Formula Information for Process Manufacturing

The following is an excerpt from Scott Hamilton’s book

Managing Process Manufacturing

Using Microsoft Dynamics AX 2009

Provided Courtesy of Scott Hamilton, Ph.D.

Scott is a Chief Solution Architect at Solugenix Corporation, a Microsoft Dynamics AX partner

with offices around North America and a well-known reputation as a trusted advisor for AX

implementations.

Scott can be reached at [email protected].

http://www.solugenix.com/

Chapter 4

Additional FormulaInformation

The previous chapter covered the basic BOM/formula management capa-bilities applicable to both BOM items and formula items. This chaptercovers the unique aspects of formula information that are only applicable toformula items. One or more of these unique aspects may be employed tomodel an item’s product structure, as illustrated by the case study examples. The chapter includes the following sections:

1. Yield percentage for a formula item2. Formula size and multiple3. Component requirements expressed as percentage4. Quantity-sensitive formulations5. Substitute ingredients in a formula6. Designating the bulk item associated with a formula version7. Co-products and by-products of a formula8. Catch weight items and formula information

4.1 Yield Percentage for a Formula Item

A planned yield percentage for a manufactured item represents a slightly dif-ferent concept than planned scrap percentages for components, even thoughboth approaches can generate inflated requirements for the components. Aplanned yield percentage only applies to a formula item, its formula versions,and its batch orders. It does not apply to BOM items. The value specifiedfor an item acts as a default value for the item’s formula versions (which canbe overridden), and this value is included in planning and cost calculations. In a similar fashion, the yield percentage for the formula version acts as thedefault when creating a batch order, and the value can be overridden prior toscheduling the batch order. This value impacts the component quantities inthe order-dependent formula.

The default value for a formula item is 100%, and a manually specifiedvalue can be greater or less than 100%. The value assigned to a formula

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version provides the basis for dividing component requirements by the yieldpercentage, so that a value less than 100% will increase the componentrequirements.

4.2 Formula Size and Multiple

A batch-oriented manufacturing process is often characterized by the capac-ity constraints of the equipment, such as a mixing vessel or kettle thathandles a batch size of 1000 gallons. In this example, a given batch quantityof a product could be something less than 1000 gallons, or batch sizes of1000 gallons may be required or preferred. When there is a required or pre-ferred batch size, it can be specified as part of the formula version assignedto the item. The information consists of a formula size and an optionalmultiple expressed in the product’s inventory UM. The formula size mustequal the multiple if a multiple has been specified.

The formula size and multiple assigned to a product’s formula versionhave several implications. The implications are described below (as a repeatof Section 3.4), and the topics will also be covered in future chapters.

˜ Defining the required quantity for a component. A component’s requiredquantity is specified for the formula size, either as a fixed or variableconsumption amount.1 With a variable amount, an additional policy fora formula line (termed the Scalable checkbox) simply means that changesto the formula size will automatically change the component’s requiredquantity. The component requirements can also be expressed as percent-ages rather than quantities (as described in a subsequent section), so thata required quantity reflects the percentage multiplied by the formula size.

˜ Planned batch order. The suggested quantity will cover demands andreflect the formula size and multiple associated with the product’s activeformula version. You can manually override the suggested quantitywhen viewing the planned batch order, and subsequently firm the plannedorder.

˜ Manually created batch order. As part of the creation dialogue, thequantity will initially default to the corresponding formula size for theitem’s selected formula version. You can manually override this quan-tity, but an infolog warning message will be displayed if it does notreflect the formula multiple (if specified). The infolog message suggests

1 The specified formula size for a formula version is also reflected in the per series quantity for each com-ponent, such as a per series quantity of 100 when the formula size equals 100.

Additional Formula Information 53

a rounded-up quantity that reflects the formula multiple, and you canaccept or reject the suggested quantity.

˜ Cost roll-up calculations for amortizing an item’s constant costs. Thecost roll-up calculations will reflect the formula size associated with theproduct’s active formula version. This acts as the accounting lot size foramortizing constant costs.

The implications become more complex when you specify a minimumquantity or a standard order quantity for a formula item. These can bedefined as company-wide or site-specific values.

˜ Planned batch order. The suggested batch quantity will cover demandsand reflect the larger of (1) the product’s minimum order quantity or(2) the formula size and multiple associated with the product’s activeformula version.

˜ Manually created batch order. The batch quantity will initially defaultto the larger of (1) the formula size corresponding to the selected formulaversion for the product, (2) the minimum order quantity, or (3) thestandard order quantity. The initial value will also be rounded up to theformula multiple.

