Business Central Manufacturing: Production Orders, Assembly Orders and MRP

Manufacturing is an integral part of Business Central. Understanding its functions is paramount to utilising the system to its full potential. With over 20 years experience of manufacturing implementations from Navision, NAV and Business Central, varying in both industry and scale, we are basing today’s blog on what works, rather than compiling cut and pasted information from online sources. 

The aim of this post is to give a conceptual insight into the Manufacturing module. We won’t be demonstrating how to run manufacturing in Business Central here, but discuss what it can do. We will have guides on running MRP, out soon.

What makes up Business Central’s Manufacturing module?

Manufacturing in Business Central comprises of Production Orders and Assembly Orders. Production Orders require full manufacturing to be in place. By ‘full manufacturing’, I mean a Premium Business Central. Assembly only requires the ‘Essentials’ license.

Both production and assembly can be run independently or alongside each other to support a customer’s business requirements. It may be that in the production of an Item, a combination of both is required to create the necessary components at a phantom level.

What are Production Orders?

Production Orders are a means of replenishing stock in Business Central by creating the Item. Using Production BOMs and Routings, we can determine what an Item is made from and the time and resource required. But this is quite broad, so what does this cover?

Production order functionality

Below we’ve listed what we consider to be some of the most important features of Production Orders:

• Production Bill of Materials to manage the components or ingredients required
• Subassemblies & phantoms are also supported along with multi level BOMs
• Production Routing to define the operations required to manufacture the parent item
• Each operation uses a Work Centre, defining the capacity used and its cost
• Machine Centres can be optionally used instead of Work Centres to provide greater granularity
• Subcontract operations are supported from the routing
• Work and Machine Centres are linked to calendars defining daily capacity; percentage load can therefore be calculated
• Material consumption by routing operation is supported
• Engineering change control with Versions and Start/End dates for both BOMs & Routings
• Business Central manufacturing is tailored to Standard and FIFO costing but other options like LIFO, Specific and Average are available
• Actual usage of Material and Capacity can be logged against the Production Order allowing actual production costs to be captured. This isn’t available for Assembly Orders
• For the Standard Costing method, the actual recorded manufacturing costs are compared to the Item’s pre-defined Standard Cost and the differences are recorded as Material & Capacity Variances.
• For the FIFO costing Method, the actual recorded material and labour costs are aggregated into the final cost of the Item.
• Scrap is handled at the finished goods, component and Routing operation levels

Useful documents to use when managing Production Orders

From a Released Production Order, users can produce documents to help staff. Examples of the shop floor paperwork include:

• Production Order Job Card.
  This lists the work in progress for the operation. This includes the Scrapped Quantity and Output
• Material Requisition
  This gives a list of materials required, status of the production order and the total number of items produced
• Component Shortage
  This generates a list of the missing quantities of components per production order. It’s advisable that all production orders have no shortage of components
• Subcontractor Dispatch
  This is a list of materials the manufacturing subcontractor needs, where subcontracting is applicable

What are Assembly Orders?

Using Assembly Orders, you can replenish stock without there being creation or time costs. You might be asking ‘why wouldn’t there be creation time or costs?’ Well, in essence, when you are creating something often termed as a ‘kit of parts’. This is more just a case of putting the components together, rather than creating something. Therefore, there’s no associated time or resource associated with making an assembled item.

I like to use the analogy of a party bag; it’s an assortment of items all together without a process of making it. In particular, there’s no wrapping, organising of what goes where and the time required to do it isn’t worth recording. Assembly functionality is much simpler than Production Orders, but can be very useful.

Assembly Order configuration options

• Flexibility to configure single or multi-layer BOMs, consisting of other Items
• Configurable to either Assemble to Stock & Assemble to Order (where the Assembly Order is processed from the Sales Order)

Common functionality across Production and Assembly Orders

• Integrated into the Warehouse Management module
• Fully integral with MRP & supply planning
• Order Promising with Available and Capable to Promise
• Both have the ability to attach documents (including images) to orders
• Item Tracking with Lot & Serial control is fully supported, with subsequent Item Tracing function

When to use Assembly or Production Orders

Deciding whether to implement manufacturing using Assembly Orders or Production Orders is a key aspect of any implementation. To clarify, the main consideration is whether there’s a cost associated with producing the goods. This could be due to the cost of running the Work or Machine Centre or simply the time required to produce the goods. Other considerations include the complexity of implementation:

• Implementing assembly is far simpler. However, that’s not to say it’s ‘better’ or ‘worse’. Ultimately, it comes down to the type of manufacturing the business does. Don’t use production where it’s not required; it overcomplicates the data in the system. Similarly, don’t use assembly where production is more applicable. More often than not it leads to vague, inaccurate data. Cutting corners for an easier implementation will come back to bite you!
• Users can’t report actual costs against Assembly Orders. Instead, it works solely on the theoretical value you attach to the item. As you can imagine, if you are omitting using production in situations where it would be more appropriate, these costs can become inaccurate quickly. For example, where the time taken to produce an item doubles, you can’t account for this using assembly

One of the benefits of working with an experienced Microsoft partner is the help you get in reaching these decisions. It’s often difficult for users without ERP experience to appreciate all the consequences of the decision they are making, until it’s made and the repercussions of it are felt.

Manufacturing costing

One of the business drivers when implementing Business Central Manufacturing is its associated costing calculations and their impact on the general ledger. Business Central documentation mainly focuses on Standard costing. Nevertheless, it is important to note that the software will also work with FIFO (First in First Out), LIFO, Specific and Average costing. From experience, most manufacturing implementations incorporate Standard or FIFO costing.

For more details, please refer to our other blog on manufacturing costing. We will also be bringing out a blog in the not-so-distant future on manufacturing costing but specifically aimed at Assembly Orders.

MRP

In Business Central, you run Material Requirements Planning (MRP) in either the Planning or Requisition Worksheet. They are extremely similar. The Planning Worksheet can factor all planning for goods replenished by production, as well as purchasing. The Requisition Worksheet can only plan for purchasing. The Planning Worksheet requires a Premium license, whereas the Requisition Worksheet only requires an Essentials license. We will bringing out a much more in-depth blog on the pitfalls of MRP and the solutions to those issues, so stay tuned!

Planning parameters

Business Central offers a standard set of MRP planning parameters. These are:

• Fixed Reorder Quantity
• Maximum Order Quantity
• Lot for Lot
• Order

You use these options to generate a classic set of MRP proposals, which can be actioned into the appropriate Production, Assembly or Purchase Orders. Planning parameters must be correlated with demand. If demand changes, MRP should reflect this. Typically, changing the item’s reorder point or contingency amount is a good way to do this. Successfully using MRP requires long-term management of the parameters. Fortunately, you can use RapidStart to load them in from Excel.

Forecasting and dampeners

Use demand forecasting to define a Forecast is incorporated into the MRP planning calculations.

To help reduce the number of MRP proposals, Business Central provides a number of dampening tools making the planning lines more manageable. From experience, we know that one of the biggest off-putters for ERP system users is an overly cumbersome, unclear MRP. Notwithstanding the fact that maintenance will still be required, Dampeners provide one of the most effective ways of tackling this.

Overall, MRP allows the user to define and manage the stock levels within the business.

In summary

Business Central Manufacturing provides a comprehensive range of functionality and tools to build and configure the system to meet a customer’s specific manufacturing requirements. Hopefully, this has stimulated some ideas as to how you can utilise the system for manufacturing. Any questions, enquiries or general feedback, contact us here.