Production System

STARQuest was developed in a specific order to enhance educational benefit. Performing sections out of sequence causes the user to lose functionality and minimizes the benefit of the material. Please note that the tables of input information take precedence over the screenshots of input information, which are purely supplemental. Your instructor will assign you a control number. This is to be used wherever you see XX in the scripts. Prior to starting any of the units, a cash account must be created. Information needed to create the cash account is in the introductory section of our materials.

Through the Production Planning module managers can plan and forecast the utilization and availability of resources for the production process. The aim of this module is to increase throughput and to reduce product stock. This enables organizations to increase efficiency and productivity and at the same time minimize production time and costs.

Production planning also allows managers to determine how assets are to be utilized. They can also prioritize the production schedule on the basis of the availability of resources to determine the estimated date of delivery or on the basis of the committed delivery date. Managers utilize the resources of production planning to effectively track the progress of production orders through the various stages and can then determine whether or not the delivery schedules will be met.

Production Planning in SAP R/3 Within SAP R/3 the approach to the production planning process is as follows.

Sales Starting Forecasting Inventory

Sales and Operations Planning

Demand Management

Detailed MRP Scheduling

Production Purchasing

The production process flows through the steps shown above. In the following section, each step will be explained in greater detail.

Sales Forecasting Sales Forecasting is the process of developing a prediction of the future demand for a company’s products. There are a range of different forecasting techniques that can be used to predict customer demand. With its built in integration tools, SAP’s R/3 system allows historical data to be used in forecasting.

Sales and Operations Planning (SOP) This is the process of determining what the company will produce. The Sales Forecast and Starting Inventory levels are inputs to this process. At first glance, it would seem that a company should just make products to match the forecasted sales, but developing the production plan can be complicated because capacity must be considered. Many products have seasonal demand, and to meet demand during peak periods, production planners must decide whether to build up inventory levels before the peak demand, increase capacity during the peak period, subcontract production, or use some combination of these approaches.

Demand Management This is the process of breaking down the production plan into finer time units, such as weekly or even daily production figures, to meet demand for individual products. The output of the Demand Management process is the master production schedule (MPS), which is the production plan for all finished goods.

Detailed Scheduling This uses Demand Management’s productions plans as an input for a production schedule. A detailed plan must be created stating what needs to be developed, considering machine capacity and available labor. In detailed scheduling, longer production runs means fewer machine setups are required, reducing the production costs and increasing the effective capacity of the equipment. On the other hand, shorter production runs can be used to lower the inventory levels for finished products. Thus, the production run length requires a balance between setup costs and holding costs to minimize total costs to the company. Methods of detailed scheduling depend on the manufacturing environment.

Production Production uses the detailed schedule to manage daily operations, answering the questions, “What should we be producing?” and “What staffing do I need?”

Materials Requirements Planning (MRP) MRP determines the amount and timing of raw material orders. This process answer the questions, “What raw materials should we be ordering so we can meet a particular level of production, and when should we order them?”

Purchasing Purchasing takes the quantity and timing information from MRP and creates purchase orders for raw materials, which it transmits to qualified suppliers.

Production Planning Terminology in SAP R/3 In addition to the production planning process described above, there are several key terms that must be understood in order to use production planning in SAP. They are defined as follow:

Material Master Material is defined as any product that takes part in business activity that could be traded, consumed, or produced. The data related to a particular material is stored as a “material master” associated with a particular level of organizational structure. Basically, a material master is a database that contains all critical information about materials. It contains information about all of the materials that a company produces, stores, and sells. Material masters are created for every assembly, component, tool, or spare part. The information that is stored could be descriptive (a name, a size, or a dimension) or control function forms. There are several views in a material master that contain different types of information. This may include a basic data view, a Materials Requirement Planning (MRP) view, a sales view, a warehouse management view, a costing view and an accounting view.

Bill of Materials (BOM) Bill of Materials is an engineering document that shows a formally structured list of components that is required to make a product or assembly. Production Planning bill of materials contain the master data that is needed for production planning in discrete manufacturing. The data stored serves as the basis for activities such as MRP, work scheduling, and product costing. Production planning BOM consists of two elements, BOM header and BOM items. BOM header gives the BOM assignment to plant locations, defines the validity period, and determines the status management of a component. BOM items are a list of the components of an assembly. Another BOM term used is multiple BOM. This is defined as a collection of bill of materials that specify the alternative combinations of components for a product. The user can display BOM in two different ways, single level or multi level.

