Is your business really capturing every cost associated with production? What happens if products need to be reworked or repaired due to errors in production, or engineering changes that didn’t get caught in time? Let’s take a look at rework manufacturing orders (MO) and how they can be used to capture incremental production costs you may be missing to complete your total financial picture of the shop floor.
Typical usage for creating a manufacturing order within Fourth Shift is to have an order line type of ‘M’, representing a standard MO. This line type uses the existing bill of material (BOM) for the parent item and creates an order-dependent bill of material that is calculated based on the MO line quantity and all the components on the BOM.
There is another very useful line type of ‘R’ for rework manufacturing orders. When a line type of ‘R’ is used, this signals Fourth Shift not to attach an order-dependent BOM to the order based on the parent’s BOM. Instead, it is up to the planner to determine what components should be added. This is because rework orders are meant to represent unplanned work with no pre-defined requirements or routing. One of the unique features of rework orders is that the parent item can be added to the order-dependent BOM as a component of itself to represent the fact that finished examples of the item will be re-entering work-in-progress (WIP) for additional work. As a result, all the incurred costs will be unfavorable variance. For businesses based on standard cost, unfavorable variance is an indicator that more has been spent than planned in the production process. In addition, this is a signal that analysis and correction of the business process should be considered.
Rework manufacturing orders can help establish the true cost of manufacturing products. Without using rework MO’s to capture unplanned costs, your company will not be provided an accurate financial measure which can hide improvement opportunities.
ICG has years of experience with Fourth Shift and can assist your company as you implement Rework MO’s into your daily operations. Ready to begin? Let’s get started.