SAP B1 on Cloud – Operations Management

CHAPTER 8: PRODUCTION PROCESS

At the end of this chapter, the student will be able to:

1. Create the Bill of Materials (BOM) for various parent ite
2. Use the production module in processing production orders

Overview of the Production Process

The production order is the main document in the production process. It records the progress of the
production process for each item produced. It supports the planning and assembly of a production item. It
also tracks all the material transactions and costs that are involved in the production process.

Production orders can come from recommendations in MRP or be created manually. Before work can be
done, they must be released. At this point, the production order can begin collecting the costs of production.
Components used in the production process can be issued manually as used or backflushed at the end of
production.

When all work is done, you report completion of the production order. At this point, the finished items
are received into the warehouse, then change the Status to Closed. Even after the production order is closed,
details on the production order costs can be found on the summary.

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Types of Bill of Materials (BOM)

1. Production. This BOM is used in the production order. The parent item is a finished material, and the
children are the components. You can add labor as one of the components; this will be a non-inventory
item with a standard cost. During the production process, you turn the components into the finished
product. The Production BOM is the only type used in the MRP run and it is always used in standard
production orders. The item at the head of the Production BOM has its own price.
.
2. Sales. This BOM is used in sales documents. The parent item must be a sales item only. For example, if
you sell a gift package that contains multiple products, this could be set up as a sales bill of materials.
The parent item will be the package name, and the children will be the inventory items inside the
package. Once you selected the parent in a sales document, all its children appear as sub-items. You
can update the quantities of the parent or the children; however, you cannot delete children or add
new sub-items to the package in the sales document. When you set up the BOM, you can select the
Hide BOM Components in Printout option, so that when you print the document, only the parent
appears.

3. Assembly – This BOM is similar to the sales bill of materials. It represents a collection of individual
items in a set with a specific price. Unlike the sales bill of materials, only the finished product
appears in the sales order document; the components do not appear as sub- items.

* For both the sales BOM and the assembly BOM, you do not manage the finished product as an inventory item,
but rather as a sales item. The components can be sales items and stock items at the same time.

4. Template. This BOM has no restrictions. Both the parent and the children can be any type of items.
It can be used in sales and purchasing document. Once you select the parent item, all its children appear.
You can delete, add, or duplicate rows and make any modification as necessary.

Category for the Parent Item

You have to create item master records for the finished products in the system. These are represented by the
parent item in the bill of materials.

Depending on the BOM Type, you must have a certain category maintained in the item master record of the
finished product.

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Types of Production Order

Order is a command to produce or repair a production item. The production order supports the planning and
assembly of a production item. It also tracks all the material transactions and costs that are involved in the
production process.

The production order document records the finished material to be produced, its components and their issue
method. In all cases, a production order must list the items involved in the production process. With the standard
and disassembly production orders, a production bill of materials is used to describe the items used during
production.

Production orders can be created automatically by MRP or created manually. In the make to order process, a
production order is created manually for each sales order that creates a demand. Before any further transactions
can be associated with the production order, such as goods issues, the production order must be released by an
authorized user.

When components are issued to the production order or when finished products are received into inventory, an
accounting document will be created automatically to document the costs associated (as long as you are
using perpetual inventory).

SAP Business One supports three types of production orders:

a. Standard Production Order

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b. Special Production Order

c. Disassembly production order

Standard Production Order

The Standard Production Order is based on the production BOM; you use it to produce a regular production
item. You manage material transactions of the regular production process. In addition, you can change
components at the production stage. When you open a new standard production order, all the components
fill in automatically. You issue components from inventory to the production order. After production is
completed, you receive the finished parent product into inventory.

Stock Change

In a standard or a special production order, components are issued out of inventory. When the production order is
completed, the finished product is received into stock. The details of the stock movements are shown above.

For disassembly production orders, the stock effect is reversed. The disassembled finished product is removed from
stock and the components are added into the inventory.