4.3 Component Requirements Expressedas a Percentage

Component requirements can be expressed as a percentage rather than aquantity, and the sum of component percentages must equal 100% in orderto approve the formula.2 Figure 4.1 illustrates the two approaches fordefining component requirements—using a specified quantity versus apercentage—for a bulk item packaged into two container variations. In theleft side of Figure 4.1, the bulk item’s component requirements are expressedas a quantity (for the formula size of 1000 gallons), whereas the right sideshows component requirements expressed as a percentage.

2 A percentage can be specified for a component when it has been flagged with the Percent Controlledcheckbox, and the relevant component quantity will be automatically calculated based on the formula size for theitem’s formula version. The component percentages are assumed to be scalable for various batch sizes, as indicatedby the automatic assignment of the Scalable checkbox to each component.

54 Chapter 4

Figure 4.1 Example Formula for a Bulk Item and its Packaging Variations

If applicable, a mix of percentages and quantities can be used to definecomponent requirements. The sum of percentages for relevant componentsmust still equal 100%. As a caveat, the formula’s specified batch size shouldbe at least 100 so that the cost calculations will correctly account for acomponent’s percentage. Otherwise, the cost roll-up calculations will treata small component quantity (of less than .5) as zero, so that its costs are notincluded.

4.4 Quantity-Sensitive Formulations

A product with a quantity-sensitive formulation can be modeled using mul-tiple formula versions with different quantity breakpoints.3 For example, oneformula version can reflect a small batch size (up to 999 gallons), a secondformula version can reflect a larger batch size (for 1000 gallons or more), andboth formula versions can be approved and active. A planned batch orderwill be assigned the relevant formula version based on the required quantity.

End Item A11 Gallon

End Item A41 Quart

Bulk Item A

Ea Ea

Gal

Ingredient #2Gal

Containerfor 1 Quart

Ea

Ingredient #2

Bulk Item AGal

Ingredient #1Gal

Containerfor 1 Gallon

Ea

Ingredient #1Gal Gal

1 .25 1

Mixing

Packaging

Mixing

Packaging

Formula Size = 1000 Gal Formula Size = 1000 Gal

Qty = 600 Qty = 400 60% 40%

Component requirements expressed as a quantity

Component requirements expressed as a percentage

Qty = 1

End Item A11 Gallon

End Item A41 Quart

Bulk Item A

Ea Ea

Gal

Ingredient #2Gal

Containerfor 1 Quart

Ea

Ingredient #2

Bulk Item AGal

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Containerfor 1 Gallon

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1 .25 1

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Packaging

Mixing

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Formula Size = 1000 Gal Formula Size = 1000 Gal

Qty = 600 Qty = 400 60% 40%

Component requirements expressed as a quantity

Component requirements expressed as a percentage

Qty = 1

3 Quantity breakpoints also apply to BOM items, as mentioned in the previous chapter. However, theytypically only apply to process manufacturing and the use of formula items, so they are mentioned again in thischapter.


The concept of a quantity-sensitive formulation also applies to routingversions, where larger batch sizes are produced on different equipment. Hence, you typically define the same quantity breakpoints in the routingversions and the formula versions. Chapter 7 provides further explanationof work centers and routing information.

4.5 Substitute Ingredients in a Formula

Substitute ingredients can be optionally defined for an ingredient within aformula. As a result, master scheduling logic will automatically consider thesubstitute ingredients when there is insufficient inventory of the preferredingredient, and assign the appropriate ingredients to the formula lines for aplanned batch order. Typical examples include the use of more expensivealternates, or using the alternate after running out of stock. The substituteingredient approach involves some setup information, and several con-siderations about planning and costing.

Setup Information for Substitute Ingredients The preferred ingre-dient (and its quantity) must be defined in the formula, and each substituteingredient is also defined (with a zero quantity) in the formula.4 In addition,each of these ingredients must be assigned a plan group and a priority. Theassignment of a user-defined plan group provides a grouping of components,and the priority (of 1, 2, and so forth) indicates the desired sequence forplanning calculation purposes.

Planning Considerations for Substitute Ingredients The masterscheduling logic will automatically consider the substitute ingredients whenthere is insufficient inventory of the preferred ingredient, and assign theappropriate substitute(s) to the formula lines for a planned batch order. Based on available inventory, for example, the scheduling logic may assignthe primary ingredient (up to its available inventory) and also assign thesubstitute ingredient for the remaining requirements. The assigned ingre-dients will also be reflected in the formula lines after you firm the plannedbatch order. This logic does not apply to a manually created batch order. The scheduling logic will assign the primary ingredient when there is noavailable inventory of any substitute.

Costing Considerations for Substitute Ingredients The zeroquantity for a substitute ingredient means that it will not be included in the

4 In some cases such as potency, the substitute item may need a greater (or lesser) quantity, which can beexpressed as an incremental fraction using a positive (or negative) quantity in the formula line. However, thesefractional quantities will be included in the cost roll-up calculations for the parent item.

