is a serial number?

A serial number is an identification number assigned to a distinct unit of a product from a single manufacturer. A serial number may be found on the packaging or on the unit itself.

A product will typically have an identifier often referred to as an SKU (stock keeping unit). For example a cellular phone made by RIM may have an SKU of 64905 which is BlackBerry Bold 9000. In addition to the SKU, each phone will have unique serial number. In the cell phone, wireless business its called an IMEI or International Mobile Equipment Identity. So whereas there may be thousands of 64905s there will only be one with IMEI 353958803-121326-9.

Why should my business track serial numbers

Serial numbers enable the manufacturer to trace a product back through the production process to the source of the components used in the finished product.  In our example of a cellular, the serial number allows the manufacturer to determine which components where used and from which supplier. So in the case where a certain batch of components may have been faulty, the manufacturer can recall only the serial numbers affected instead of a total recall.

Another reason is for warranty purposes.   Through its serial number you can trace which customer purchased a particular phone and if that phone is still under warranty.

In the cell phone business IMEI are also used for a blacklist of stolen devices.  Through the Central Equipment Identity Register an cell phone can be prevented from making calls through its IMEI.

How can All Orders by NumberCruncher help track serial numbers?

Technology exists to ease the tracking burden. These solutions include electronic records handling to help streamline the handling of bills of material and work orders, as well as technology such as barcodes and labels for serial traceability and warranty dates. But this technology has typically been out of reach for the small manufacturer. However All Orders by NumberCruncher provides sophisticated yet cost effective means to track serial numbers through the supply chain to the consumer and its integrated with QuickBooks.

Bill of material

A bill of material (BOM) is a list of the raw materials, sub-assemblies, intermediate assemblies, sub-components, components, parts, and the quantities of each needed to manufacture the final product. It may be used for communication between manufacturing partners or confined to a single manufacturing plant.

A BOM can define products as they are designed (an engineering bill of materials), as they are ordered (a sales bill of materials), as they are built (a manufacturing bill of materials), or as they are maintained (a service bill of materials). The different types of BOMs depend on the business need and use for which they are intended.

An electronic BOM provides greater control over production costs. The ease in creating and editing an electronic BOM helps in maintaining product quality—the actual vs. expected product output.

Using BOMs ensures engineering designs are adhered to during production.  The BOM has production instructions and routing steps, including one that can be called quality control. You wouldn’t believe how many small companies keep their BOMs and production notes on paper in a file cabinet (or in the owner’s head). Paper, or even basic Excel spreadsheet systems don’t allow companies to easily update and instantly communicate changes throughout the entire organization.

Small electronics and computer manufacturers need vital inventory and order management features to effectively track inventory quantities, production, and customer orders. All Orders by NumberCruncher for has the necessary tools that QuickBooks Inventory for manufacturing and manufacturers does not have. From bill of materials to tracking warranty dates, these electronic manufacturers have the same compliance and operational requirements as larger companies. They need much, but not all, of the functional technology solutions [that are available to larger companies]. Too often this type of BOM functionality is found in costly software and hardware solutions.

Work Orders

Paper work orders do not allow production data to be shared throughout a central database. Quality processes cannot be effectively documented and saved to create standard operating procedures critical to electronics production. The ability to save and attach the serial number being manufactured ensures quality processes.

The electronic work order is used to create finished product. Each step in the work order is completed before the work order can be finalized. Too often lower-cost technology solutions lack the needed custom fields required per work order that allow the quality control checklist to be integrated with all other functions, and retained in the same database as order and inventory information.

Without the work order, the impact on quality will be significant, because the internal quality metrics cannot be documented. The work order is the internal document that manages production of a specific BOM for a specified quantity.

Bar Codes

Just as they use clipboards to keep track of inventory levels, many electronics manufacturers use a grease board, dry erase board, or a spiral notebook to track orders from suppliers, inventory, location transfers, customer orders, shipping information, work order picking, and inventory counts and adjustments. All of these can be done via mobile bar code scanning, but until now, many electronics manufacturers have found this critical technology inaccessible because they were priced out of these solutions.