Work Center Work centers are organizational units that perform operation functions within a plant. A work center might include a production line, quality checkpoint, packaging line, and a warehouse. All manufacturing processes are routed through work centers. Each work center is connected to a cost center as defined in the Work Center Master Records. These allow costing, scheduling, and capacity planning to be done for each functional production area individually. The amount of work that can take place at a work center is represented as its capacity. When capacity is used, the operations are evaluated by charge rates. Generally, a work center is a Page 3 of 37 (c) 2009 SAP AG

combination of machinery, equipment, vehicles, employees, production lines, and assembly lines.

Product Structure Product structure is a graphical view that displays information about the product data. The information in product structure is helpful for engineering and design as well as for production. The graphical view enables the user to have a quick overview of product-defined data. The user can navigate within a product structure and access all data that is relevant for a particular product.

Routing A routing defines the sequence of steps and the resources required to complete the production of a planned order for materials. A routing can have one or more alternative sequences and parallel sequences. An alternative sequence gives options to choose other operations in place of operations in the standard sequence. A parallel sequence allows different operations to be performed at the same time. Routings list work centers, activity descriptions, and additional information necessary to perform production. They may have one or several steps. A routing includes standard time value for activities, work center where operation is carried, materials assigned to the operations, production resources required for the operations, etc.

Material Requirement Planning (MRP) MRP is a generic term for the activities involved in creating a production schedule or a procurement plan for all the materials in a plant, a company, or a company group. In a typical MRP calculation, R/3 systems consult production planning master data such as material masters, bills of material, routings, and material inventories. If it turns out that available stock is less than quantity required, SAP creates an order proposal.

MRP controllers can interact with MRP to verify that the correct amount of production will take place. They can create and maintain planned orders, re-run MRP for individual materials when necessary, and consult MRP reports to check for errors. The system calculates the order quantity according to a lot-sizing procedure that is specified in the MRP view at the material master. The system allows us to define various MRP and lot sizing procedures for material masters.

MRP can be carried out for an individual material or for all of the materials in a plant. In the total planning procedure, one can plan all the materials in a particular plant starting with the basic database of planned independent requirements, the BOM, and the material master, or can plan the materials that have undergone change relevant to the requirement planning since the last planning run.

Production Order Production order is a data object that specifies the material to be produced by internal processes. It also defines what activities have been carried out, when the material is available for delivery, and the production costs. Production order processes begin with a planned order or other internal request that has been generated by a planning process such as MRP. Another source can be an assembly order where the task is to put components together.

The planned dates and costs associated with the production order allow it to be used to monitor the progress of production activities and to calculate the costs of various activities involved. Although we can schedule using either the start date or the finish date, production orders are generally scheduled backwards from the finish date. The production order also shows where the outputs of various production facilities will be available for dispatch.

Goods Issue The goods necessary for a production planning order have to be physically issued from stock and accounted for by posting a goods issue document. When these goods arrive and are counted as stock, they are acknowledged and accounted by posting goods receipts. Each goods movement is assigned to a movement type in the system. Movement types will enable the system to find predefined posting rules to determine how stock and consumption accounts are to be posted. If movement for the reservation is not allowed then goods issue is not allowed.

Order Confirmation Order confirmations are used to enter activities carried out within a company for a production order. The purpose of the confirmation is to record a phase in the progress of a production order. With order confirmation, the progress carried out for a production order can be monitored.

Purchase Requisition In cases where a planned order is not assigned for in-house production or to an external party, a purchase requisition can be generated. A purchase requisition is an internal document that requires the purchasing department to procure a material. It is the primary instrument for identifying materials that must be procured externally, it is an internal document that is not used outside of the company, and it authorizes the purchasing department to purchase materials in specified quantities and at specified time.

Purchase Order Purchase orders contain information on the purchase terms and conditions and are designed to give legal protection. The Purchase Order identifies information such as order quantity, material or service specifications, quality requirements, price, delivery date, order date, method of shipment, and terms of payment. In addition,

the purchase order determines whether the ordered material is placed in stock or consumed directly upon the receipt of goods.

Gantt Chart A Gantt Chart is a type of bar chart that illustrates a project schedule. Gantt charts illustrate the start and finish dates of the terminal elements and summary elements of a project. Terminal elements and summary elements comprise the work breakdown structure of the project. By using a Gantt Chart, the user can view the work schedule for each component of a production plan broken down into a desired unit of time such as hour, half hour, quarter hour, etc.

