In a perfect world, your company would continually have enough inventory on hand to fill all of your customer orders and ship them on time. Unfortunately, this isn’t always the case in the real world.
It could be that one of your suppliers of raw materials is having problems shipping you what you need. Maybe a machine on your shop floor is down for repairs affecting your capacity to produce. Or, maybe your ERP software doesn’t give you the ability to properly forecast what you need to keep in stock, both saleable items and the components needed to produce those items.
There are several reasons an item may get backordered. Regardless, it’s important to know the answer to the unavoidable customer question – “When can you ship my order?”
An ERP Solution
Any good ERP solution for Manufacturers should include the real time calculation of an Available-to-Promise (ATP) date for any items not in stock as the sales order is entered. This is the date the product will be available based upon the following constraints: Available stock and commitments to that stock, production capacities, components on hand, and vendor lead times.
INFINITE production scheduling, meaning there are no capacity restrictions, the time required to produce the item should be calculated using the produced item’s fixed and variable lead times combined with lead times needed to stock any short components. The available date is then the order placed date, plus the component lead time and production lead time.
FINITE production scheduling, meaning you’re prevented from scheduling more work than you have the capacity to produce, the sale order entry program should first look at open work orders and their due dates and quantities and subtract from that any other customer backorders that may exist. If the existing work orders don’t cover the shortage it should next look a planned work orders and their due dates and quantities
If this still doesn’t cover the shortage the program should lastly look at the purchase lead time for any short components, the hours needed to produce the item based on its routing steps and the available hours at the work center on your shop floor that produces the item.
Empowering your employees by giving them the ability to provide customers with accurate information regarding their order ship date. Having ERP software that has the ability to provide this information real time. That’s what we call good customer service!
A blanket sales order is a type of master order that contains specific quantities for certain inventory items at pre-determined prices that the customer can draw against over a set period of time. There are several ways using blanket sales orders can create a symbiotic relationship between Electronics manufacturers and their customers.
- Your customer commits to purchasing a large quantity which can qualify them for volume discounts
- The pricing is set over the course of the blanket contract, which eliminated the possibility of pricing fluctuations
- Eliminates cash tie ups induced by holding stock in a warehouse by allowing your customer to have a product shipped to them when they need it
- Because you know what your customer needs and when they need it delivered, you know what to manufacture and when
- They help your company reduce the amount of cash tied up in raw materials and components, while allowing you to schedule the resources needed to manufacture the product
So how do blanket sales orders work? Continue reading
The concept of ‘mass customization’ is a fact of life in the electronics manufacturing business. To satisfy customer expectations, companies must be able to produce small quantities (i.e., ONE unit) of specifically configured or designed product to a large volume of customers – and they must do this in a competitively short lead time.
Modern computing platforms have both the capacity and processing power to support the capture and storage of these details, but does the ERP system have the needed functionality to seamlessly and efficiently manage this information? Does it require tedious extra steps, and manual workarounds, to give the users the data they need, or is it built-into the business processes as part of daily activities?
Serialization should address the following requirements to effectively support an electronics manufacturer:
- Record and retrieve both the manufacturer and internally assigned serial numbers for purchased items
- Record or assign serial numbers for manufactured items used as intermediate components, or end items sold to customers
- Record and retrieve serial numbers when product is sold to customer
- Record the ‘as built’ relationships between serialized purchased items, sub-components, and end items sold
Serialization for Purchased Items
Serializing a purchased item is important whenever an issue with the item needs to be communicated back to the supplier. Since many suppliers serialize the items they sell, it becomes critical to electronically record them at time of purchase. This prevents endless review of paper documents when attempting to retrieve the purchase details for a component that has failed. In addition, an effective system should be able to trace the lifecycle of the serialized item, to easily show where it was consumed in the manufacturing process, or where and how it ultimately left the facility to end up in the hands of a customer.
It is also a common requirement to trace a serial number back to the original purchase transaction, to see related serial numbers that were received on the same purchase order, and be able to trace those serial numbers to their final destination. In this way, a faulty unit discovered after failure ‘in the field’ can be traced back to the original suppler and transactions of a related ‘batch’ of units, and then traced forward to other affected units in the field.
