Production Order Overview

Production Order Types

SAP Business One supports three types of production orders.

 Standard – Based on the bill of materials and used to produce a regular production
item.

o You manage material transactions of the regular production process.

o You can change components at the production stage.

When you open a new standard production order, all the components are filled in
automatically.

 Special – Used to produce and repair items or to perform activities that are not
necessarily bill of materials items, for example, repair orders for customer equipment
cards or rejected assemblies.

You create special production order components manually.

 Disassembly – Used to dismantle a parent item of the regular product into its child
items. The separate parts can then be put into inventory and sold. For example, you
can purchase a used car, take it apart, and sell the individual components.

Production Order Issue Methods

You issue component items using either the Manual or the Backflush method.

 Manual – You issue individual component items to the production order. This enables
you to post components issued to a production order precisely when they are required
in the production process.

 Backflush – SAP Business One automatically issues item transactions for the needed
component items (as defined in the Components tab) when a product is reported as
completed.

Production Order Status

 Planned – SAP Business One initiates production orders with Planned status.

Since the production order is not released to the shop floor for manufacturing:

o You cannot yet issue items or report completion of the production order.

o You can update the production order.

 Released – You change the production order to this status when you release it to the
shop floor for production. At that stage:
 o You can report transactions for the production order and the issue of the
components.

o You can update the component items as long as there are no transactions for
the selected component.

o You can add a new component.

 Closed – The production order is Closed when you cannot add any new transactions
to it. You close the production order when production is completed.

 Note

You can manually cancel a production order that is in status Planned or Released
only. The cancelled production order is removed from the list.

Product Costing

The cost of a FIFO or moving-average product is the sum of its component costs and
additional costs (such as labor and overhead). To ensure accurate calculations of product cost,
even if the components were issued manually, SAP Business One uses the cost of the items
issued to production order and not the cost of the items currently in inventory. This avoids
differences between the actual cost of components used in the order and the value of the
product.

 Note

The cost calculation method described here is relevant only for standard and special
production orders, but not for disassembly for companies managing perpetual inventory.

In the case of disassembly the components enter the inventory with the same cost as the items
currently there. If the component is managed by FIFO, the cost of the oldest layer is used.

The cost of returned components does not change; it is the cost of the last one that was
issued.

The product cost calculation is determined by the item management method.

 Standard – When the product is managed by standard cost, no calculation is made,

and the cost is copied from the item master data upon report completion.

 Moving Average – When the product is managed by moving average, two figures are
required for product receipt into inventory: receipt quantity and total value added to
the inventory. The total value is the product cost, which is the sum of all component
costs used for those products.

 FIFO – When the product is managed by FIFO, each report completion opens a new
cost layer for the product in the inventory. The quantity in the layer is the quantity of
the products just reported as completed. The cost of the products is the sum of all
 component costs used for the completed products divided by the quantity of the
products.

On every report completion, the system checks the following three quantities for each
manually issued component:

 Issued Quantity – The quantity already issued to the production order.

 Used Quantity – The quantity already used for the completed products (completed
products multiplied by the base quantity of the component).

 Needed Quantity – The quantity needed for the products that were just reported as
completed (quantity of products reported as completed multiplied by the base quantity
of the component).

If the Used Quantity is greater than or equal to the Issued Quantity, this means that all items
issued for the production order have already been used, and the Needed Quantity is yet to be
reported as issued from the warehouse. Since the cost of the items that were actually used for
the products is unknown, SAP Business One takes the current prices from the inventory.

If the Issued Quantity is greater than the Used Quantity, SAP Business One finds the cost of
the components that were issued and not used, and uses them in the calculation of the product
cost. When finding those components, the issuing order of the components is taken into
account, meaning that the first components to be issued are the first to be used. The
components following those that were used are the first to be used for the cost calculation.

If the sum of Needed Quantity and Used Quantity is greater than the Issued Quantity,
meaning that not all needed quantity was issued, SAP Business One needs to make an
assumption for those items’ costs, so it takes the current prices from the inventory.

Upon the completion of a production order, on the Production Order Window: Summary Tab,
you can check the product cost figures of the production order.