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cost roll-up calculations (aka formula calculations) for the parent item. However, the assignment of a substitute ingredient (and quantity) to a batchorder will be considered in order costing.

4.6 Designating the Bulk Item Associatedwith a Formula Version

Certain types of process manufacturing involve batch production of a bulkitem, which can then be packaged into container variations that have uniqueitem numbers.5 For example, a product such as paint, fruit juice, lubricant,or cleaning fluid is often produced as a bulk item and then packaged intodifferent containers. The production process typically involves one batchorder to produce the bulk item, and other batch orders to produce each enditem that represents a packaging variation. These batch orders should besynchronized to ensure production of the optimum batch size (of the bulkitem) for meeting end item demands.

Additional functionality—termed containerized packaging—can helpsimplify the process of firming/consolidating these related batch orders andprovide a single point for coordinating/reporting production activities. Thisadditional functionality is described in Chapter 13, but the setup informationwill be described here. The item number representing the bulk item must bedefined as an ingredient and also identified in the header of the formulaversion.

As a preparatory step, you also define the ratio between each end itemand its corresponding bulk item. Chapter 2 previously described this setupinformation, but it will be repeated here. The ratio is a different factor thanthe one you might enter in the standard Unit Conversion form. It identifieshow much of the bulk product is contained within each of the packagingvariations. For example, the bulk item might consist of a paint color with aUM of gallons, so that a .25 ratio applies to the item number for paint in aquart container and a ratio of 5 applies to the item number for paint in a 5gallon container. You define these ratios using the Bulk Item Conversionform, which can be accessed directly or from the Item form. The ratiosenable you to view inventory balances for all packaging variations of thebulk item. This inquiry is termed the Consolidated On Hand form, and anexample was previously shown in Figure 2.1. The inquiry can be accessedfor any of the item numbers about container variations or the bulk item.

5 An alternative approach to container variations involves the use of the configuration id field, which has beenrenamed the container id field. With this alternative approach, the item number plus container id field provide aunique identifier for each container variation, and the formula information includes the bulk item component andthe container components (such as a can, lid, and label) for each variation. However, this alternative approach doesnot support a separate batch order for the bulk item, nor does it support the synchronization capabilities describedhere.


4.7 Co-Products and By-Products of a Formula

A manufacturing process that generates co-products or by-products can bemodeled within the formula information for the parent item, and actualreceipts can be reported against a batch order for the parent item. A co-product represents a desirable or reusable output from a manufacturingprocess for a parent item, whereas a by-product typically represents waste. The differences between a co-product and by-product are reflected indifferent approaches to costing and master scheduling. For example, a co-product’s costs can be calculated (thereby reducing the costs associated withits parent item), and its requirements can result in the generation of plannedorders for the parent item. In contrast, you manually specify the costs for aby-product, and the cost calculations add these costs to the parent item’scosts. A by-product’s requirements are ignored by master scheduling logic.

Co-products and by-products can also be used to model a disassemblyprocess, where a batch order only results in co/by-products and the parentitem (designated as a planning item) is never received. The following threesubsections describe the formula information for co-products, by-products,and planning items.

Formula Information with a Co-Product Each co-product must beidentified by an item number, and explicitly designated (on the item master)as a co-product using the Product Type field. A co-product must also beassigned an Item Type of Item. The item number can then be specified as aco-product when defining the formula information for a parent item. Thisinformation is specified on a separate form (termed the Co/By Products form)for the formula version. The definition of this formula information is illus-trated in the top half of Figure 4.2, which shows the ingredients for producingthe parent item and a co-product.

In this example formula, the ingredients (totaling 100 pounds) are usedto produce the parent item (with a formula size of 70 pounds) and the co-product (with an expected quantity of 30 pounds).

A recurrent co-product represents a special case, since the same itemnumber is also defined as an ingredient of the parent item. As part of theformula version information, you must explicitly flag a co-product as arecurrent co-product in order to support the circular logic. The synonyms fora recurrent co-product vary by industry, exemplified by the terms regrind,reclaim, and recycled products. For example, a chocolate manufacturer canreuse chocolate grind in the next melting batch, and a paper manufacturer canreuse trim paper in the next paper slurry.

The formula information about a co-product has several implications forthe formula size, costing, master scheduling, and batch orders, as sum-marized below and described in more detail in future chapters.

58 Chapter 4

Figure 4.2 Example Formula Information with a Co-Product

˜ Formula size and component quantities. The total expected output of aformula version includes the formula size (for the parent item) and theexpected quantity of the co-product(s), and the component quantitiesshould be specified for this total expected output (rather than just theformula size). Component requirements expressed as a percentage willonly reflect the formula size, so that component requirements aretypically expressed as a quantity.

