A WHITE PAPER

The Manufacturing Paradigm:

A closer look at process manufacturing categories and corresponding
production management tactics

© 2008 Fullscope, Inc. All rights reserved.

The information in this document is subject to change without notice. No part of this document may be reproduced, stored or transmitted in any form or by
any means, electronic or mechanical, for any purpose, without the express written permission of Fullscope, Inc.
Table of Contents

Introduction....................................................................................................................................................3

A Closer Look at Manufacturing Industries.................................................................................................4

Manufacturing Processes & Production Requirements...............................................................................5

High-Volume Repetitive Hybrid....................................................................................................................7

Continuous Flow............................................................................................................................................9

Summary.........................................................................................................................................................10

About Fullscope.............................................................................................................................................11

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Introduction

Most ERP enterprise applications have three major components: manufacturing, distribution and finance. In the world
of process manufacturing, quality management, since it is so imbedded in all the processes, also becomes a core
requirement. The purpose of this white paper is to discuss the manufacturing element of enterprise resource planning
(ERP). Most ERP solutions target either the process or discrete sector, and a few, like Microsoft Dynamics AX,
straddle both.

Figure 1

The diagram above presents the process manufacturing paradigm. The top portion lists the different types of
manufacturing processes within process companies, while the bottom shows the corresponding base concepts used
to actually manage production. This paper defines these categories and provides a guideline for any process
manufacturing company that needs to identify ERP system requirements most suitable for their business.

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A Closer Look at Manufacturing Industries

To understand the nuances of process manufacturing that are discussed later in this document, it helps to first
understand the three general types of manufacturing companies:

Process manufacturing companies are those that add value to raw materials or ingredients through processes that
involve blending, formulations, reactions or disassembly. Often there is raw material variability to account for, and
processes are often adjusted to compensate. Typical process manufacturing verticals are food, beverages, chemicals,
pharmaceutical, life science, primary metals and pulp and paper.

Discrete manufacturing companies add value to raw materials through processes of fabrication and assembly.
Discrete manufacturing is often characterized by individual or separate unit production. Units can be produced in low
volume with very high complexity or high volumes of low complexity. Low-volume/high-complexity production results
in the need for an extremely flexible manufacturing system that can improve quality and time-to-market speed while
cutting costs. High- volume/low-complexity production puts high premiums on inventory controls, lead times and
materials costs. Examples are automotive, electronics and toys.

Hybrid manufacturing companies straddle the manufacturing paradigm, having some discrete and some process
applications. There are hybrid examples in many industries, including primary metals, pulp and paper and even
medical devices.

• Primary metals companies have a wet side and dry side. In the foundry section (wet side) of the plant they
might smelt metals from raw materials or recycled metals using process formulas to produce co- and by-
products. From this process they produce ingots, profiles, bar stock, sheet stock or coils of wire. These
intermediates become the starting raw materials for their discrete process, where they may fabricate parts
and assemble them into finished products likes hinges or locks.
• Pulp and paper companies often have hybrid processes with wet and dry sides. The pulp mills use process
formulas to make the paper itself, and the dry or discrete processes cut, slit and package the paper into
end-items.
• Medical device manufacturers often make the chemicals that go into their diagnostic machines. Chemical
production uses formulations while the physical machines are assembled using discrete bills of materials (BOM).

The ideal ERP system should allow a user to select which method to use for which process. A product can be built
using a discrete bill of material, or a formula, all in the same application. Hybrids can use either work orders or
repetitive-based production. In a work order, the materials are issued to a specific job and a routing (production
process) is associated with that build. A work order can use a BOM to fabricate or assemble product, or a work order
can use a formula to blend ingredients, react or disassemble product. A process work order in often called a batch,
and that batch can manage co- and by-products, recycles, waste, scrap, yield and variable production.