Using bar codes for components ensures that the correct ingredients are picked and overall production efficiency increases. The level of efficiency and reduction of errors decreases by an average of 10 percent

Serial numbers and Warranty or Acquisition dates

No one wants to keep inventory on the selves for too long.  Nor do electronics manufacturers or wholesalers want repair a unit with an expired warrant period or better still a unit that they did not sell.   By not tracking serial numbers you are loosing money by

• Spending to much time researching serial numbers
• Repairing units that are not under warranty
• Repairing or allowing a return for something you did not even sell!

If you are a manufacturer, wholesaler, or retailer and have repetitive orders of the same products, you have undoubtedly asked yourself at what stock level you need to replenish your inventory. The goal is to reduce inventory levels while being able to fill most of the orders that come through the door. Here’s how.

Lead Time

When you place a purchase order with a supplier, it will take some time for the inventory to reach your door. This is called lead time. A local supplier’s lead time may be one to four days, while an overseas supplier’s may be four weeks. Therefore, you should have at least enough inventory to last during the lead time.

Many things can happen during the lead time period. The supplier may delay in delivering your order, for example, or you may get an unexpected bounce in sales. So in addition to having enough stock during the typical lead time, you should also keep a bit extra, known as safety stock.  The reorder point, therefore, is calculated as follows:

Reorder point = lead time demand + safety stock

Lead time demand is what you expect to sell during the lead time period and is calculated as follows:

Lead time demand = lead time (usually in days) x forecasted daily unit sales.

If the lead time is 14 days and the forecast is three units per day, for example, the lead time demand is 42 units.

Reorder Point

To calculate the reorder point, you need to know forecasted daily unit sales. Some businesses know this exact number because they already have standing orders from their customers. Other businesses, such as retail, look at past sales to determine this number. When looking at past sales, consider seasonal fluctuations. For example, if you sell snow boots, you would not look at January sales when forecasting for July; you would base the forecast on the previous year’s July sales.

The final piece of the reorder point calculation is safety stock, which is that bit extra just in case. The calculations for safety stock can be simple or extremely complicated, depending on whom you ask. Many people opt for the simple solution:

Safety stock = lead time demand x 50%

This simply states that your safety stock is half of the lead time demand. So if the lead time demand is 42, safety stock is 21. So now you can calculate the reorder point, which is 63 (42 + 21).

Reorder Amount

There are a number of calculations for determining what the report point might be.   One is using the Economic Order Quantity (EOQ) which I describe below.    Another approach uses the Min/Max.      When the inventory stock level reaches a certain minimun quantity the minimum (min), the order quantity should bring the quantity to the maximum allowable.    The 'min' is the Reorder Point calculated above.  The Max could be a percentage of the reorder point.   Assume in the Min=63 and Max is 80 and there are 40 unit in stock, the order amount will be 40 as follows:

If Stock is less than 63,  Reorder amount = Max - In Stock

EOQ is designed to minimize inventory carrying costs. Inventory carrying includes interest, taxes, insurance, and temporary storage (not rent, which you must pay regardless of inventory level).

Reorder Amount == √( 2 x AU x OC ) / (ACC)

AU = annual usage in units
OC = order cost
ACC= annual carrying cost per unit

This formula looks more complicated than it is. The annual usage is an easy number. This is how much you sold or used in production in a year. The order cost represents the cost of processing a purchase order from quote to payment. For a small business, you can use $15; for larger businesses, use $30. For the annual carrying cost per unit, use the cost of the product multiplied by 10 percent.

Continuing from the previous example, let’s see the following values.

AU = 1000
OC = 15
ACC= $2 ($20 cost of product x 10%)

Reorder Amount = √( 2 x 1000 x 15 ) / (2) = 123 units

So when the stock level reaches 63 units, you place a purchase order for 123 units.

The good news is that inventory software will do most of the calculations for you.  Morever, software like All Orders by NumberCruncher will calculate the reorder points and lead times and also generate purchase orders for multiple vendors with one click of the button.