˜ Costing implications of a co-product. The BOM calculation for themanufactured item’s cost is normally based on 100% of the costsassociated with its component and routing information. However, youcan optionally allocate a percentage of these costs to a formula’s co-product (either as a prorated or specified percentage), which provides thebasis for automatically calculating the co-product’s cost as part of theBOM calculation. The “remaining costs” are used to calculate the parentitem’s costs.

These costing implications are illustrated in the bottom half of Figure4.2. In this example, the parent item’s formula information specifies aformula size of 70, an expected co-product quantity of 30 (with a manu-ally specified cost allocation percentage of 30%), and total component

Parent Item #100

Ingredient#101

Co-Product #200

Expected Quantity = 30 LbsFormula Size = 70 lbs

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Cost Allocation = 30% (Remaining Cost Allocation = 70%)

Total Ingredients = 100 Lbs to produce the parent item (70 Lbs) and co-product (30 Lbs)Total Ingredient Costs = $1000 = (80 Lbs x $10/Lb) + (20 Lbs x $10/Lb)

Calculated Cost per Unit

$1000 x 70%70 Units

= $10

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$10=

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Cost = $10/Lb Cost = $10/Lb

Parent Item #100

Ingredient#101

Co-Product #200


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Total Ingredients = 100 Lbs to produce the parent item (70 Lbs) and co-product (30 Lbs)Total Ingredient Costs = $1000 = (80 Lbs x $10/Lb) + (20 Lbs x $10/Lb)


$1000 x 70%70 Units

= $10

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quantities to produce 100 units (valued at $1000). The system uses thespecified cost allocation percentage to automatically track the remainingcost allocation for the parent item (of 70%). A BOM calculation for theparent item results in a calculated per unit cost for the parent item (of$10) and for the co-product (of $10). These calculation results can beviewed on the Complete BOM Calculation form for the parent item andfor the co-product item.

Chapter 8 provides further explanation of the product costing impli-cations of a co-product, such as the cost allocation approaches forcalculating the co-product’s cost.

˜ Master scheduling implications of a co-product. Sales forecasts andsales orders (and other demands) can apply to the parent item and the co-product. Master scheduling logic will generate planned orders to coverthese demands based on the site/warehouse-specific planning data. Asdescribed in Chapter 9, the planning data for a co-product item deter-mines whether master scheduling generates planned purchase orders ortransfer orders for the co-product, or planned batch order (for the

designated parent item) to cover requirements for the co-product.

6 The policy on a batch order (for the Co/By Product Variations checkbox) is initially inherited from the policyspecified for the Formula Version for the parent item.

˜ Batch order implications of a co/by-product. The output of a batch orderincludes the parent item and the co/by-products, which can be recordedin the report-as-finished journal for the batch order. You can optionallyadd an expected co/by-product to a batch order, or add an unexpectedco/by-product to the report-as-finished journal, but only when permitted(as designated by the Co/By Product Variations checkbox for the batchorder).6 In this case, you should review and modify the associated costallocations prior to ending the batch order. When using a standardcosting method, variances will be calculated after you update the batchorder status to ended. You can view the variances associated with pro-ducing the parent item, and a separate form displays the variancesassociated with producing the co-products.

The key fields in the formula information for a co-product aresummarized below.

˜ Quantity. The expected co-product quantity is typically expressed for theformula size (aka the per series field), although you can override the perseries value.

˜ Cost Allocation Method and Percent. A cost allocation method of“manual” or “pro rata” allows the co-product’s cost to be calculated

60 Chapter 4

when performing a BOM calculation for the parent item. A method of“none” means that the co-product’s cost will not be calculated.

˜ Recurrent Flag and the Recovery Percentage. In the special case of arecurrent co-product, the recurrent flag allows the entry of the co-productitem when it is also defined as an ingredient. The co-product quantitycan be manually specified, or it can be expressed as a recovery percent-age of the ingredient quantity.

Formula Information with a By-Product Each by-product must beidentified by an item number, and explicitly designated (on the item master)as a by-product using the Product Type field. The item number can then bespecified as a by-product (or co-product) when defining the formula infor-mation for a parent item (using the Co/By Products form). The definition ofthis formula information is illustrated in the top half of Figure 4.3, whichshows the ingredients for producing the parent item and a by-product.

