Backflush Accounting - Alternatives To Backflushing

Alternatives To Backflushing

If the nature of a manufacturing process is such that component usage variation is natural and unavoidable, and/or production lead times are long, an ERP implementation design that entails a different methodology than backflushing from the shop-floor stock is required. There are two strategies used to deliver materials to the shop floor: Push and Pull, see . Depending on which strategy is being used and depending on how it is implemented, backflushing can be completely eliminated.

Alternatives to Backflushing when using the Push-strategy

The traditional way of issuing consumed materials is by using dual issues and returns against work orders. Components are counted when issued to a production order from Stores when the production order is opened. Produced parts and leftover components are counted when returned to stores when the work order is closed. In conjunction with a tightly controlled material Stores with discrete storage places, this can deliver very high inventory accuracy without the need for additional transactions to report scrap, material substitution, and non-standard usage separately. This obviously requires more transactions than backflushing. But these can be automated in a variety of ways, especially since most transactions take place in a limited area (Stores) and not throughout the plant. Accountability for component usage and operator time/efficiency at the work-order level by operator/shift/cell is greatly increased in this method over backflushing. Work orders also deliver higher lot-control quality measurement potential, substitution management (through a modified work-order BOM) and higher part and customer container bar-coding accuracy. The shop-floor stock in this case uses a discrete storage bin, identical to the number of the production order but no backflushing is required when the produced parts are counted. Leftover components are returned to the store and all the components from the discrete shop-floor storage bin are issued against that production order (postproduction issuing), in a similar way like backflusing, but not based on the bill of materials (BOM) but on the real stock which was consumed (transferred form the stores) for that particular production order.

The downside of this method is that it may not be suited for a more complex and repetitive production because it requires perfect contention of the WIP (raw materials and assemblies) on the shop floor: the materials issued to a production order shouldn't interfere with another production order or the next production order of the same kind. This can be done only if all work-steps required to complete the production order are limited more or less to a single work-place. That is why this kind of approach can be implemented for complex products only by using the push strategy. Push strategy means that a complex finished product is divided into many smaller assemblies and even assemblies may contain smaller assemblies and so on. All these assemblies will receive their own production order. These production orders are usually created automatically by the MRP\ERP - system. The ERP system uses Manufacturing resource planning (MRP) for the planning of production orders. Usually only the production planning for the finished product is done manually by the production planner, the assemblies are planned automatically based on backward scheduling. This is especially useful if the assemblies are being produced in another production line, workshop or plant. The downside of MRP and Push strategy is that it usually leads to larger stocks in the supply chain. That is why Push is regarded as the opposite of lean production because lean production involves the Pull strategy which means that any part should only be produced if there is a certain demand for it and therefore WIP will be small. Push strategy is when MRP is used also to schedule production orders for semi-finished products (assemblies) based on the forecasted demand of the finished product. These assemblies are put into stores without any reference to the finished product. The finished product may not even have had production orders released at the time the assembly was delivered to the store. That is why using MRP to schedule the execution of production orders is by definition a push system because releases are made according to a master production schedule without regard to system status. Hence, no a priori WIP limit exists. However MRP can be designed in such a way that is has an explicit WIP constraint. That means that assemblies are not produced further if a certain level of inventory is reached. MRP with a WIP constraint can be regarded as a pull system. However, even if a WIP constraint is implemented, Push-strategy generally means that the time, needed from the first operation or assembly until the finished good is obtained, is much longer as opposed to pull-strategy. This is due to the lead-times needed for each assembly. There is usually also much more handling: putting the assemblies into the Stores, picking the assemblies from stores to the next production step (order) which uses the assembly to make another assembly or finished product. In reality, most firms use both strategies. For example: you could use MRP (push) without WIP constraint to schedule assemblies that are produced in another workshop, plant or external supplier and Kanban (pull) in your own plant. You can also use Kanban to schedule the assemblies in another workshop or plant, but it is usually not done when these assemblies are produced on machines because with MRP the demand of several days can be comprised in bigger lot sizes of production orders of similar type in such a way that the workshops own scheduling system is then able to use the available machine-capacity more optimally. This is usually the case when the machines are expensive, their number is relatively small and they have big output-capacities and setup time is expensive. Implementing Kanban in such a case would require to use a bigger number of smaller\cheaper machines in order to react more flexibly to the demand. Another requirement would be that the frequency of transports from\to that plant to be higher and the distance to that plant to be relatively small. These requirements however, cannot be accomplished in each case. On the other side, the workshop (supplier) which manufactures the assemblies may very well use a push strategy or a pull-strategy for delivering the needed materials to each of its machines.

