8 Modes Of Manufacturing in Business Central

By David Orr | September 11, 2019
8 min reading time

One of the most important elements of fitting the Business Central ERP to a manufacturing company is identifying their modes of manufacturing. Since I started working with manufacturing ERP here in Ontario in the mid 1990’s – I have seen more failed implementations from a misunderstanding of these business needs than from any other. The modes of manufacturing used by the company drive the ERP implementation choices. The term is used commonly in APICS and other training materials, and when discussing manufacturers refers to: how they get orders; produce product; and sell their product. I often find that the mode that best describes a company is a little hard to put my finger on, as many of these definitions have shades of grey between them.

"Modes of Manufacturing Drive ERP Implementation Choices"

modes of manufacturing are not always dictated by equipment used
MOSCOW, RUSSIA - November 27, 2014 - Production of electronic components at high-tech factory

Job Shop Manufacturing

The classic Job Shop is a small manufacturing company with a collection of equipment that they “outsource” to their customers. Job Shop manufacturers are usually sub contractors to larger producers, who bid on quotes for jobs they may only build once and never again. They almost always buy materials to the job, and are focused on employee costs and managing their quotations and estimates. This is probably the single most common of the modes of manufacturing.

What’s important: Job (actual) Costing, Purchasing to Jobs, Labour Collection, Estimating, Quotation Tracking.

What’s not important: MRP, MPS, Inventory Control, Price Lists, Production (standard) Costing, Sales Forecasts, Usage Forecasts.

Business Central Fit: Excellent

Repetitive Job Shop Manufacturing

Sometimes a job shop will develop a reputation as the place to go for certain types of production. These job shops “morph” into the Repetitive Job Shop. These shops will begin to buy material to stock as they have commitment for parts to be delivered over a period of time. Often material delivered to these shops is owned by the customer, and tracking and reporting on this inventory is a customer requirement. Of the modes of manufacturing, these are probably the second most common.

They do not build to stock, nor to forecast. They build only based on the firm orders their customer has given them.

What’s important: Job (actual) Costing, Purchasing to Jobs, Purchasing to Stock, Labour Collection, Estimating, Quotation Tracking, Inventory Control.

What’s not important: MRP, MPS, Pricebook, Production (standard) Costing, Sales Forecasts, Usage Forecasts.

Business Central Fit: Excellent

Make-to-Order Manufacturing

The make to order manufacturer has generally developed a line of products for sale. They are not making products based on a customer’s designs or engineering specifications. They generally have their own engineering staff; manage drawings, stock raw materials, track work in progress etc… They typically maintain a pricebook – as they might sell exactly the same item to different customers for different prices. Among the modes of manufacturing, this is very common.

What’s important: Production (standard) Costing, MPS, MRP, CRM, Inventory Control, WIP control, Usage Forecasts.

What’s not important: Job (actual) Costing, Estimating, Quotations (except as part of CRM), Sales Forecasts.

Business Central Fit: Excellent

Configure-to-Order Manufacturing

Similar to a Make to Order manufacturer, the Configure to Order manufacturer sells a product from a catalog, allowing customers to “modify” the product within parameters. If you think of DELL, or a car company like FORD – they configure their products to their customer’s requirement.

What’s important: Product Configurator for Business Central, Job (actual) costing, MPS, MRP, CRM, Inventory Control, WIP control, Usage Forecasts.

What’s not important:Estimating, Quotations (except as part of CRM), Sales Forecasts

Business Central Fit: Needs Product Configurator Addon - Otherwise Excellent

Make-to-Stock Manufacturing

The make to stock manufacturer is similar to the Make to Order manufacturer, except the lead time for their product delivery is less than the lead time to manufacture the product. The market generally drives this, and forces them to keep an inventory of their finished goods to sell. Some make to stock manufacturers can cope with their fluctuations within safety stock. For others, a sales forecast is a critical requirement, as they must have some sense of the sales volume expected to know what to build.

This type of manufacturer relies on finished goods inventory availability to be able to sell into their market. Of the different modes of manufacturing, the repetitive make to stock manufacturers are the largest. Companies like General Motors and General Electric are this kind of repetitive manufacturers.

What’s important: Production (standard) costing, MPS, MRP, CRM, Inventory Control, WIP control, Sales Forecasts

What’s not important: Job (actual) Costing, Estimating, Quotations (except as part of CRM), Usage Forecasts.

Business Central Fit: Excellent

Process Manufacturers

process manufacturing is one of the more complex modes of manufacturing
Metal wine storage tanks in a winery. Wide shot

Now to the "oddest" of the modes of manufacturing. Two things primarily identify process manufacturing. First: The product made must be contained in a vessel of some kind. This might be a powder, liquid or pellets. Second: the product is made of a recipe which when combined, cannot be disassembled.

Usually these types of companies are chemical, cosmetic, pharmaceutical, nutricutical (vitamin), and/or food processing companies.

Formulas and recipes are used in place of bills of material and routings. They typically “cook” or otherwise chemically alter their product. Smaller process manufacturers, often called pilot plants, function more like job shops where small quantities of special products are produced in a non-repetitive environment.

What’s important: A process manufacturing specific solution for their Business Central implementation.

What’s not important: Discreet manufacturing features.

Business Central Fit: Poor out of the box. Needs Significant Addon.

Engineer-to-Order Manufacturing

Of the modes of manufacturing we discuss, Sabre has particular strength with ETO. The engineer to order company can sometimes be mistaken as a job shop when in fact it is not. Engineer to order companies often are engineering heavy and production light, and the ratio of engineers to production staff is a good sign to look for. More engineers than production works means you are probably looking at an Engineer to Order company. Quantities produced of one or two maximum are also normal.

Engineering to order companies will take a product or requirement provided by their customer and design a machine to produce, rework, test or otherwise do something to the requirement. They may have a job shop like production area with a variety of machines or they may only conduct final assembly. They often purchase the majority of their parts from subcontractors, and tracking purchasing against a job is critical to them. Actual job costing, WIP and revenue recognition are requirements as their jobs will often take months or even years to complete.

Some engineer to order companies also install, service and manage their products. They occasionally look like the Make to Order or Configure to Order modes of manufacturing if the products they engineer appear very similar.

One key tell that allows you to identify an engineer to order is that they call their sales “projects” or “jobs” and each sale has an assigned project manager.

What’s important: Project Costing (unique accounting requirements), Purchasing to Jobs, Labour Collection, Estimating, Quotation Tracking.

What’s not important: MRP, MPS, Inventory Control, Price Lists, Production (standard) Costing, Sales Forecasts, Usage Forecasts.

Business Central Fit: Medium out of the box. Excellent with Sabre ETO Addon.

Mixed Mode Manufacturing

This is an extremely common situation, but basically defines a company that exhibits more than one of the modes of manufacturing. Microsoft actually documents mixed mode here. It can be very tricky implementing ERP at a mixed mode manufacturer, especially if the implementation team perceives the company as falling primarily in one of the modes.

Mixed mode manufacturing requires the most complex Dynamics Business Central implementation, because each mode has to be accommodated and often the “process” design involves multiple ways to do the “same activity.” In a Job Shop/Build to Order manufacturer for instance, MRP and standard costing might be required for common parts on the build to order product line, while buy to job actual costing is required for the Job Shop portion of the business.

Identifying where mixed mode exists, and training users to handle the requirements is the most complex part of Business Central in manufacturing.

Business Central Fit: Good

Hopefully this definition of the modes of manufacturing helps understand your own business, and what features and functions of Dynamics 365 Business Central you may need.

If you need help with a Dynamics 365 Manufacturing systems choice, give us a call at: (519) 585-7524 x.45 or contact our team, we're excited to talk with you soon!

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