Finally, recording the receipts for these items should be seamless and efficient. They should make maximum use of collection devices such as barcode scanners to quickly record manufacturer serial numbers (these large numbers may not be accurately recorded by hand), and automate the assignment of internal serial numbers.
Serialization for Manufactured Items
Electronics manufacturers very commonly serialize items they produce, whether they are used at a higher level of a multi-level bill of material, end items manufactured to stock, or manufactured directly for sale to customers. To support this process, serial numbers are typically assigned automatically, either at the beginning of production or as part of the production completion step. The system must be able to auto-generate barcode labels that can be attached at varying stages of production and the serial numbers must be part of any transaction associated with inventory movement.
Production runs for either small or large quantities should also be supported. This means accurately recording serialized component usage to specific units of serialized end items. It is not sufficient to know that 25 serialized power supplies went into the production of 25 PCs on a large run. We need to know which power supply went into each specific PC.
As with the purchase receipt of goods, the capture of component material usage, and end item put-away in production should be easily done via barcode scanners at the actual physical point of usage in real-time mode.
Serialization for Sellable Items
Serialized items that are sold to customers may be processed in a variety of approaches. They may be sold directly from stock. Or they may be sold as part of a ‘make-to-order’ or ‘engineer-to-order’ run that is related to a specific sales order. In any case, the individual units sold must be identified at the serial number level, to facilitate:
And, consistent with other areas of inventory movement, the staging of serialized items for shipment should include the ability to accurately scan internally assigned barcode labels with a scanner.
Tracking Serialized ‘As Built’ Details
This ability is a key feature to electronic manufacturers. It is imperative in resolving both customer and supplier issues in a timely and accurate manner.
As noted earlier, if a customer encounters issues with a product they purchased, they may be able to identify the original sales document but that is often not the case. If they can identify the serial number of the product or any of its individual internal components, the ERP system should be able to use that information to quickly retrieve all the other related information (such as the sales order, the production order and the supplier of serialized part.
Conversely, if a supplier communicates an issue with a purchased product, it is important to be able to easily determine where and when the parts were purchased and where those items are today, whether in stock, consumed by one or more production runs, or in the hands of customers. Once determined, there should be automated notification support in place to make sure customers and production personnel are aware of the issue so they can act accordingly.
Dealing with serialized items adds a layer of complexity to the inventory, production, purchasing, and sales activities in an enterprise that can cripple many ERP systems. Electronics manufacturers are keenly aware of the need for seamless and built-in support for this functionality. It is not a feature which can be ‘bolted on’ after the fact; it must be part of the initial design of a comprehensive system. As such, it must be capable of recording and tracking serial detail from point of purchase all the way through the supply chain. It is therefore worthwhile to review and understand in detail the serialization support that is offered in any ERP system you are evaluating.
Have you tried to buy a pair of running shoes lately? The first thing you may discover is that you are not even at the right store. That’s how specialized our economy has become. Go to a store that caters to a different type of customer and you’ll wind up with a poor fit and limited choices. ERP software works the same way – your company size, feature fit and corporate culture all matter, so you need to find an ERP Software package and vendor that share the same long term goals.
We only work with small and medium sized companies that make something with a significant electronics component, even though our software extends to companies outside our target market.
We give the most attention to customer requests that have value for our market. For example, when a customer requests a new feature, we ask ourselves “Would an electronics manufacturer need this feature?” If the answer is yes, we add the feature to our product and all of the customers in our target market benefit.
If the answer is no, then the feature is built as a custom feature for that customer only. As much as we’d like to build every feature on every customer’s wish list, we wouldn’t be able to justify the business case. The exact opposite happens with our target market customers. We are excited to hear about a new electronics manufacturing feature that will benefit all of our customers.
Electronics manufactures have unique challenges:
- Electronics manufacturers have more intensive inventory requirements than most industries.
- Supplier lead times may be long so the ability to track vendor performance is important.
- Serial numbers and lot numbers may be important – and not just for the finished part or top level components, but all the way through the BOM levels.