Figure 4.3 Example Formula Information with a By-Product


$1000 70 Units

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Ingredient#101

By-Product #300


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By-Product Burden Amount = $35

Lb Lb

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Total Ingredients = 100 Lbs to produce the parent item (70 Lbs) and by-product (30 Lbs)Total Ingredient Costs = $1000 = (80 Lbs x $10/Lb) + (20 Lbs x $10/Lb)

The by-product burden amount reflects the additional cost

to dispose of the by-product


$1000 70 Units

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By-Product #300


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By-Product Burden Amount = $35

Lb Lb

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Total Ingredients = 100 Lbs to produce the parent item (70 Lbs) and by-product (30 Lbs)Total Ingredient Costs = $1000 = (80 Lbs x $10/Lb) + (20 Lbs x $10/Lb)

The by-product burden amount reflects the additional cost

to dispose of the by-product


In this example formula, the ingredients (totaling 100 pounds) are usedto produce the parent item (with a formula size of 70 pounds) and the by-product (with an expected quantity of 30 pounds).

The formula information about a by-product has several implications forthe formula size, costing, master scheduling, and batch orders, as sum-marized below and described in more detail in subsequent chapters.

˜ Formula size and component quantities. The total expected output of aformula version includes the formula size (for the parent item) and theexpected quantity of the by-product(s). The component quantities shouldbe specified for this total expected output (rather than just the formulasize). Component requirements expressed as a percentage will onlyreflect the formula size.

˜ Costing implications of a by-product. The costs for a by-product itemrepresent its disposal costs. These costs can be manually specified forthe item, although they are often specified as zero so that the by-product’s inventory will be valued at zero. When a formula includes theby-product item, the cost roll-up calculation for the parent item willinclude the by-product’s cost. Alternatively, you can specify the valuefor the by-product’s cost (termed the By-Product Burden Amount field)as part of the formula information. In either case, you can view thecontributions of the by-product’s costs to the parent item’s costs on theComplete BOM Calculation form.

These costing implications are illustrated in the bottom half of Figure4.3. In this example, the parent item’s formula information specifies aformula size of 70 pounds, an expected by-product quantity of 30 pounds(with a manually specified burden amount of $35 representing thedisposal fee), and total component quantities to produce 100 pounds(valued at $1000). A cost roll-up calculation for the parent item resultsin a per unit cost of $14.79, which reflects the cost of ingredients and theby-product.

˜ Master scheduling implications of a by-product. Master scheduling logic

ignores the demands for a by-product item, and the demands are notdisplayed as net requirements. This means master scheduling will notgenerate a planned order for the parent item to satisfy requirements forthe by-product.

˜ Batch order implications of a by-product. The output of a batch orderincludes the parent item and the by-product, which can be recorded in thereport-as-finished journal for the batch order. You can optionally add anunexpected by-product to the report-as-finished journal, but only when

62 Chapter 4

permitted (as designated by the Co/By Product Variations checkbox forthe batch order). The costs associated with a by-product are auto-matically recorded when you change the batch order status to ended. These costs are recorded in the route card journal for the batch order.7

The key fields in the formula information for a by-product are sum-marized below.

˜ Quantity. The expected by-product quantity is typically expressed for theformula size (aka the per series field), although you can override the perseries value.

˜ Burden checkbox and the By-Product Burden Amount. The Burdencheckbox indicates that a specified burden amount should be used incalculating the costs of the parent item. Otherwise, the burden amountwill equal the by-product quantity times the by-product’s cost.

Formula Information for a Planning Item with Co/By Products(aka Disassembly Process) A disassembly process can be modeledwith a planning item and the formula information about its co/by-products. The planning item must be identified by an item number, and explicitlydesignated on the item master as a planning item (using the Product Typefield) and as a formula item (using the Item Type field).

The disassembly concept applies to many different manufacturingprocesses, ranging from roll slitting and remanufacturing strip-down tochicken disassembly. The latter process has been so commonly used as anexample across the years that the concept is often termed the chickendisassembly problem. Figure 4.4 provides a simplified illustration, where thedisassembled chicken is represented by an item number (aka the planningitem) which has a formula specifying a single ingredient of an incomingchicken. The formula for this planning item also specifies the expected co-products—such as the wings and breasts—of the chicken disassembly pro-cess. Hence, a batch order will model the disassembly process for a quantityof incoming chickens that results in wings and breasts.

The approach builds on the above-described definition of co/by-products,so further explanation covers the implications of a planning item.

7 The route card journal provides a unique approach for recording the “burden” associated with a by-product’squantity and costs, since this journal is normally used to report time or units against a routing operation. The by-product’s quantity and costs are expressed as the number of hours and an hourly rate.


Figure 4.4 Example Formula for a Planning Item with Co/By-Products

˜ Costing implications of a planning item. The cost roll-up calculation fora planning item will calculate the costs for a co-product, and include thecosts for a by-product, as described in the previous subsections.