As described above, this alternative to backflushing has a self-correcting property: the shop-floor stock is always related to a certain production order, onto which all the consumed materials were actually issued. On the other hand, backflushing by its very definition can never be self-correcting and should only be used when corrections are rarely needed. An objection can be made with the above described alternative that scrap is not reported with a reason code, or broken out separately from other forms of non-standard usage. But how accurate is scrap reporting in an environment without inventory accuracy? Better to settle for inventory accuracy and worry about scrap later as a separate issue. Option: implement a separate scrap analysis protocol unrelated to inventory transactions. Scrapped parts are segregated for subsequent inspection, quality data recording and possible rework. In both cases, scrapped parts are already removed from inventory at the end of the manufacturing cycle (presumably by returning fewer components to stores). Therefore an inventory transaction is only needed when parts are deemed acceptable upon inspection, or after a rework operation is performed. Scrap reporting can also be done by using data from the Process control system and/or Manufacturing Execution System. Usually such a system exists to some degree in any firm, even if it is not called PCS or MES and even if it is used eventually only for keeping data regarding personnel performance and piecework, as a basis for calculating the salary of the workers. Such a system could be extended so that each worker reports also the scraped parts.

More technical requirements like Production Track & Trace, Overall Equipment Efficiency, Production Performance analysis or displaying production progress of a production order in real time should always be implemented as part of an MES. It is a bad approach to implement such systems more or less just for the sake of inventory accuracy. Inventory accuracy should be attained through much simpler means, as described above and should not depend for example on the quality of the scrap reporting. The same is true the other way around: for example if you need Production Track & Trace (which components belonging to which lots were incorporated into a product with a given serial number) you shouldn't rely solely on the components issued as consumed for a specific production order, especially when using backflushing that would be a bad idea.

The same is true for production scheduling: an ERP\MRP can be used to schedule production orders (to establish deadlines for their delivery) as well as to schedule goods receipts from the suppliers. It is also a very useful tool to offer data for internal usage about medium to long-term demand and\or planning or a forecast for external suppliers based on BOM explosion. But ERP\MRP is usually not very useful for scheduling operations on the shop-floor. A production planner using ERP may oversee total gross-capacity demand for all or for a certain type of operation but may not see bottlenecks on individual machines or workplaces. It is the job of the scheduling system (MES) to dispatch the production orders received from the ERP to individual machines\work places. When lean production is used (Pull), see next chapter, the production order received from the ERP usually refers to a finished product or to a more complex assembly. In this case, the scheduling system is even more important because it has to dispatch parts of the production order to individual work-places.