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Main Steps in the Production Process

Create the Production Order
• Select production order type
• Select parent item
• Enter quantity to be produced
• Enter a finish date for production
• Make any desired adjustments to components, warehouses or quantities
• Save the production order

Release to Shop Floor

• Initially set as Planned
• Release the order to begin work

Issue Components
Components can only be issued when the status of the production order is set to release. You issue component
items using either the Manual or the Backflush Method. Items that are managed with serial numbers or batch
numbers cannot be backflushed; therefore, they are automatically set to a manual issue method.

a. 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. Manual issue is always used for
serialized or batch-managed items.

b. 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. Items that are set to backflush are issued automatically
when you choose Report Completion.

Report Completion
At the end of the process, you report completion of production. This will receive the finished item into inventory
and calculate the cost of producing the item. Use the context menu to choose Report Completion.

For Standard and Special Production Orders, reporting completion posts the finished product to the inventory. For
Disassembly Production Orders, reporting completion posts the components to the inventory. At this stage, you
could also reject items. Serial numbers and batches can be assigned at this point.

Posting Information
On the Summary tab page, you have the information that summarizes the production order. The tab displays the
information on the released and closed production orders.

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• Actual Component Cost: Displays the total value of all components issued to the production order.
• Actual Additional Cost: Displays the actual additional costs that occur when a component is defined in
the Item Master Data as a non-inventory item. This can be, for example, a service or labor cost. If there is
more than one additional cost for the item, the cost displayed is the sum of all additional costs.
• Actual Product Cost: Displays the total value of all products assembled for this production order.
• Total Variance: Displays the value that is the result of the actual components value subtracted from the
actual products value.
• Variance Per Product: Displays the value that is the total variance divided by the planned quantity value.
• Variance %: Displays the percentage of the variance per product value.
• Journal Remark: Displays the product number by default. The value is saved in the General Ledger and is
displayed during the General Ledger transactions and reports. You can modify the value of the field.
• Quantities - Planned Quantity: Displays the total planned quantity of the production order.

Completed

• Completed Quantity: Displays the total completed quantity after you report the production
completion.
• Rejected Quantity: Displays the total rejected quantity of the production order.
• Dates - Due Date: Displays the due date of the production order. Actual Close Date: Displays the date
when the production order was closed. Overdue: Displays the number of days that the actual close date
exceeded the due date.

Cost of Goods Sold

The Cost of Goods is summarized in the Summary tab of the Production Order. After the completion of the item,
the Production Order status should be changed from 'Released to Close'. In doing so, the Actual Closing date will
be reflected and Variances will be reported if there is any.

One can check the corresponding Journal Entry generated by the transaction by clicking on the golden arrow beside
the Journal Remark field.

Defective and Spoiled Units

There are cases when the item expected from production does not meet the criteria for completion. In SAP Business
One, this must be tagged in the system as 'Reject' in the TYPE field in the Receipt from Production Window.

Production Process Sample

The company decided to produce an Office Desk by combining its various materials.

Add the following items on the Item Master Data:

Item No: OD1000 Item No. OD1100
Description: Office Desk Description: Cubicle
Item Group: Finished Goods Item Group: Work In Process Inventory

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Warehouse: General Warehouse Warehouse: General Warehouse

Production Data: Phantom Item

Item No: OD1101 Item No: OD1102

Description: Divider Description: Table
Item Group: Raw Materials Item Group: Raw Materials
Unit Price: 1000 Unit Price: 1500
Warehouse: General Warehouse Warehouse: General Warehouse

Item No: OD1200

Description: Drawers
Item Group: Raw Materials
Unit Price: 1300
Warehouse: General Warehouse

Assemble the items based on this diagram:

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Add the abovementioned items on the Item Master Data, make sure to consider all the information provided. To
start the production process:

Go to (1) Production > (2) Bill of Materials. Switch to Add mode by clicking Add in the Toolbar or press
Ctrl + A.
3. Create a Bill of Materials for each parent item. Input the following information:
Bill of Materials for OD1100
Header:
Product No: OD1100 Quantity: 1
4. Input the following information:
Item No: OD1101 Quantity: 1
Item No: OD1102 Quantity: 2
5. Click the inverted triangle button above the Product Price field.
6. Click Add.