- Components may constantly have new revision levels that need to be tracked.
- Traceability and recall is critical – from supplier through manufacturing through sales and for a long time after the sale.
- RMA tracking is critical.
- Warranty tracking is critical.
- Inventory visibility at every level is essential!
- If component lead times are long you have to be able to forecast accurately and plan ahead!
- With electronics you often need to be able to get new products to market quickly and deal with rapid change. This requires a strong ERP system with good visibility and flexibility.
- Your supplier relationships are vital. Keeping a close eye on your suppliers and knowing how they are performing is imperative in keeping your lead times down and your quality up. Spotting small problems before they turn into big ones is key.
Your Company size matters:
If you are a small or medium sized electronics manufacturer, you need an ERP software package and vendor that are both oriented to your size business. If you aim too low, you might save money on the purchase but wind up with a system that won’t do the job and a vendor that assumes you want self-service and isn’t available to help you. If you aim too high, you will spend too much and get an overkill system that is too complex and cumbersome to use with a much higher cost of ownership.
Big ERP systems are designed for big businesses with more layers of management and more people doing more specific jobs. The duties of one person in your business may be done by ten people in a larger business. The big ERP software will divide these duties into more steps with more controls around them making it more work for the small to mid-size business user. The high end ERP software may also have a lot more features, but you probably won’t need most of them. You will find that they add complexity and ultimately slow you down and cost you money, from implementation, to training, to using the software on a day to day basis.
Low end software is designed for very small businesses and here the opposite happens. Instead of being designed for more layers of management and more discrete job descriptions, these packages are designed for mom and pop companies with no management layers and users that don’t want too many controls in place. These systems often let you make changes to completed transactions with no audit trail. That’s great if you are the only user and know what you want, not so great for your small or medium size business where controls are important. Low end systems may be easy to use but won’t handle your more complex processes, leaving it to you to supplement the software with spreadsheets and outside packages. Even if you can get by with this type of system, you won’t be able to scale for peak loads or grow your business.
The Feature Dilemma:
The potential feature list for ERP software is staggering. No ERP product has every feature, not even the biggest and most expensive system, and you wouldn’t want it if it did!
If you are a small or medium sized discrete manufacturer of electronics, you need an ERP software system that has a solid set of midrange accounting, supply chain and manufacturing features plus the unique or higher end features needed for electronics.
1. Standard midrange ERP features: These are features that every midrange ERP software package should have but are often not found in low end software. This would include features like audit trails and more complex manufacturing tracking.
2. Selected high end ERP features: High end ERP systems will have thousands of features not found in midrange systems, but you only need a few of these.
For Example: “blanket sales orders” and “blanket purchase orders”. A lot of electronics manufacturers buy and sell this way. The challenge is to find a midrange ERP that is affordable, but also has all of the specific high end ERP features that you need.
3. Features only needed for electronics manufacturing: An example would be an automatic tie in to an electronic part life cycle database so that up to date life cycle data is available in your ERP system to aid in decision making. Not even the best high end ERP software will have features in this class unless it is specifically focused on electronics.
Choose a high end ERP system
This system will be expensive to purchase, expensive to own, cumbersome to operate due to complexities and features you won’t need and you will still need to add the electronics only features through customizations.
Choose a general purpose midrange ERP system and customize it
Many companies have resorted to this but the customization will probably cost more than the ERP software. A customized system will be expensive to maintain and you miss out on the long term benefit of new features requested by other customers in your industry. If you have a truly unique requirement, by all means address it with a software customization. However you don’t want to resort to software customizations when the right package has the features as standard.
Find an ERP package that is focused on both your company size and on electronics manufacturing that will address your industry’s very specific list of feature goals
It never works out well in the long run when you choose an ERP solution that is intended for a different type of business than yours. The vendor might be flexible at first, but ultimately won’t be able to meet your long-term expectations. Choosing the right ERP software is not just a matter of features, it’s also about the support style and capabilities, pricing structure and 3rd party connectors available. When we hear about another great electronics manufacturing feature, we get excited and start figuring out how to add it to Fitrix. That’s the value of an industry specific product.
