Microcomputer-Based Manufacturing Software: What It Can Do for You

By Needle, Sheldon | Journal of Accountancy, June 1990 | Go to article overview

Microcomputer-Based Manufacturing Software: What It Can Do for You


Needle, Sheldon, Journal of Accountancy


MICROCOMPUTER-BASED MANUFACTURING SOFTWARE

What it can do for you.

A very sophisticated form of planning and cost control is called manufacturing resource planning II (MRP II). It integrates all aspects of the manufacturing organization from basic accounting applications through specialized manufacturing functions. Because of the diverse applications involved, MRP II requires a highly automated and tightly controlled operation.

This article will familiarize accountants with the elements of MRP II. It also explores the two categories of micro-based software: packages for full MRP II systems and those for partial cost control systems.

THE MANUFACTURING ELEMENTS

MRP II is a comprehensive systems approach that coordinates accounting functions (such as order processing, accounts receivable and payable, payroll and general ledger) and manufacturing operations. MRP II manufacturing functions include

* Inventory control.

* Bill of materials (BOM).

* Capacity planning.

* Master production scheduling (MPS).

* Product cost accounting.

Inventory control. This is the foundation of all manufacturing applications. It maintains desired stocks of raw materials, work in process and finished goods. Based on product information, engineering specifications and planning data, inventory control helps determine what's on hand, what has been allocated and ordered and what needs to be ordered (either from within a plant or from an outside vendor) to meet demand.

Bill of materials. A BOM lists all subassemblies and raw materials that go into a parent assembly (or finished part) with the quantity of each required to make the assembly. BOMs facilitate inventory control because they show where items are used, where substitutions can be made and where overall inventory can be cut. Since they contain an analysis of the total costs of a product and all its components, they also help reduce product costs. Knowing the makeup of production items is the first and most valuable step in automating production.

Capacity planning/product routing. Capacity planning indicates what can be produced given plant constraints--labor, space or equipment. Product routing moves manufacturing materials according to an efficient operation sequence so items are at the proper workstation when needed. Direct labor (usually a major portion of production costs) is used more efficiently because workers spend less time waiting to receive materials.

Master production scheduling. MPS is calculated by determining, on a time-phased basis, what will be produced, what inventory will be carried and what orders should be placed to meet the production schedule. MPS, an essential component and driver of MRP II, is based on a forecast of the items that will be sold. It takes into account such things as plant and labor capacity and availability of material. In MRP II, this schedule is very comprehensive and integrates all pieces of the company's planning process, such as forecast data from sales planners, in generating the production plan. For example, a plant manager is concerned with receiving raw materials only when needed for the manufacturing cycle and may not want to order 1,000 units of an item that has a one-week lead time (order to receipt time) when 800 of the units will not be needed for eight weeks. A master production schedule allows the manager to order efficiently.

Product cost accounting. The cost accounting system allows developing and maintaining standard costs for all elements of the production process. Materials, labor and overhead costs (broken out by product, part, service, work center and operation) all can be monitored. The cost system tracks actual costs against standard and provides variance reports showing differences in the costs of materials, labor and overhead usage.

CANDIDATES FOR MRP II

There are three basic types of manufacturers and a fourth that is a combination of the others. …

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