Alternatives to Backflushing when using the Pull-strategy

Pull strategy means that work centers request the materials needed for a specific production order from the store or from an upstream workplace (demand driven). Usually this means that semi-finished products (assemblies) are produced for a specific production order of the finished product and therefore stocks held in the supply chain are better managed (usually smaller). This can be accomplished by using Kanban. Kanban is essentially a production scheduling system. It can be used together with a Process control system to make a Manufacturing Execution System. A Process control system gathers data from the work places where the production order is executed. It receives the individual workloads assigned by the scheduling system to individual work places. The purpose of the scheduling system is to optimize the usage of resources. For scheduling the production of individual workplaces, Kanban can be used solely or a more complex optimization software is necessary. Usually a scheduling system based on an optimization software is necessary if the production is executed on machines and it is non-trivial to decide on which machine a specific production order should be executed in order to use resources optimally. The scheduling system determines the optimal solution based on a business policy. This business policy defines how the antagonistic restrictions are weighted, which of them are more important. These antagonistic restrictions are: delivery deadlines, machine setup time and machine usage. The scheduling system knows everything about the capabilities of the machines, the available tools and so on, and it can therefore make an optimal decision, which work-place (machine) should execute the production order and when. Of course the operator should be able to refuse the order if something unpredictable has happened (a tool is missing or not operational etc.) and the system should be able to reschedule the order automatically or with the aid of a production planner or supervisor.

In such an environment, where the production order received form the ERP\MRP software is scheduled using a MES or Kanban and the materials are assigned to the shop floor at the withdrawal from stores, there is no need for using backflushing. The materials are usually issued from the stores to a supermarket on the shop floor without being related to a specific production order. The supermarket itself can be regarded as a derogation from the principles of lean production because it represents work in progress, WIP, which is not yet assigned to any production order being executed. The stock in the supermarket is already issued to the shop floor stock. The usage of a supermarket is usually necessary when not all of the individual work steps which are needed for the completion of the production order have the same execution time and therefore a small buffer is needed to avoid that one workplace is waiting for an upstream workplace to complete work. This buffer is usually maintained using 2 containers in the supermarket in which such kind of assemblies are stored. If both containers are full, no further assemblies are being produced. If one of the container is empty, the remaining full container is swapped with the empty one (FIFO) and production of the assembly in resumed. Another purpose of the supermarket is that it enables a quick replenishment of the workplaces with the needed raw-materials without the necessity for taking these materials from the store for each production order as opposed to the above described push-strategy where every material has to be issued to every production order at the withdrawal from stores. In other words the quantity of any assembly or raw-material being stored in the supermarket is strictly limited, there is an explicit WIP constraint. Usually the supermarket is placed in the proximity of the work-places, so that the work-places have quick access to the needed materials. Every material has its own storage location in the supermarket (coordinates) so that it can be easily located when needed. The materials to be consumed are assigned by each work-place to the production order either by scanning them at the withdrawal from the supermarket (preproduction issuing) or by reporting them through the MES and Process control system (postproduction issuing).

Usually the first approach (scanning at the withdrawal ) is used for materials which are piece goods. If the materials are not piece goods (bulk material, yard ware), then the workplace has to report the consumed quantities after it has finished its job on a particular production order. If a process control system is being used then the process control system will report the consumed materials directly to the ERP\MRP- System or to the MES and then the MES reports to the ERP. If no process control system is used, usually the case when manual work is being done, the consumed quantities have to be reported manually from every workplace by using a terminal (scanner, PC, etc.). Usually, when using bulk materials, the workplace reports the consumed quantity on the level of the handling unit (HU). A handling unit is a number assigned to the carton, pallet or any other kind of unitized packaging. So the handling unit is assigned to the workplace, the consumed quantity from that HU is issued and the HU, if no longer needed is put back to the supermarket. As a direct consequence a partial withdrawal from that handling unit is issued also in the ERP\MRP system. Any empty HU is reported using a distinct transaction. That means that any residual quantity that may exist in the stock of the shop floor in that specific HU is reported as consumed to a distinct cost center. Inversely, should a workplace report a consumption from a HU that is already empty in the shop-floor stock, an error is generated as a backlog in issuing the consumed materials, see chapter "Meaning of backflushing". What kind of unplanned transactions are used to handle this error is a question of internal policy of every firm.

This alternative to backflushing has also a self-correcting property: real quantities are reported from each workplace (not based on BOM) and each package (handling unit), when empty, is reported as empty and any residual quantity on the shop-floor is discarded..