ERP 101: Work Orders – the Starting Point of Manufacturing

Our highly lauded ERP 101 webinar series has completed its eighth episode.  In the first eight episodes we covered a range of topics central to a modern ERP system, including:

  • A simple definition of an ERP system, and how it evolved over the last four decades.
  • The definition of Engineering Item Masters and Bills of Materials and their significance in ERP systems.
  • Shop floor routings and how they are used.
  • A detailed look at Manufacturing Requirements Planning (MRP) and how it fits into the ERP system.
  • The role of Purchasing in modern ERP systems.

In the eighth episode, we look at Work Orders, the starting point of manufacturing.

Material Planning

Before we go into Work Orders, we need to understand Material Planning, which feeds into Work Orders.  To understand the complexities and nuances, lets look at how Material Planning would happen in the absence of an ERP system.

A planner would use spreadsheets to track material supplies and demands for raw material and subassemblies over time.  S/he would track current inventory levels, current demands, future demands and estimate re-order points.  S/he would also calculate actual demand over time.  S/he would have to look at open supply orders (work orders/po’s) as well as open demands (which are then deducted from inventory) and supply orders to determine necessary actions.

Now consider that this exercise would have to be undertaken for every active part on the system.  Now you see why this is a complex undertaking.

Thank goodness for MRP!

How Are Work Orders Created

Now, lets look at how Work Orders are created.  Work Orders are either generated by the MRP engine or they are created manually.  The figure below depicts a typical flow.

Material demands come from Sales Orders or Work Orders, and they fed into the MRP Engine.  The MRP engine uses the information in the Engineering Item Master and the Inventory Item Master to calculate what needs to be ordered and when.  It also leads to the creation of Work Orders for parts or subassemblies that need to be manufactured.

There could also be manual Work Orders.  For example, the planner may know about a Sales Order that is coming down the pipe but has not been entered into the system yet.  S/he may want to enter a Work Order in advance.

The planner then reviews and firms the Work Orders generated by MRP or entered manually.  These Work Orders then go to the Shop Floor to be built.  When these Work Orders are completed, the finished goods then come back into Inventory.  “Finished goods” may be items that are shippable to customers, subassemblies or individual parts that come in as raw material and are turned into a different part number.

Work Orders Satisfy Supply

Work Orders satisfy the “needs” seen by the MRP engine.  For example, consider the handlebar subassembly in a bicycle manufacturing plant that we discussed on previous episodes of this series.  The Work Order to build the subassembly is a “supply” order for the number of assemblies being built.  MRP will recognize that the number of units being built as part of that Work Order will create a supply that will come into inventory.

Work Orders also provide the ability to manually build items apart from MRP such as in the instance where the planner knows about an order coming in that MRP is not aware of as yet.

Work Orders Identify Demand

Work Orders identify the “demands” on the system.   In the bicycle example we alluded to above, that would be the parts required for the handlebar assembly – the stem, the grips, the reflectors.  Work Orders identify the raw material and sub-assemblies that are required.  They also identify labor and machine time which is used to schedule the shop floor and in financial planning to identify the cost to satisfy the demand.

Work Orders Capture Data and Maintain History

Work Orders are an important repository of data and historical information.  They store important information such as:

  • Material issued to a work order from inventory
  • Labor reported against various operations to build the item
  • Work Center demands identified through the scheduling program, and
  • Scrap generated by that work order

All of this information is captured on the work order itself and is readily available to be seen at any time.  In addition to that, Work Orders identify and capture the costs – material costs, labor, machine costs, overhead and subcontract operations.

Lifecycle of a Work Order

Finally, lets look at the lifecycle of a Work Order.  At a high level, it goes like this:

  1. First, the MRP generates planned Work Orders.
  2. Planned Work Orders are firmed to identify material requirements via the pick list.
  3. Routing is attached to identify labor/machine requirements.
  4. Material is allocated and issued. The allocation may just be a “reservation” and leave physical inventory at a later point in time.
  5. The Work Order is ‘released’ to Manufacturing.
  6. Component scrap (where a part used in manufacturing was damaged) and Parent scrap (where the item was not manufactured right) is identified.
  7. Labor is reported, along with completions (number of units) at each operation. (Completions are very important for shop floor scheduling, to be discussed in a future episode).
  8. Finished parts are received to stores.
  9. Work Order formally ‘closed’ when all costs are accounted for.
  10. No further labor or material issues can occur when ‘closed’.

Watch Webinar 8 Today!

As with the previous Rootstock ERP 101 episodes, this one uses simple English so all employees in your manufacturing team can understand what ERP is and how they all can leverage it to make your company more successful.

To see it, simply click here.