Exact Globe+

Waste explained

Project Training

Introduction

A goal of lean manufacturing and Just-in-Time is said to be the accomplishment by a manufacturing process in which waste and wasteful practices have been eliminated. A prime example of waste put forward by exponents of lean manufacturing and JIT is "inventory". Examples of wasteful inventory include WIP created due to the manufacturing of production lots in excess of net requirements; and the production of non-conforming items. Wasteful activities are said to be those adding "no value" to the customer's enjoyment of the product, and include waiting time incurred by operators; the inefficient movement and transport of materials, perhaps due to poor plant layout; and process and machining activities originating in poor process and product design.

Waste in Exact Globe 2003 Enterprise

In Exact Globe 2003 Enterprise you can define a waste percentage in the BOM of the finished good. Waste can be defined per item line and is defined as a percentage of the total requirement of that specific item for this BOM. In this document we will explain the waste functionality based on an easy example, including the following steps (you can also use these steps as shortcut to go to the explanation of that specific step):

Example
Important Settings
Create parts
Create the BOM
Enter the production order
Issue the production order
Receive the production order
Complete the production order

Example of waste in a production process

Waste can be considered as planned loss of (raw) material during the production process. When you saw table tops you will not use all the wood that you use to saw the table top(s) out of. In this case you will throw away the leftovers. They will not add any value to your finished good. These leftovers do not hold any value for you and can be considered as planned loss of material during your production process: Waste.

Important settings

Before you start working with our manufacturing solution it is very important that you link some general ledgers that will be used in the production process. These important links are to be maintained via menu path: [System / General / Settings / General Ledger Settings]:

The only general ledger in the red square that will not be used in this example is the general ledger 'Production: Scrap'. You can find an explanation about the scrap functionality by using the hyperlink at the end of this document.

Create parts

In this example we will produce a finished good 'X' which consists of two parts: X-001 and X-002. The cost prices for these part items are 500 and 400 euro. The parts can be created via menu path: [Manufacturing / Setup / Items]:

Create BOM

Before we start to plan producing item X we need to define what this item consists of (which items are used during the production process). You can do this by creating a BOM for the finished good via the item maintenance (tab 'manufacturing') of the finished good or via menu path: [Manufacturing / Setup / BOM]:

In this example, item X (finished good) consists of 100 items X-001 and 50 items X-002. In the BOM lines you will also have the column 'Waste %'. In this column you define the percentage of materials that you will need extra to be able to produce your finished good. This percentage is a planned loss of materials in the production process. In this case we say we need 10% extra of item X-001. The total cost price for this item is (100 x 500) + (10 x 500) = 55.000,-.

Enter the production order

Via menu path: [Manufacturing / Entries / Production orders]. In the production order entry screen you will see that there is a column 'Waste %' in the order lines. At the time of entry, you are able to change your planned loss of materials:

Issue the production order

At this moment the production is still planning and nothing has been realized yet so there is no direct impact on your financial administration. The first step that will have an impact on your financial administration is the issue of the raw materials. For this 2 line production order, the system will cerate 3 lines for the fulfillment (issue). Besides the two regular lines, the system will create an extra line for the waste quantity (2nd line in the print screen). This quantity can still be changed when you issue your materials:

When you issue the parts there is a physical movement of stock. Therefore the system will create a journal entry that will have an impact on your financial administration and on your stock positions. When you issue the parts, the system will create work in progress and create a balance on the general ledger that you defined as being your 'GL Waste' in your general ledger settings. The financial entry looks like this:

As you can see from this entry, the system did not create work in progress for your waste. The waste is booked against your general ledger waste:

Receive the production order

Next step in the production process is to receive your finished good(s). This is again a physical movement of stock. Therefore the system will create a journal entry that will have an impact on your financial administration and on your stock positions. The financial entry that is created for your receipt will have an impact on the stock GL for your finished good and it will reduce the work in progress:

Because you did not complete the production order yet, there is still a balance on your work in progress account for the waste of the production order:

Complete production order

The final step in the production process is to complete the production order. You can do this at the time you receive your finished good or you can choose to do this later via menu path: [Manufacturing / To be processed / Complete]. When you complete the production order, you will take the results of this production process and your work in progress account and your waste account will be in balance again. The system will create the following entry:

As you can see there is no balance anymore on your WIP account:

Just like the WIP account, the waste account is now also in balance after you have completed the production order: