PRODUCTION PROCESS

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.

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:
A. For the assembly and sales BOMs the finished product has to be a Sales Item.
B. For the production BOM the finished product has to be an Inventory Item. If you also
want to purchase this item, you can define it as a Purchased Item. If you also want to sell it, you
can also define it as a Sales Item. If you produce it for stock, as a component of another parent
item, then do not define it as a sales item so it will not appear as a choice in a sales document
list of items.
C. Templates can have each of the three attributes (Purchased, Sales, and Inventory
Items).
The components can also have each of the three categories (Purchased, Sales, and
Inventory Items), and can also be purchased or sold individually. The components for
Sales BOMs and Assembly BOMs must be sales items.
PHANTOM ITEM

A phantom item is a sub-assembly in the BOM that does not actually exist in inventory.
It is used to simplify the BOM. Although the phantom item appears in the BOM, the Production
Order will show the components needed to make the phantom item rather than the phantom
item itself.
An item can be defined as a phantom item in the Item Master Data. MRP: The MRP will
explode the phantom items and create recommendations for its components. The phantom
item will be displayed in the MRP result window without recommendations, for information
only.
Production Order: The Production order will explode the phantom BOM and display its
components in the required order. In the example above, in the production order, the
Components tire, rim, and screws will appear, but not the wheels.
The BOM requirements of different departments in the same company can be different.
The engineering department could create a multi level BOM to define an engine .The
manufacturing department could then include this BOM as single phantom item.
TYPES OF PRODUCTION ORDER

Production 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: Standard production
order, Special production order and Disassembly production order.
1. 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.
2. Use the Special production order to produce and repair items or to perform
activities that are not necessarily bill of material items, for example, repair order
for customer equipment cards, or repair order for rejected assemblies. You create
special production order components manually. You issue components from
inventory to the production order, and ultimately receive the finished parent to the
inventory. The parent can be any inventory item.

3. Use the Disassembly production order to disassemble a parent item of the regular
product into its components. You disassemble the product into separate parts that
can then be put into stock and sold. For example, you can purchase a used car, take
it apart, and sell the individual components. In this case, the parent item is issued
to the production order, and the disassembled sub-items are received into
inventory at the end of production.
STOCK CHANGES

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.
MAIN STEPS IN THE PRODUCTION PROCESS

ISSUE COMPONENTS
Components can only be issued when the status of the production order is set to
Released. 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.
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.
 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.
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 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 are 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 & 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.

The item is then reflected in the Rejected Quantity field in the Summary tab of the
Order.