˜ Master scheduling implications of a planning item. Master schedulinglogic will generate planned orders to cover demands for co-product itemsbased on the site/warehouse-specific planning data. As described inChapter 9, the site/warehouse-specific planning data for a co-productitem determines whether master scheduling generates planned purchaseorders or transfer orders, or planned batch orders for a designated parentitem.

˜ Batch order implications of a planning item. The output of a batch orderonly includes the co-products or by-products, which can be recorded inthe report-as-finished journal for the batch order.

Some Caveats about Using Co/By-Products Co/by-products can-not be components of a phantom. The expected quantity of co/by-productsshould be considered in assigning the formula size for formula versions andthe component required quantities (as illustrated in Figures 4.2 and 4.3).

DisassembledChecken

(Planning Item)

Co-Product Wing

Expected Qty = 200Formula Size = 100

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Total Costs = $2000 to produce a Formula Size of 100 Units


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Qty= 100

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Expected Qty = 200Formula Size = 100

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Total Costs = $2000 to produce a Formula Size of 100 Units


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64 Chapter 4

4.8 Catch Weight Items and Formula Information

The use of catch weight items will impact formula definition and all otheraspects of system usage, as described in the next chapter. This sectionfocuses on two aspects of formula information: the component requirementsfor a catch weight item and the formula version for a manufactured catchweight item.

Defining Component Requirements for a Catch Weight Item Ina formula line, the component’s required quantity must be expressed inpieces (the catch weight UM) rather than weight (the inventory UM). Thisinformation must be entered in a separate field (termed the CW Quantityfield), and the corresponding weight is automatically displayed in theRequired Quantity field based on the nominal weight. As one example, thecomponent’s required quantity may be 3 bags for a 1000 pound formula size,so that a nominal weight of 50 pounds per bag would result in a requiredquantity of 150 pounds.

The component’s required quantity in an order-dependent formula is alsoexpressed in pieces, with the same calculation of a corresponding weight.

Defining a Formula Version for a Manufactured Catch WeightItem The formula size must be expressed in pieces (the catch weight UM)rather than weight (the inventory UM). This information must be entered ina separate field (termed the CW Size field), and the corresponding weight isautomatically displayed in the Formula Size field based on the nominalweight. If applicable, you also express the breakpoints for a quantity-sensitive formulation using the catch weight UM of pieces (termed the FromCW Size field). However, you still specify a formula multiple using weight,which must reflect increments of the nominal weight. A nominal weight of10 pounds, for example, means that the formula multiple must reflect amultiple of 10 pounds.

Case Studies

Case 9: Formula for Fruit Juice Products A fruit juice manufac-turer produced batches of various flavors of fruit juices (such as orange,mango, and tropical), and packaged a juice batch into different carton sizes(such 3, 6, and 16 ounce cartons). As shown in the left side of Figure 4.5 forthe orange juice product, the production process starts with a mixing kettlecontaining a 1000 gallon batch of the basic ingredients (concentrate, juicebase, and water), and the resulting bulk juice was packaged into 12-pack


Figure 4.5 Example Formulas for Fruit Juice and its Packaging Variations

trays of 6 ounce cartons. The figure also shows two other packaging varia-tions for the bulk juice: 4-pack trays of 16 ounce cartons and 27-pack traysof 3 ounce cartons.

Case 10: Yield Percentage for Aged Scotch Whiskey A whiskeymanufacturer produced several types of blended scotches, where the age ofa blended scotch whiskey determined how it should be packaged and sold. Examples include a 12-year-old and 20-year-old blended scotch. The initialblending process involved a combination of several single malt scotches,where the batch attributes of each ingredient were critical considerations inobtaining the correct taste. For example, one ingredient (from one part ofScotland) may have a slight charcoal taste, which required the appropriateblending with another ingredient (from another part of Scotland) with a peatytaste. The batch of blended scotch was placed into oak barrels, and then agedappropriately—such as 12 or 20 years. The yield percentage assigned to the12-year old scotch was 20%, whereas 3% was assigned to the 20-year oldscotch. The yield percentage reflected evaporation over time that was lostto the heavens, also termed the angel’s share.

Case 11: Formula for Oat Processing An oat processor producedseveral types of finished oats from raw oats, as well as some co-products(such as oil from the oats). Figure 4.6 illustrates the formula for one of theoat products, identified as Finished Oats-E. In this example, the productionprocess starts with a feed prep step to produce groats, which then go thoughseveral steps (such as a pin mill and a hammer mill) resulting in a 50 poundbag that must be irradiated. During these steps, solvent is added to the groats

1.125

Orange Juice12 Pack

Orange JuiceBulk

Ea

Gal

ConcentrateGal

Juice Base

Gal

Mixing

Packaging

Formula Size = 1000 Gal

86% 4%

WaterGal

10%

Carton (6 Oz)