We operate in a highly specialized economy that gives us all a lot of choices. Fitrix ERP is built on technology that makes it easy to access those choices. Be diligent and do the work up front to find the right ERP software for your business. Success will surely follow.
A blanket purchase order is a long-term agreement between a company and its suppliers. While a regular purchase order is used for a one-time purchase, a blanket purchase order contains multiple delivery dates over a period of time.
There are several reasons why blanket purchase orders make sense for Electronics Manufacturers if your vendor is willing to accept and honor this type of purchase agreement.
- They prevent you from having to hold unnecessary stock in your warehouse and tying up your cash
- You may qualify for a discounted price through volume commitments or price breaks
- Since your vendor knows what your projected demand is this may reduce the lead time to procure the product
- They cut down on the administrative cost of processing multiple purchase orders for one time buys
So how do blanket purchase orders work?
Let’s say your company wants to purchase hard drives and your ERP software shows that you’ll probably need about 10,000 over the course of the next twelve months based on current usage and new business forecasts. You certainly don’t want all 10,000 at once, so your vendor agrees to enter into a blanket purchase order agreement with your company to ship 850 per month at a set price with the last shipment equaling 650.
Keep in mind that since you are asking your vendor to build/procure this product for you, there may be a penalty involved should you fail to meet your obligation to purchase 10,000 in twelve months. Make sure everyone agrees to purchase terms up front so there are no surprises down the line for either party.
The blanket purchase orders is entered for a quantity of 10,000, which is then divided into multiple delivery dates. These dates should print on the PO you email to your vendor so they can schedule accordingly.
Your ERP software should include a pending release report that you can run periodically (or have set to run automatically on a daily basis) that will list all blanket purchase orders that have pending releases scheduled before a given date – or you may want to set up an email alert that is sent to the buyer when releases need to be done. When releases are made against the blanket order, the purchase order number assigned to each release should be the blanket purchase order number with the release number as the suffix.
Using blanket purchase orders makes sense for both you and your vendor. Your vendor knows what to expect from you as far as your company’s purchase requirements, and you can lock in a good price, cut down on your administrative costs and not tie up your cash unnecessarily by overstocking your warehouse.
A well managed cash flow is conducive to the success of any Electronics manufacturer. You can sell product all day long, but if you can’t collect payment for that product in a timely manner, you may have to rely on other sources of cash to fund your business – which can be expensive and inevitably cut into your profits.
For starters, your organization should have a sound credit policy in place to help you accurately assess the credit worthiness of potential customers. This policy will determine the payment terms your company is willing to offer, as well as the amount of credit to extend. It should include:
- Requiring them to complete a credit application
- Calling their trade references
- Using credit agencies like Dun & Bradstreet, Experian, etc. to gather information such as: paydex score, net worth, solvency and liquidity
- If they are requesting a large line of credit, you should request their most recent financial statements
Where ERP Software Comes In
Make sure your ERP software is able to show you what your customer’s credit standing is at any time. It should also track ongoing sales activity for customers designated as needing credit hold evaluation when sales orders are entered in the system.
The customer information screen should show you at a glance your customer’s credit status in real-time. It should display payment terms, credit limit, aged balance due amounts and open orders, available credit, average days to pay, % over limit allowed and who to contact if there are issues with collections.
You should also be able to see a real-time comparison of balance due to credit line during Sales Order entry.
If your customer exceeds their credit limit, several things happen:
- Whoever is entering the order should be notified that it will be placed on hold.
- A copy of the order acknowledgement should be emailed to the credit manager and the sales representative assigned to the account notifying them that the order is on hold.
- The order should then be placed on hold so that it can be reviewed by your credit manager, and if need be, the customer contacted.
Just because an order has been placed on credit hold doesn’t mean that everything should stop, especially if you’re a make to order manufacturer. If you have a lengthy production processing time, you may still want to produce the item so you have it available to ship when the order is taken off hold.
In Fitrix ERP, this is controlled via Hold Codes. Customers assigned the Hold Code “BLD/PO” shown here will not have the production work order held, but will not be able to have their order shipped until the order is released from hold.