Accounting and Control within Production Planning When you create an operation in a routing, you enter the work center where the operation is to be performed. Work centers are assigned to cost centers. A work center is allocated to one and only one cost center.

Cost centers are organizational units within a controlling area that represent a defined location of cost incurrence. You can make organizational divisions on the basis of functionality, settlement-related, activity-related, spatial, and/or responsibility-related business requirements.

You plan standard activity costs in the corresponding cost centers using activity types. When an activity type is allocated to a cost center, it is given a value, for example, in dollars per hour. The work center specifies production activity availability for operations at the work center. One work center can perform up to six different production activities within different charge rates. Examples of activity types are labor, machine, materials, setup costs, quality costs, and resource consumption.

In the following example, 150 units of a motorcycle were produced. Of the finished units, 30 have been sold thus far. This is seen in the figures below.

Work In Progress Debit Credit Beginning 150 Work is completed 150

Ending 0

Finished Goods Inventory Debit Credit Beginning 0 Work is completed 150 Units are Sold 30 Ending 120

Units Sold Debit Credit Beginning 0 Work is completed Units are Sold 30 Ending 30

When the units are completed, work in progress must be credited for the 150 units, and the finished goods inventory must be debited the same. When the 30 units are sold, the Units Sold must be debited for the units and the finished goods inventory must be credited.

When looking at a financial point of view, there are actual costs of $233,211.00, $336.11, and $156.52. The standard cost of creating the motorcycles is $210,000. This can be found by taking the price of $1400 per motorcycle and multiplying it by the 150 units. When the 30 units are sold, they have a cost of $42,000, and there is $168,000 remaining in the finished goods inventory. This can be seen in the figures below.

Work In Process Actual Standard Cost $233,211.00 210,000 336.16 156.52 Total Cost 233,703.68 210,000 Production Variance $23,703.68

Finished Goods Inventory Debit Credit Beginning $0 Work is completed 210,000 Units are Sold 42,000 Ending $168,000

Units Sold Debit Credit $210,000.00 cost = $1400.00 Standard cost Beginning $0 150 Units Work is completed $233,703.68 cost = $1558.03 Actual cost 150 Units Units are Sold 42,000

Ending $42,000

Because of the difference between the standard cost and the actual cost, there is a Production variance of $23,703.68. When broken down by units, this variance is $158.02. Was the production of these motorcycles efficient?

Unit 2- Production System

Sections: Within SAP You Will Do The Following 1. Create a Sales Operating Plan 2. Create A Planned Order 3. Evaluate Stock Requirements 4. Create A Production Order 5. Release Orders for Production 6. Confirm Production Order 7. Display and Evaluate Production Reports

1.1 Production System

1.1.1 SAP Easy Access

Step Action 1. Start the transaction LOGISTICS, PRODUCTION, SOP, PLANNING, FOR MATERIAL, CHANGE (T-Code = MC88) by double clicking it.

1.1.2 Change Plan: Initial Screen

Step Action 1. Enter LAST NAME–0XX in the Material box.

2. Enter 3000 in the Plant box.

3. Click on .

1.1.3 Change Rough-Cut Plan

Step Action 1. Enter 40 in the box in the M Current Month column and Sales row.

2. Enter 50 in the box in the M Second Month column and Sales row. 3. Enter 60 in the box in the M Third Month column and Sales row.

4. Enter 70 in the box in the M Fourth Month column and Sales row.

5. Enter 10 in the box in the M Current Month column and the Target stock level row.

6. Enter 15 in the box in the M Second Month column and the Target stock level row.

7. Enter 20 in the box in the M Third Month column and the Target stock level row.

8. Enter 20 in the box in the M Fourth Month column and the Target stock level row.

1.1.4 Change Rough-Cut Plan

Step Action 1. Click on .

1.1.5 Change Rough-Cut Plan

Step Action 1. Click on the menu item to execute it. 2. Click on the menu item to execute it. 3. Click on Save . 4. Click on Exit .

1.1.6 SAP Easy Access

Step Action 1. Start the transaction LOGISTICS, PRODUCTION, SOP, DISAGGREGATION, TRANSFER MATERIAL TO DEMAND MANAGEMENT (T-Code = MC74) by double clicking it.

