Process, Job Shop, Discrete, Make to Order, and more

What Type of Manufacturing Mode Are You?
Process, Discrete, Job Shop, Make to Order, and more

This is an important question to answer since software developers for manufacturing ERP design their software based on the types of companies or industries that they want to support. Keep in mind that all software started somewhere (at some company) possibly a long time ago. Other software solutions were developed independently to serve an entire industry or industries. However, all software has a fundamental design approach for how it will support the manufacturing and business process of companies who choose to purchase that program.

The highest level of design difference addresses how a company produces their products for sale. Companies that take a number of small components and combine them into a larger item are know as discrete manufacturers. The majority of software is designed for discrete manufacturers. However, there are companies that effectively take big items and make them small. These manufacturers are known as process manufacturers.

A company that uses numerous components to make equipment is a discrete manufacturer. A company that converts tanks of chemicals to smaller containers is a process manufacturer even though that process manufacturer has a formula or recipe for the elements that go into producing the tank contents. In summary the main design difference is “many to one” for discrete manufacturing and “one to many” for process manufacturing.

For purposes of communicating with software companies a discrete manufacturer must further define themselves in the following categories:

  • Job Shop

    There are fewer job shops today than in the past. The definition of a job shop manufacturer is a business that produces what customers design after winning a quote based on the customer’s engineering drawing. The item(s) may be produced only once and never made again. Components are bought to and costed to the job/order. There is no practical inventory because the inventory bought was consumed by the job build. If there are left over parts due to minimum purchase requirements then the inventory value is zero.

  • Repetitive Job Shop

    There are job shops that (continually) get repeat orders from their customers. Some of these orders are blanket orders with structured releases of the total quantity of parts ordered for a defined period of time. These shops also quote from customer drawings the first time a finished part is produced. Or the customer orders additional parts when they are needed without a structured relationship supported by a blanket order. In the Repetitive Job Shop environment an inventory of raw materials, work in progress, finished sub-assemblies, and finished goods exist and have calculated values. It is not unusual in this environment for a customer to require the repetitive job shop to carry inventories of certain levels of parts.

  • Make to Order

    These manufacturers design and produce products that are sold into a marketplace. They create their own engineering drawings, maintain quality systems for the products they produce, and stock raw materials, work in progress, finished sub assemblies, and finished products. They quote their products to existing and potential customers but do not bid on custom work. All inventory has value. Finished goods are made only from customer orders.

  • Configure to Order

    – These manufacturers are a special sub-set of Make to Order. The products that they design and build can have features changed in the final design of the product. They allow for “features and options” that are used to take the “standard product” and produce an item that is better able to meet the customer’s needs, all within the parameters of the features and options offered. There is more about product configuration in a later section of this Guide.

  • Make to Stock

    This type of manufacturer treats a customer order differently from a make to order company. In a make to stock company the inventory of finished goods is built to a forecast of customer demand with orders for the company’s products ideally shipped from finished goods inventory literally the same day the order is received. This type of manufacturer relies on finished goods inventory availability rather than the rapid turn around of customer orders as the make to order company,

  • Processs Manufacturers

    – These companies manufacture large batches of product and then sell their products in smaller quantities. These types of companies include chemical manufacturers, pharmaceutical companies, and food processing companies. Instead of engineering drawings they have formulas and recipes. They measure the yields of products produced based on raw material inputs. Their business practices still include quoting new opportunities. Smaller process manufacturers, often called pilot plants, function more like job shops where small quantities of special products are produced in a non-repetitive environment.

  • Mixed Mode

    – Primarily connected to discrete manufacturing, this classification happens when multiple type of manufacturing philosophies are in place at one company – possibly your company. The most common mixed mode scenarios are make to order with configure to order. Repetitive job shop is often found with make to order. This model is the most complex to address due to the multiplicity of production modes and requirements.