The final step in the process is to release the order once you’ve reached a payment agreement with your customer. A report of orders on hold should be run each morning and reviewed – or have the report set up to run automatically after hours, so that it’s on your credit manager’s printer first thing every morning.
When the orders are released, an email should be sent to both the person that entered the order and the customer’s sales representative so the customer can be contacted and given an estimated delivery date. If the production work created from the sales order was also placed on hold, the person responsible for processing the work order should also receive an email so they know to proceed with production.
Credit management can certainly be tricky balancing act. You don’t want to anger your customer by putting their orders on hold, but protecting the assets of your company should be a priority. Having software in place that helps you effectively manage and track the credit status of your customers is essential for Electronic manufacturers to make wise credit decisions.
When you’re looking to buy something for yourself or a loved one, there are three things to be considered: quality, price, and accessibility. This should be no different when it comes to purchasing materials for your company.
Having an Approved Vendors List (AVL) is an integral part to any ERP purchasing system used by Electronics manufacturers. In some circles, this is also known as the ‘Approved Supplier List’ (ASL). This is a listing of vendors/suppliers that meets your company standards as far as quality, pricing, and delivery performance.
Many Electronics manufacturers that use an AVL insist that orders only be placed with approved vendors, with the exception of a vendor being unable to deliver, and substituting another vendor requires manager approval.
So how should the AVL work? First and foremost, you need to have the ability to associate vendors with the materials you buy from them. In Fitrix, we call these item/vendor catalogs.
The catalog allows you to store by item the vendors you buy it from, the cost, the unit of measure purchased in, the vendors part number, and if the item must be RoHS compliant, whether or not the vendor has submitted to you the item’s Full Materials Declaration (FMD).
Now that the software knows which vendors are approved for each item, there are several transactional points that make sure only these vendors are used. These include:
- Direct entry of vendor purchase orders
- Creation of purchase orders for backorders from sales orders
- Creation of purchase orders for short components on production work orders
- Assignment of vendors to internal purchase requisitions
In Fitrix, when the AVL Required flag is set to Y and someone tries to enter a vendor that is not on the list, this message is displayed:
The employee can then enter the password if they know it, contact the Purchasing Manager to enter it for them for a one time buy, or request that the vendor be added to the AVL if they plan on buying from this vendor again in the future.
Just because a vendor is on the AVL doesn’t mean they should stay there indefinitely. Make sure you have the tools in place to keep your vendor list valid.
- Vendor Purchase Cost Analysis reporting to compare what you’ve paid each vendor for an item
- Quality control reporting that can give you by vendor by item their pass to fail ratio for items received and the reason for the failures
- Vendor Delivery Performance reporting that shows you percent on time versus late deliveries
Starting at the source with your vendors helps ensure your customers a high quality product, at a good price, when they need it.
Fitrix ERP's Multi-Level BOM helps electronics manufacturers reduce costs and increase efficiency.
Manufacturing processes have evolved significantly over the last 40 to 50 years. Gone are the days when it was common practice to produce items in bulk, only to be stored in inventory until they were needed.
The primary objectives of a production facility during that time were:
- To keep employees busy
- To keep production up
- To minimize variations in standard products
The industry has changed quite a bit since then. Today’s environment of rapidly changing and variable products recognizes that excess inventory means reduced liquid capital and obsolete materials. Why have money tied up in products that aren’t being used?
The industry has shifted towards dramatic reductions in work in process levels, avoiding the wasteful expenditure of resources and increasing manufacturing efficiency. A key feature in these improvements is the Multi-Level Bill of Material.
What is a Multi-Level Bill of Material?
Let’s begin with an example. You work for a company that manufactures Desktop PC’s. These PC’s are made up of various component parts: a system unit, a monitor, a keyboard and a mouse. This simplistic list of parts constitutes what is termed a Single-Level Bill of Material.