Ea

LabelsTray

12 1

Orange Juice4 Pack

Orange JuiceBulk

Ea

Gal

Packaging

Carton(16 Oz)

Ea

41.266

Orange Juice27 Pack

Orange JuiceBulk

Ea

Gal

Packaging

Carton(3 Oz)

Ea

271.125

Orange Juice12 Pack

Orange JuiceBulk

Ea

Gal

ConcentrateGal

Juice Base

Gal

Mixing

Packaging

Formula Size = 1000 Gal

86% 4%

WaterGal

10%

Carton (6 Oz)

Ea

LabelsTray

12 1

Orange Juice4 Pack

Orange JuiceBulk

Ea

Gal

Packaging

Carton(16 Oz)

Ea

41.266

Orange Juice27 Pack

Orange JuiceBulk

Ea

Gal

Packaging

Carton(3 Oz)

Ea

27

66 Chapter 4

Figure 4.6 Example Formula for Oat Processing

and then reclaimed as a co-product (via an oil stripper step) along with crudeoil from the oats. This crude oil is then refined and packaged into a containerwith a label.

Other types of finished oats (not shown in the figure) can also be pro-duced from groats. As one example of a different finished oats product, thegroats go through the same steps for the pin mill and solvent operation, butthen go through a different hammer mill and pin mill before packaging into50 pound bags and irradiation.

Case 12: Formula for a Pharmaceutical Product A pharmaceuti-cal manufacturer produced batches of various products, which were thenplaced in vials with labels and individual boxes. As shown in Figure 4.7 foran example product, the production process starts with a vessel containing a1000 pound batch of ingredients, which requires a first level fermentationprocess of 7 days to produce an intermediate product. This intermediaterequires three additional fermentation processes (labeled fermentation B, C,and D in the figure) across an 18 day period to produce the desired finished

1

Finished Oats-E

Oats-E(50 Lb Bag)

Ea

Ea

Raw OatsLb

Feed Prep

Irradiate

Formula Size = 1000 Lb

1.2

50

GroatsLb

Bag(50 Lb)

Ea

LabelCarton

1

Hammer Mill ESolvent OperationPin Mill

SolventGal

.1

CrudeOil

Gal

SolventGal

Co-Products

Oil Stripper

RefinedOil

Gal

Refine

ContainerLabel

1

Finished Oats-E

Oats-E(50 Lb Bag)

Ea

Ea

Raw OatsLb

Feed Prep

Irradiate

Formula Size = 1000 Lb

1.2

50

GroatsLb

Bag(50 Lb)

Ea

LabelCarton

1

Hammer Mill ESolvent OperationPin Mill

SolventGal

.1

CrudeOil

Gal

SolventGal

Co-Products

Oil Stripper

RefinedOil

Gal

Refine

ContainerLabel


Figure 4.7 Example Formula for a Pharmaceutical Product

Product-1. Each of these additional fermentation processes result in a usableco-product (labeled Product-2, Product-3, and Product-4 in the figure). Aninspection step for the finished Product-1 requires 14 days to obtain thecertified test results. A similar inspection step applies to the co-products, butis not shown in the figure. The inspected product can then be used to fillvials that are individually labeled and boxed at a packaging line.

Batch numbers are assigned to the items representing each ingredient,intermediate and end item, and several batch attributes are reported for eachbatch. In addition, the batches of packaged product are assigned shelf lifedates based on the test results at the inspection step. For a given sales order,the customer specifications for remaining shelf life are used in reservationlogic to ensure relevant batches will be shipped to the customer.

Case 13: Slitter for Rolled Products A slitter process for a rolledproduct such as paper or metal results in one or more slit rolls. The simplestexample of a slitter process results in the same item number, as illustrated inleft side of Figure 4.8 for producing multiple slit rolls of 2 inch width (the

Packaged Product-1

Ea

Packaging

Lb

VialLabelBox

FinishedProduct-1

Lb

Inspection

Inspected Product-1

Fermentation D

IntermediateProduct-1A

Lb

Fermentation C

Fermentation B

Fermentation A

Ingredient #1

Lb

Ingredient #2

Lb

Product-2Lb

Product-3Lb

Product-4Lb

Co-products of the fermentation processes

Lead Time

1 day

18 days

14 days

7 days Formula Size = 1000 Lb

Packaged Product-1

Ea

Packaging

Lb

VialLabelBox

FinishedProduct-1

Lb

Inspection

Inspected Product-1

Fermentation D

IntermediateProduct-1A

Lb

Fermentation C

Fermentation B

Fermentation A

Ingredient #1

Lb

Ingredient #2

Lb

Product-2Lb

Product-3Lb

Product-4Lb

Co-products of the fermentation processes

Lead Time

1 day

18 days

14 days

7 days Formula Size = 1000 Lb

68 Chapter 4

Figure 4.8 Example Formulas for Slitting a Rolled Product

item’s UM = Linear Yards or LY for short) from a master roll of 60 inchwidth (the item’s UM = Square Yards or SY for short). In this example, anextrusion process produces the master roll from various resins, and the slitterand extruder process can generate a regrind co-product.

