Manufacturing in the Aerospace/Defense industry is characterized by mostly highly engineered made-to-order products conforming to exacting standards with documentation to support its fabrication and assembly. The manufacturing processes are governed by contracts detailing agreed upon product specifications between the government and the manufacturer. These contracts can be entered into at a fixed cost, cost established by the contract, or at cost plus where materials, labor, overhead and profit margin are charged to the government. Contract types can be for design, prototype, limited production, full scale production or a combination of these types. Common to all contracts, particularly for medium to larger manufacturers, is being subject to DCAA audits of the financial and operational components of the production process. Manufacturing is usually valued at actual cost, and for the most part, takes place in a job shop environment with some repetitive assembly operations being used for larger quantity orders.
When discussing Aerospace/Defense manufacturing’s approach to Enterprise Resource Planning (ERP), several unique processes need to be considered. All processes revolve around being able to report activity and invoice to a contract for either full payment or progress payments. Since a manufacturing company may have more than one contract in production, inventory needs to be purchased and separately maintained by contract. As with all highly engineered products, configuration management is used to track engineering changes In addition, lot and serial number control is also usually required. Costs, which include labor, material and overhead, must be kept by contract at the detailed operational level. In some cases, activities may be required to be matched to a schedule containing Work Breakdown Structures (WBS), which are the detailed tasks needed to complete a product. These macro processes are prevalent throughout the Aerospace/Defense industry along with other more specific ERP modular requirements.
The following details the unique characteristics of the Aerospace/Defense industry as they relate to each effected ERP module:
Bills of Material:
This module creates and maintains a detailed listing of all parts and assemblies that go into the manufactured product. Since an Aerospace/Defense company is usually involved with engineered products, manufacturing is given an engineering bill which is basically a listing of components. Manufacturing then creates its own bill of material which is indented into subassemblies and phantom assembles, those only created for the manufacturing process, showing the sequence of the manufacturing operation. In a highly engineered product where engineering changes may be required, both bills of materials will have to be maintained. An ERP system developed for the Aerospace/Defense vertical should have a mechanism for maintaining both bills with configuration management functions to enable version tracing to the inventory module.
As discussed above, there are several key requirements for an inventory module used by Aerospace/Defense manufacturers. These include: contract revision, lot number and serial number controls, high quality tolerances, tracing purchased parts to their source, and a high level of accountability since the government may own the inventory. Inventory needs to issue material by revision number, serial or lot number to a specific contract. Inventory may have to be designated by contract to meet government requirements. An ERP system can ease this burden and facilitate co-mingling of inventory by keeping detailed purchase and manufacturing cost history. For inventory that can be used across multiple contracts, some material transfers may be permissible but the inventory module will have to be able to keep the history and allow for the return of the transferred material to the initiating contract at the original cost.
Aside from procedural and contract requirements, the contract number for the item ordered must appear as a field on the purchase order line item, and in turn, the PO file so that the cost can be properly credited. The alternative is to carry the contract number on the Purchasing header records and limit each purchase to one contract. If contract requirements necessitate a bidding process prior to the purchase order, a document management system may be used to store and maintain relevant documents.
Master Production Scheduling and MRP
Essential to an ERP system in Aerospace/Defense is the software’s ability to control the MRP system explosion by contract. Since materials are purchased by contract, the material explosion must maintain “contract ownership to the original contract.” Following close behind, pegging, providing an association of the work order to its original contract, will provide the production scheduler with the ability to reschedule or expedite work orders to meet contractual requirements.
Shop Floor Control
Many companies in Aerospace/Defense operate in a job shop or assembly mode. This means that a work order is produced detailing the operations required to be completed in addition to the work centers or lines scheduled to perform the operation. Costs including material and labor are charged against the work order at the completion of each detailed operation. The costing systems will carry the data to the ledger for tracking and billing. In many cases, Aerospace companies produce an engineered product which require exacting manufacturing tolerances and with, engineering revision changes, may necessitate product rework activities. Many ERP systems built for this environment have rework loops capable of defining additional operations within the existing work order. This is obviously a distinct advantage since it avoids the delays and confusion of creating additional work orders, and maintains the batch/lot integrity.
Aerospace/Defense uses the same financial modules as other manufacturing verticals but since manufacturing is most likely performed to a contract, the references to the contract number must be consistently applied throughout the Receivables, Payables and General Ledger modules. Cost accounts, contract budgets, and actual costing to include allowances for attributing overheads to contracts, The ability to charge costs to a WBS may also be required. Strict audit trails must be embedded in all transactions to provide history for all charges. Many ERP software packages do not provide sufficient standard reporting so a third party report generator or a data warehouse will be useful tools to generate the large amount of custom reporting necessary to manage the company as well as to provide mandated government reporting.
For those companies involved in both engineering design and manufacturing, Project Management software can be useful in planning activities around the core ERP system. Project Management which includes scheduling functions is an application that will enable a company to detail and schedule all activities, create a WBS references to meet contract requirements and provide support for the Program Management Office. For companies of all sizes where there are significant engineering requirements associated with WBS tracking, the use of a project management system will provide needed management oversight. When considering a Project Management system, be sure that it is effectively integrated with the ERP system so that data accumulated can be shared across applications.
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