TOTALsupplychain Evaluation Center
March 12, 2003
The most glaring omission from some ERP systems- and a real bugbear for project manufacturers- is what they fail to manage and assume.
We all know that upfront of any manufacture, there is extensive work in product definition (i.e., estimation, design, and engineering) before anything can be made or bought. In volume manufacturing the product definition work will be amortised over the items’ life- possibly thousands of items. Whilst overrun here will effect the time-to-market of the product, it has no effect on the lead-time of any one order, and is therefore not planned in the same way. Moreover, the extensive costs of product definition are absorbed into company overhead or product costing, so an overrun of costs can be managed in the context of a long term pricing strategy.
Project manufacturing is very different. Since most projects have unique requirements, lead time of the product definition processes will directly impact on the delivery of the project, and will affect the contract. The company will go through it all over again on the next project, so there’s effectively nothing to amortise the costs over. Far from being ignored, these "up front" processes need to be carefully planned and accounted for.
Then there’s commissioning and installation post manufacture. Project manufacturers may have to put extensive planning and effort in to what happens after work in the factory is finished. A manufacturer of boilers, say, may have to involve contractors, testing agencies, hauliers, and extensive labour, all to commission the project. Yet volume manufacturers- once more- see things in a different light. They presume that product is commoditised; that it can be distributed to users, re-sellers and other manufacturers who know what to do with it. Their traditional lead-time calculation only counts up to final assembly.
So in scope, those companies who recognise that they are project manufacturers have to seek out ERP systems that will plan and account for activities before and after the "factory" activity. Despite advancements such as Advanced Planning Systems (APS), ERP systems designed around volume manufacture- all limit the scope of their calculations to the remit of the factory floor.
Read more on this topic on TOTALsupplychain Evaluation Center.
