Updated: Aug 17, 2021
For the purposes of this article we'll be using Microsoft Dynamics 365 Business Central as our ERP manufacturing software of choice.
Manufacturing or assembly, is either ERP system right for your business? This is one of the questions we frequently see get asked. In today’s day and age, most SMBs if they have a product they’re not just simply distributing the product (bringing the product in and sending the product out). They’re adding value to it through some sort of a process like the assembly or manufacturing process. So, when you are using an enterprise resource planning software that includes the option for both processes what are the differences between these two processes and which is right for your organization?
Just a quick note that with manufacturing ERP software or assembly ERP software
The first noticeable difference between manufacturing ERP software and assembly ERP software may be from a licensing stand point. For instance, with Business Central (formerly Microsoft NAV) assembly is included with the Essentials license (base) and manufacturing is included in the Premium license.
Comparing Assembly and Manufacturing Processes
Assembly and Manufacturing both have the...
Ability to assign a bill of material (BOM) or components.
Capability to assign labor costs. However, how this gets done is a little bit different in each one.
Capacity to roll up costs for a finished good item.
Assembly in an ERP system is...
Assembly to order or assemble to stock.
With assemble to order, while entering your sales order the system will automatically generate an Assembly Order behind the scenes. Also, as you tell Business Central your shipping the product the system will automatically consume the raw materials that were required to make it, output the finished good and then ship.
Manufacturing in an ERP system is...
Use of an outside process or sub contract vendor.
Ask the question, "Do we plan to send something to someone who will be doing something to it and then sending it back?" If so, it's considered manufacturing.
A way to record and track in the system the actual amount of time or labor spent to complete an operation.
Assembly takes a standard labor factor that you’ve added and then you apply that almost like a fixed cost per item every time.
Ability to track actual component consumption quantity.
For example, let's assume you are making a beer product and part of the process includes adding in the yeast. With Assembly you’d have to assign upfront exactly how much yeast goes into the quantity of beer being made and the system would then automatically consume that amount of yeast out of your inventory. With manufacturing you tell it exactly how much yeast you used in this production order or batch that you’re making. So, in the production process where you have more variability, need to know how many pieces you are using or maybe you have to scrap pieces against a production order that is more manufacturing than assembly.
Another good example is to imagine putting together a 6 pack of beer because it requires multiple layers of production. First, you have to make the work, then you have to brew the beer, then you have to put the beer into cans, then finally you have to put the cans of beer into 6 packs. This is multiple processes and with an Assembly Order you'd have to tell the system how many cans of beer you made and when you're done it back-flushes the exact number of ounces of beer, labels, cans, 6 pack holders, or whatever it may be. In this case, if you have scrap (cans that may have been scratched, dented, etc.) and if you have to report this separately then this is where you get into manufacturing. Also, you have to do this all at once which leads us to another big differentiator. With assembly when you tell it how many pieces you’ve made and you post that quantity on the Assembly Order that is the moment the system consumers your raw materials. Often times, this is not good enough. This may not be good enough. In a manufacturing environment you may have a process that takes several days you’ll need to consumer the raw materials on day 1 to start the process but you may not report output against the production order for many days, weeks, or months later. So the differentiator is that if you need to report the consumption of raw materials separately from the output of a finished good you need manufacturing.
With assembly you are assigning a fixed amount of labor or overhead cost into the item you are assembling. There really is no scheduling production capabilities.
With manufacturing you have the ability to crate work centers or machine centers within the work center. Then each work center or machine center can be scheduled, finite capacity can be tracked for each of these, and then schedule the production processes based on the available capacity and if you are infinite capacity you can analyze where you are over your capacity and what you need to do to fix this.
Is it possible to do Assembly even if you are clear-cut manufacturing?
According to Ken Sebahar, President, Solution Systems, Inc. and Co-host of A Shot of Business Central and A Beer podcast, “It is possible if you understand the differences between assembly orders and manufacturing it is possible. It’s a little bit more difficult, the planning tools are not as robust with assembly and it’ll require some level of manual or outside the system tracking.”
To summarize, people choose manufacturing over assembly when they need the...
Ability to schedule production.
Capability to record your material and labor consumption separately from your output.
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