A major part of manufacturing costs are overhead costs. Broadly defined, overhead costs are costs related to manufacturing which do not add intrinsic value to the product. Some processes are value added and some are not. Some examples using production of balls are used as follows;
Taking raw rubber and manufacturing a ball is value added. Adding a team logo to the ball is value added. Packing the ball in an attractive display box is value added. Packing a dozen balls in a shipping crate is not value added. Inspecting the balls for flaws does not add value. Counting production at the end of a shift does not add value and adds overhead. In the office, printing, signing, and faxing a purchase order is non value added. Holding a meeting to figure out a production schedule is non value added. Anything that does not contribute to the manufacture of a product from one material state to another (Raw to WIP or WIP to Finished Goods) is non value added. Rework, while it may save costs of making the item again from scratch is non value added. Excess inventory, while not normally considered overhead may incur carrying costs, which are non value added and therefore overhead. (The accountants my take issue on this one)
Now that we are through that long winded explanation, how can ERP or Enterprise Resource Planning software reduce or eliminate overhead? The answer should be obvious; by eliminating or reducing the small mundane and expensive tasks that do not add value.
ERP software can be added directly to a process; Using ERP software combined with a bar code scanner, manual inventory counts can be eliminated. Parts are scanned and counted as they are produced. There is also a reduced chance for a counting error as well.
The bread and butter of an ERP system are the ability to not only plan a given part, but to fit it into a schedule is another way to eliminate overhead waste. With ERP, scheduling and planning meetings are reduced to confirming schedules produced by the ERP system.
In the front office, printing and faxing confirming purchase orders becomes a thing of the past. Purchase orders are confirmed with a few mouse clicks and some light data entry. The overhead costs also become a thing of the past.
On the accounts receivable side, ERP software can reduce overhead costs of billing. Instead of the accounting department entering data from bills of lading, materials can be scanned as they are packed and shipped. Invoices then can be generated based on the agreed terms and sent with minimal overhead labor.
While not a direct part of manufacturing, overhead costs never the less need to be controlled as closely as production costs. It does little good to make a product efficiently on the production line and then spend all of the profits administering to the packaging and distribution of the product.
ERP software manages overhead costs just as efficiently as it does direct production costs. The name its self states this; Enterprise Resource Planning. Are you ready to get on board?
Author Resource:
Samuel Daggle writes articles for the manufacturing and construction industries that focus on providing advice about selecting manufacturing software. To learn more or to read reviews of specific software packages, visit http://www.ctsguides.com/manufacturing.asp
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