1.1.7 Transfer Planning Data to Demand Management

Step Action 1. Enter LAST NAME-0XX in the Material box. 2. Enter 3000 in the Plant box.

3. Enter A00 in the Version box.

4. Click on . 5. Invisible transfer is deselected. 6. Active is selected. 7. Click on . 8. Click on Exit .

1.1.8 SAP Easy Access

Step Action 1. Start the transaction LOGISTICS, PRODUCTION, MRP, PLANNING, SINGLE ITEM – MULTI-LEVEL (T-Code = MD02) by double clicking it.

1.1.9 Single-Item, Multi-Level

Step Action 1. Enter NETCH in the Processing key box.

2. Enter 2 in the Create purchase req. box.

3. Enter 1 in the Delivery schedules box.

4. Enter 1 in the Create MRP list box.

5. Enter 1 in the Planning mode box.

6. Enter 1 in the Scheduling box.

7. Also plan unchanged components is deselected. 8. Display material list is deselected. 9. Click on Enter . (Soft code error may occur, requiring you to hit Enter a second time) 10. Click on Enter .

1.1.10 Single-Item, Multi-Level

Step Action 1. Click on Exit .

1.1.11 SAP Easy Access

Step Action 1. Start the transaction LOGISTICS, PRODUCTION, MRP, EVALUATIONS, STOCK/REQUIREMENTS LIST (T-Code = MD04) by double clicking it.

1.1.12 Stock/Requirements List: Initial Screen

Step Action 1. Enter LAST NAME-0XX in the Material box. 2. Enter 3000 in the Plant box. 3. Click on Continue .

1.1.13 Stock/Requirements List

Step Action 1. Click on the Most Recent Production Order in the MRP element box.

1.1.14 Stock/Requirements List as of 14:37 Hrs

Step Action 1. Click on . 2. Click on Save . 3. Click on Exit .

1.1.15 SAP Easy Access

Step Action 1. Start the transaction LOGISTICS, PRODUCTION, SHOP FLOOR CONTROL, ORDER, CHANGE (T-Code = CO02) by double clicking it.

1.1.16 Production Order Change: Initial Screen

Step Action 1. Click on Enter .

Note: Diplay Overview should be selected by default.

1.1.17 Production order Change: Header

Step Action 1. Click on .

1.1.18 Production order Change: Header

Step Action 1. Click on the menu item to execute it. 2. Click on Save . Please write down your Order Number.______.

1.1.19 Production Order Change: Initial Screen

Step Action 1. Click on Exit .

1.1.20 SAP Easy Access

Step Action 1. Start the transaction LOGISTICS, PRODUCTION, SHOP FLOOR CONTROL, CONFIRMATION, ENTER, FOR ORDER (T-Code = CO15) by double clicking it.

1.1.21 Create Production Order Confirmation: Initial Screen

Step Action 1. Enter YOUR PRODUCTION ORDER # in the Order box. (Note: You should have written this number down in the previous step. If not, you can search for it.) 2. Click on Enter .

1.1.22 Confirmation of Production Order Create : Actual Data

Step Action 1. Select . 2. Click on Save . 3. Click on Exit .

1.1.23 SAP Easy Access

Step Action 1. Start the transaction LOGISTICS, PRODUCTION, SHOP FLOOR CONTROL, GOODS MOVEMENTS, GOODS RECEIPT (T-Code = MB31) by double clicking it.

1.1.24 Goods Receipt for Order: Initial Screen

Step Action 1. Enter 101 in the Movement Type box. 2. Enter YOUR PRODUCTION ORDER # in the Order box. (Note: You should have written this number down in the previous step. If not, you can search for it.) 3. Enter 3000 in the Plant box. 4. Enter 0001 in the Stor. Location box. 5. Click on Enter .

1.1.25 Goods Receipt for Order

Step Action 1. Click on Post . 2. Click on Exit .

1.1.26 SAP Easy Access

Step Action 1. Start the transaction LOGISTICS, PRODUCTION, SHOP FLOOR CONTROL, ORDER, DISPLAY (T-Code = CO03) by double clicking it.

1.1.27 Production Order Display: Initial Screen

Step Action 1. Enter YOUR PRODUCTION ORDER # in the Order box. (Note: You should have written this number down in the previous step. If not, you can search for it.) 2. Click on Enter .

1.1.28 Production order Display: Header

Step Action 1. Click on . 2. Click on the menu item to execute it. 3. Click on the menu item to execute it.