A slightly more complex example of a slitter process results in multipleitem numbers, where the same items are produced every time. The right sideof Figure 4.8 illustrates the definition of a planning item, and its co-productsof two different slit rolls with 2 inch and 4 inch widths. This concept can beextended to partially model the most complex example, where multipledifferent items are produced by slitting a master roll. The combination ofdifferent items typically reflects trim optimization logic performed by aseparate software package. Predefined item numbers can provide an approxi-mation of the unique widths for the slit rolls generated by the slitting process,and the batch number can identify the exact width of a slit roll. With thisscenario, there are some cases in which you can predefine the co-products inthe formula information, although most cases will report the actual co-products as manually specified lines in the report-as-finished journal for thebatch order.

Case 14: Repair and Overhaul of Used Equipment A repair-and-overhaul business typically starts with a used item, and then goes throughthree phases (strip-down, repair and rebuild) to refurbish the item. Examplesof used items may be transportation equipment, engines, auto parts, com-puters, or other types of equipment. The used items may reflect a customersupplied item, a customer return, or purchases of used equipment. Figure 4.9

Slit Roll-22” Width

Master Roll(60” Width)

SY

Yd

.105

Extruder

Slitter

.113

.0345

RegrindLb

RegrindLb

.0001

.0001

Resin #2Lb

Resin #1Lb

Planning Item


SY

Yd

.105

Extruder

Slitter

.113

1.0

Resin #2Lb

Resin #1Lb


Yd

7


Yd

RegrindLb

.000115

Simple Example: Single Product More Complex Example: Multiple Products from a Roll

Co-ProductsCo-Product



SY

Yd

.105

Extruder

Slitter

.113

.0345

RegrindLb

RegrindLb

.0001

.0001

Resin #2Lb

Resin #1Lb

Planning Item


SY

Yd

.105

Extruder

Slitter

.113

1.0

Resin #2Lb

Resin #1Lb


Yd

7


Yd

RegrindLb

.000115

Simple Example: Single Product More Complex Example: Multiple Products from a Roll

Co-ProductsCo-Product


Figure 4.9 Example Formula for Repair and Overhaul of Used Equipment

illustrates the formula for a typical scenario, where a planning item repre-sents the disassembled equipment, and co-products represent the reusableparts (with a decimal quantity reflecting the fraction that can actually bereused).

In this example, the Used Part-1 must be repaired and Used Part-3 can be“used as is.” The figure shows a used assembly (Used Assy-2) that requiresrepair. However, it could be the starting point for further strip-down, whichmeans it would be the only component of another planning item with co-products representing the expected parts. In many scenarios, inspection ofthe used equipment may identify the need for a predefined or ad hoc repairprocedure. A predefined repair procedure can be modeled as an item numberwith predefined BOM and routing information, and a “work order” is usedto report completion of the task. Ad hoc procedures are also modeled as anitem number, but the required materials and labor are defined in the order-dependent BOM and routing. This example represents a hybrid manu-facturer, since batch orders for a planning item model the strip-down stepsand production orders can model the repair/rebuild steps.

DisassembledEquipment

(Planning Item)

Used Equipment

Ea

Strip-down 1.0

.7.9

OtherParts

Used Part-1

Used Assy-2

RepairedPart-1

Repair

RepairedAssy-2

Repair

Rebuild

OtherParts

Refurbished Equipment

Co-Products

PhasesR

ebu

ildR

epa

irS

trip-d

ow

n

Used Part-3

UseAs Is

DisassembledEquipment

(Planning Item)

Used Equipment

Ea

Strip-down 1.0

.7.9

OtherParts

Used Part-1

Used Assy-2

RepairedPart-1

Repair

RepairedAssy-2

Repair

Rebuild

OtherParts

Refurbished Equipment

Co-Products

PhasesR

ebu

ildR

epa

irS

trip-d

ow

n

Used Part-3

UseAs Is

70 Chapter 4

Executive Summary

Variations of formula information can be used to model different manu-facturing environments, as illustrated by the case studies about pharma-ceutical products, fruit juices, oat processing, slitting, and repair-and-overhaul. The variations described in this chapter reflect the uniquefunctionality associated with formula items and their associated batch orders,such as the formula size, co/by-products, catch weight items, and substituteingredients. One or more aspects of this additional information may applyto a given environment.

Formula Information for Process Manufacturing

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