7. Create another Bill of Material for OD1000.

Input the following information in the Header:
Product No: OD1000 Quantity: 1
8. Input the following information:
Item No: OD1100 Quantity: 1
Item No: OD1200 Quantity: 1
9. Click the inverted triangle button above the Product Price field.
10. Click Add.

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Go to (11) Production > (12) Production Order.

13. Production Order window will appear. On the Product No field, select OD1000 Office Desk.
Planned Quantity: 1
14. Pay attention on the Planned column and Available column. You need to stock in items in order to
meet the planned production requirements.
15. Click Add.

16. Stock-in the required items for production. Refer to our Purchase Process discussion.
17. Once you stocked in the items, go back to Production Order and click Last Data Record on the tool
bar.
18. Change the Status of the Production Order from Planned to ‘Released’
19. Click Update.

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20. Right Click on the Production Order window, select Report Completion.
21. Receipt from Production window will appear, click Add. Click Yes.
22. On the Production Order window, click OK.

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Materials Requirements Planning (MRP)

▪ Material Requirements Planning (MRP) is, in the most generic sense, a set of planning techniques that
extract demands, match supplies, to calculate material requirements for made or bought items.

▪ MRP calculations consider bill-of-materials data, inventory data, and supply inputs from scheduled
production and purchase orders, as well as demand inputs from actual and forecasted orders.

Overview of the MRP Process

A. DEFINITION & KEY PLANNING DATA

Material requirements planning (MRP) is, in the most generic sense, a set of planning techniques that
use bill-of-materials data, inventory data, and supply inputs from scheduled production and purchase
orders, as well as demand inputs from actual and forecasted orders, to calculate material requirements
for made or bought items.

After MRP runs, the system gives you recommendations for production order or purchase orders to
fulfill your requirements. The result of an MRP run is a suggested set of purchase orders or production
orders. These suggested purchase and production orders can be converted easily to actual orders. If
enough materials are not going to be on hand in time, the MRP runs signals when a required quantity
will not meet its due date based on its lead time. The recommendation report highlights
recommended purchases or production orders that are past due. The MRP run does not suggest
whether it would be better to delay the date at which the sales orders will be delivered or to attempt
to rush the arrival of the needed items.

The current state of inventory is modeled through the levels of items on hand in each warehouse,
supplemented by the items that are already on the way through purchase orders or production orders.

The current state of demand is modeled through open sales orders, minimum inventory levels,
open production orders, and forecasts. Entire categories of demand can be included or excluded. For
example, an MRP run can be configured to look only at sales orders and ignore forecasts, or alternatively,
to have actual orders consume forecasted quantities to avoid inflating inventory. As materials move in
and out of inventory and products are produced, the financial accounting of all of this happens
automatically because of the way each item, purchase order, and production order are linked

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automatically to the relevant accounts through the account determination recorded in the master data.

In the Item Master Record, there are several fields with MRP-related data on the Planning Data tab:

Planning Method

MRP: to plan the item procurement with the MRP system.

None: the item procurement is not planned and no production order and purchase order recommendations are
created for the item.

Procurement Method

Make: to generate production order recommendations for the item.

Buy: to generate purchase order recommendations for the item.

Order Interval: Choose one of the values to define time intervals between different orders. You can also choose
Define New to open Define Order Intervals and to enter a name and frequency for the interval.

Order Multiple: Enter the numeric value to define the size of the lots for the MRP. For example, if the value is 12,
order the item in multiple of 12. So if you need 20 items and the value is 12, you have to order 24 items.

Minimum Order Quantity: Enter the value to define the minimum lot size.

Lead Time: Enter the number of days to calculate the duration of time to produce or receive a product.
You can also define the planning data in the Item group (Administration > Setup > Inventory > Item
Groups). This information copies automatically to the item master data by default.

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Steps in using the MRP

A. Forecast:
Go to (1) MRP > (2) Forecasts.
3. Change to Add mode by clicking Add in the Toolbar or Ctrl + A.

4. Input the Forecast Code and Forecast Name.

5. Enter the Start Date and End date.
6. In the View field, select the view of your choice.
7. Select the item number for the item and the quantity for the forecast.
8. Click Add.

B. Run MRP Wizard.

Go to MRP > MRP Wizard > Click Next.

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