Let’s now take the system unit itself. The system unit is made up of an enclosure, a power supply, a motherboard, and possibly a DVD drive, with its own Single-Level Bill of Material. These components could also each have their own Single-Level Bill of Material. All of these Single-Level Bills of Material taken together constitute a Multi-Level Bill of Material.
As a PC manufacturer, you could use one Single-Level Bill of Material when assembling the component parts of a PC, which would contain ALL of the lowest level parts; however, without an in-depth knowledge of how to put the parts together to make a PC, you will be left with a pile of computer parts. By contrast, a Multi-Level Bill of Material gives you more specific information as to which parts go where.
Advantages of a Multi-Level Bill of Material
A Multi-Level Bill of Material has significant advantages in both engineering and production. For the engineer, a Multi-Level Bill of Material provides them with a snapshot of the complex structure of the product they are designing. For the production employee, it makes it easier to visualize how components come together to produce an item being sold.
Many companies define Multi-Level Bills of Material in an ‘As-Engineered’ format, where the physical breakdown of a produced item is defined, without regard to where the materials come from, or how they are produced. They may also define an ‘As-Built’ format, used in manufacturing planning and production, to define items being purchased and intermediate items being built as subassemblies. A major advantage of our Fitrix ERP software is that it supports Multi-Level Bills of Material in both formats, for the same manufactured item.
More Intuitive Tracking of Engineering Revisions
Another advantage to the Multi-Level Bill of Material is the more intuitive tracking of engineering revisions. Let’s go back to our PC manufacturing example. The fan in the power supply your company has been using in its PC’s makes too much noise. After customers begin to complain, your company decides it must be upgraded to a quieter version.
You contact the power supply’s vendor, and he agrees to send you an upgraded version with a quieter fan. Your engineering department determines this new power supply will no longer function correctly with the motherboard assembly, and assigns new part numbers to both the power supply and the motherboard assembly.
The system unit which contains both the power supply and motherboard does NOT need a new part number as its basic function and purpose is not changed. However, it SHOULD be assigned a new engineering revision level, to differentiate it from the earlier version. For our purposes, we will call it revision-b.
Because the system unit was revised to level ‘b’, the top-level Desktop PC should also be changed to its next revision level, to properly track the effects of changes at lower levels in the overall bill of material.
The revision process is made simpler with the use of the Multi-Level Bill of Material. By using a Multi-Level Bill of Material, a revision is easier to track on its way up the hierarchy to the top level, the PC. This provides valuable information to the production manager, who is responsible for ensuring that the item is built according to its revision level. It is also critical from a warranty service standpoint, so that if the product is serviced after the sale, production history will reflect the revision level of the individual unit.
Multi-Level BOMs and Phantoms
Another important feature of the Multi-Level Bill of Material is the use of “phantom” parts. A phantom is a part that is typically not built and placed in inventory, but is given a part number and a bill of material to define the components that are assembled together in the overall process.
In our PC example, the completed motherboard assembly might be a phantom. The manufacturer plans to assemble the motherboard in-house, and the phantom’s bill of material easily shows the production employee what parts are needed and how they are to be put together.
Let’s say a company decides it is more efficient to use a vendor to assemble and supply the motherboards. The vendor can use the phantom’s bill of material to assemble what would for them be a final product and then ship to the company. The company could then ‘turn off’ the phantom designator so that the component item would now be considered purchased.
Another feature inherent to Multi-Level Bills of Material is the visibility of the details behind multiple usages of common components. Manufacturers can often use a component part at more than one place in the multi-level bill of material for the end product. For example, our PC might utilize common memory chips in several different places. A Multi-Level Bill of Material shows the manufacturer exactly where the memory is being used in the PC. If a company is considering a change to the memory chip (such as a different model or supplier) a Multi-Level Bill of Material makes it easier to evaluate the potential impact (changes in function, cost, efficiency) if the change is made.
Multi-Level BOMs Give Electronics Manufacturers a Competitive Edge
Modern electronics manufacturing is changing, and ERP software with a robust Multi-level BOM feature can help manufacturers stay ahead of the curve. For companies interested in lowering work in process levels, optimizing cash-flow, reducing product costs, and increasing efficiency, Multi-level BOM is a must.