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Manufacturing Processes & Production Requirements

Batch Processing

Batch processing is one of the simplest manufacturing process. In some cases, companies using discrete ERP
applications to run their businesses are forced to use work-arounds to solve process issues. In batch processing, the
company can use either a bill of materials or a formula. However, discrete BOM-based applications have limitations:

• Units of measure (UOM)—Most BOMs need to base their material consumption on the end-item unit of
measure, and this is one reason companies need six-digit decimal precision in BOMs. To add a miniscule
amount of flavor or fragrance to produce 1000 gallons of scented wax, one must add a miniscule amount
of essence. The ability to mix units of measure on a formula is extremely important.
• Material/routing relationship—In a discrete work order system, materials must be issued in the first
operation. In process companies, the materials are often issued only when they are needed at the operation.
• Recycles—BOMs cannot manage recycles well because a BOM defines a part (or raw material) as either
consumed or produced, but not both. A recycle is an item that is consumed in one operation and produced
in another, so it is both consumed and produced.
• Scaling—In some formulations some products scale while others do not based on the end-item batch size.
An example is a catalyst, in a chemical batch, or a yeast pack in a food example. BOMs have difficulty
flagging non-scalable items.
• Percentage-based formulations—Most BOMs are designed using quantity per equivalents. In some
formulations ingredients are issued based on percentages or hundred weights (baking).
• Variable output—process companies deal with variability, both on input and output. Because there are
sometimes reactions, yield can be positive or negative. Discrete work orders are designed to produce fixed
quantities based on fixed inputs. Formulations can produce more or less than was planned, and work orders
can be closed long or short. This is a key differentiator when comparing discrete work order and
batch formulations.
• Unplanned co-/by-products—Often in meat companies, or life sciences, what was planned on the batch
order is not what resulted from production. The ability to add new, unplanned co- and by-products is
another key difference between discrete work order and process batch orders.

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Organic Processing

Organic processing is one of the most complex and difficult processes in the entire manufacturing paradigm. For our
purposes, “organic” identifies process industries that deal with products from the earth. These companies manage
huge variability in raw materials that range from quality issues, quantity, cost and performance. In addition, these
companies are often dealing with “push” supply chains, that is, not demand-driven but supply-driven. Examples of
organics are companies that process meat, pork, poultry, dairy and agricultural products.

The basic building block of this sector tends to be the inverse BOM or formula. Unlike discrete industries where parts
are assembled to produce end items, this process starts with a raw material and disassembles it to produce co- and
by-products.

Figure 2

This sector offers extreme challenges when it comes to ERP requirements in planning, scheduling, costing and
production reporting. Again, the building block of the ERP system must support the inverse BOM and the batch order
must be able to handle:

• Co- and by-product management

• Yield, yield by operations
• Scrap and waste
• Net realizable value (negative or positive costing of by-products)
• Recycled products
• Inverse costing (cost distribution for co- and by-products)
• Planning of the inverse BOM (supply and demand mapping)
• Formulations by percentage and quantity per item
• Scaling of formulas
• Multiple UOM conversions
• Catch weight reporting

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High-Volume Repetitive Hybrid

High volume repetitive hybrid manufacturing differs from batch processes in that, typically materials are not issued
to work orders, but to work centers. A good example of this is a food company manufacturing military meals ready to
eat (MRE), using traditional process formulas to make lasagna, chili and other main courses. These items are packaged
into reheatable pouches and packed with purchased products from outside vendors (snack packs, juice boxes, candy)
into the final MRE. These products are not issued to work orders, but rather to an assembly line, each to a different
workstation. As the MRE comes down the line, the worker stuffs products into the box to produce a meal or kit. So in
this manufacturing case, the main course uses a batch work order to produce the main item and a high-volume
repetitive concept to produce the final kit. An ERP system support alignment of the material consumption to work
centers, and allow customers to model their processes. The key to this ERP feature is tying a BOM or formula items to
the routing’s work centers. When production is launched, the process batches will be produced, and a simple report
by work center allows users to replenish work centers on the assembly line.

Figure 3

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High-Volume Repetitive Schedule/Release

High-volume repetitive schedule/release manufacturing is similar to high-volume hybrid but uses pure schedule-
based management. A typical example is a chemical process that uses long (week/month) production runs and report
daily or by shift. The work order in this case has some limitations. Primarily because setups and cleanups need to be
applied (costs) to the entire period’s production, the work order may fall short. The ERP system should allow a user to
issue a large work order over time and close partials, by shift or by day. This simulates the schedule/release process,
but not 100%. Each shift becomes a lot number (Julian date, with a shift dimension), and reporting can be done at
the lot level. This works for production reporting but setup and cleanup costing can be tricky.