1.1.29 Production Order: Display Operation Graphic

Step Action 1. Click on Close .

1.1.30 Production order Display: Header

Step Action 1. Click on . 2. Click on the menu item to execute it. 3. Click on the menu item to execute it.

1.1.31 Gantt chart

Step Action 1. Click on the menu item to execute it. 2. Click on the menu item to execute it. 3. Click on Close .

1.1.32 Production order Display: Header

Step Action

1. Click on . 2. Click on the menu item to execute it. 3. Click on the menu item to execute it.

1.1.33 Target/Actual - Comparison

Step Action 1. Double click on .

1.1.34 Display Actual Cost Line Items for Orders

Step Action 1. Double click on .

1.1.35 Display Material Document

Step Action 1. Click on the tab to select it. 2. Click on .

1.1.36 Display Material Document

Step Action 1. Double click on .

1.1.37 Display Document: Data Entry View

Step Action 1. Click on Back .

1.1.38 Display Document: Data Entry View

Step Action 1. Click on Back .

1.1.39 Display Material Document 5000012268 - Alex Raymond

Step Action 1. Click on Cancel . 2. Click on Back .

1.1.40 Display Actual Cost Line Items for Orders

Step Action 1. Click on Back .

1.1.41 Display Actual Cost Line Items for Orders

Step Action 1. Click on .

1.1.42 Target/Actual - Comparison

Step Action 1. Click on Back .

1.1.43 Production order Display: Header

Step Action

1. Click on .

1.1.44 Production order Display: Header

Step Action 1. Click on the menu item to execute it. 2. Click on the menu item to execute it.

1.1.45 Production order Display: Header

Step Action 1. Click on Continue .

1.1.46 CP Japan: Layout for Demo

Step Action 1. Click on Exit .

Simulation Regenerate a new production order for the second month of production. Go to the cost screen and determine what your actual cost was, what your standard cost was, and what the variance is.

Quiz 1. The acronym SOP stands for: a) Systems, Operations, and Products in Data Processing b) Systems Operating Processes c) Sales and Operations Plan d) Sales, Organization, and Process e) None of these

2. The main purpose of Demand Management is to: a) Get overview of customer demand b) Poll the people to find out preferences and produce to their demand c) Distribute the material in the most efficient manner d) Break down the production plan into individual components to meet customer demand e) None of the above

3. MPS is the abbreviation for: a) Material Production for Sales b) Man Power Schedule c) Master Production Schedule d) Material Presentation Screen e) None of the above

4. What is the central purpose of the screen that is shown? a) To analyze past inventory levels of the Raymond Motorcycle b) To calculate the demand for the Raymond Motorcycle c) To review the proposed production plan for the Raymond Motorcycle d) To enter inventory information for logistical purposes e) All of the above

5. What is the sales demand projected for January 2008? a) 50 b) 55 c) 60 d) 15 e) 2

6. What is the planned stock level for the Raymond Motorcycle for January? a) 60 b) 65 c) 20 d) 3 e) 10

7. How many motorcycles are to be produced in the month of January? a) 65 b) 60 c) 3 d) 20 e) 10

8. How many motorcycles are to be produced in the month of February? a) 2 b) 20 c) 3 d) 70 e) 10

Cost of Production/Cost Schedule

9. What is the total actual cost to manufacture the product? a) $233,703.68 b) $210,000.00 c) $233,211.00 d) $23,703.63

10. What is the value of the inventory (at standard) transferred out of the factory into the finished goods inventory warehouse? a) $210,000.00 b) $139,726.50 c) $233,211.00 d) $23,703.68

11. Which of the following are true with respect to BOM? a) BOM stands for Basic Operations Management. b) A BOM is a recipe for building a product. c) A BOM lists every component piece or sub-assembly needed to manufacture a product. d) A BOM lists every manufacturing operation needed to manufacture a product.

Essay 1 Looking at the cost schedule, what was the standard cost of production that was transferred out of factory into finished goods inventory warehouse? How many units is this based on? What was the unit standard cost? Where did the standard cost information come from?

Essay 2 What is meant by bill of materials? What are the components that make up the motorcycle?

Essay 3 How is the sales forecast determined? Who is responsible for determining it?

Essay 4 What is meant by material requirements planning?

Essay 5 If you were interested in finding out the number of units to be produced three months from now, what schedule would you look at?