A production system based on schedule/release methodology works much like a blanket purchase or sales order. The
order number is the consolidation key, and the line number is the individual release. In a production environment, a
company would release a work schedule, for the week (or month), with each shift becoming a reportable entity.
Setup and cleanup costs are distributed proportionately across all leases for the week, and as each shift closes a
release, reporting can be done against that release for actual/ variances on material and labor. This allows users to
manage and report on efficiencies by shift as if each shift were a work order. A sample schedule/release is included
below as a reference.

Schedule Number SC 001

(WO Equivalent) Production Tons Efficiency Cost per Ton
Date/Shift Release Reporting (estimates)
Monday Shift 1 1 SC001-1 1000 100% $100/ton
Monday Shift 2 2 SC001-2 1200 120% $80/ton
Monday Shift 3 3 SC001-3 950 95% $105/ton
Tuesday Shift 1 4 SC001-4 995 99.50% $101/ton
Tuesday Shift 2 5 SC001-5 1100 110% $90/ton
Tuesday Shift 3 6 SC001-6 1095 101% $99/ton
Figure 4

This production process is not common in generic process, but is very common in the chemical sector. It offers a
streamlined reporting process in the ERP application and mirrors the way they work.

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Continuous Flow

Continues flow manufacturing is most common in the world of petroleum refining. Most refineries use only the
financial applications in an ERP because in a continuous-flow environment, the work order is out of place. A refinery’s
key performance indicators (KPI) are based on producing the most product at the lowest costs. Consequently, they will
set up the plant to run a specific set of products, over a long period of time, to maximize efficiencies. In some cases
they may spend up to two months retooling or setting up the plant before producing any end products, then run the
plant continuously for maybe eight months and shut down. The final two months of the year will be spent on
equipment change over, cleanup and maintenance. This is an extreme example, but a primary reason a work order
based-system won’t work. The long runs, called campaigns, are specific to this sector of process manufacturing.

Another challenge for this industry is the consumption of materials from tanks and silos and correct allocation to the
process lots produced. Since all materials are issued and consumed in a continuous flow, it presents a challenge for
batch-based systems.

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Summary

Process industries can be quite diverse when it comes to manufacturing processes. When evaluating ERP applications,
remember that most of the differentiation occurs in the manufacturing process. First and foremost, if a company is a
manufacturing-centric organization, what processes are involved? If a company is in an acquisition mode, what types of
companies will be acquired?

Begin to map requirements to an ERP application by answering these questions:

1. Is the company manufacturing-centric? Is manufacturing important to corporate goals?

2. What types of manufacturing processes are used?
3. What types of processes might be acquired in the future?
4. Which ERP application maps best to the required processes?

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About Fullscope, Inc.

The 2007 Microsoft Dynamics AX Partner of the Year, Fullscope, Inc. is a Microsoft Gold Certified Partner that
offers deep domain expertise for companies with process, discrete and hybrid manufacturing operations. The
company develops and supports Process Industries for Microsoft Dynamics AX; offers an Independent Software
Vendor (ISV) solution for Microsoft Dynamics AX for High Tech; and is one of the largest Microsoft Dynamics AX
resellers in the United States and Canada.

About Process Industries for Microsoft Dynamics AX

Developed by Fullscope as part of the Microsoft industry solutions program, Process Industries for Microsoft
Dynamics AX is designed to help non-durable consumer goods, food and beverage, pharmaceutical, life
sciences, pulp, paper, and primary metals companies optimize their process manufacturing operations for
increased profitability and competitive advantage.

For more information, contact Fullscope at info@fullscope.com or visit www.fullscope.com.

This document is for informational purposes only. FULLSCOPE MAKES NO WARRANTIES, EXPRESS, IMPLIED, OR STATUTORY, AS TO THE
INFORMATION IN THIS DOCUMENT. Trademarks are properties of their respective companies and are noted.

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