Finally, many manufacturers distribute products made by other companies. This is not a mixed mode concept but rather a modification to the “regular” course of business where finished goods are bought and sold within the same environment as other products are produced. This is similar to distributing the products that a company makes on their own.

Software vendors have solutions that address one or more of these segments of the manufacturing marketplace. Some of the largest and most sophisticated offer solutions for both discrete and process industries but these software offerings do not target the small to medium sized manufacturing marketplace. All vendors will tell you where their products fit. Some will tell you that their products fit everything. Well structured demonstrations and reference checking will determine the validity of these statements.

It is important to understand how software solution providers are positioned in the ERP marketplace. While you and your team may not be ready to fully communicate your requirements to software vendors you should be aware of how these companies are focused and who they want as customers. Here are some of the general categories:

Job Shops, Repetitive Job Shops, and Small Make to Order Manufacturers

Software solutions for these categories of companies are designed to provide more basic capabilities. These companies offer solutions that are less robust and at a lower price point than other categories of solutions.

They may offer their own CRM solution that addresses only lead management and customer service. The CRM may or may not integrate MS Outlook e-mails. They may offer shop floor scheduling but primarily as infinite scheduling as their customers tend to manage capacity issues (overloaded or underutilized in work centers) rather than exact production schedules (when can this job be completed at a specific work center). Their capability to handle cycle counting includes the designation of whether an item is an A, B, or C count cycle without providing the software capability to actually determine how those designations are derived. Without citing further examples these solutions are complete offerings for their market that do not offer extensive capability. They are designed for users who want to manage at a higher level of business process and don’t want to utilize significant staff time to “feed the beast.”

Pricing for these solutions, for budgetary purposes, should be estimated at $2,500 per concurrent user. The accounting suite can be an additional $3,500 for fully integrated capability vs. $500 for a link to Quick Books or Peachtree for batch transfer of data to these solutions. Other capabilities not offered as standard sometimes includes shop floor data collection software for time and materials tracking, as well as quality modules beyond incoming, first, piece, and final inspection. Yearly maintenance cost is still in the 15% to 20% range, and daily on-site implementation costs are $1,000 to $1,200 per day plus out-of-pocket costs. All price estimates presented here are pre-negotiation values.

Note: A concurrent user or user “seat” is the number of users who can access the software at any one time. Named users are individual users identified by user login. A company with 15 named users may need only 10 concurrent user licenses or “seats” because not all users use the system frequently enough to incur the cost of providing them full time access.

Small to Medium Sized Engineer to Order, Make to Order, Configure to Order, and Make to Stock and Process Solutions

These solutions are the heart of the small to medium sized manufacturing marketplace focused on companies form $5 million to upwards of $50 million of sales. They feature a large combination of modules from which you can “pick and choose”. The breadth of their software is reasonably comprehensive and their capabilities flex well to the low and high end of this revenue range. They differ from the remainder of the mid-market in that these solutions function better in a single plant multi warehouse environment. They are not designed to truly support a multi plant platform where all operations in multiple locations are fully integrated (example: scheduling of one work order through work centers in three distinct plants all coordinated from one location).

Pricing for these solutions, for budgetary purposes, should be estimated at $5,000 per concurrent user. Additional modules for special functionality are priced in the $5,000 to $10,000 range sometimes based on the number of named users per special module who may or may not be concurrent users otherwise. Maintenance should be estimated at 20% of the final cost of all the software licenses. Daily implementation rates begin at $1,400 and go to $1,800 per day depending on the level of person involved in the implementation effort. Implementation cost for these solutions often ends up in a one to one ratio between cost of software and cost of implementation and training. All of these costs are subject to negotiations.

Advanced Mid-Market Software Solutions

There is a group of ERP software solutions that are for more sophisticated mid market companies with sales in the range of $50 million to $100 million. These solutions offer comprehensive multi-plant capability and a full range of capability that is almost as the level of a large system solution. Their capability should be considered by large organizations with an international presence only in major countries. In many cases they are differentiated from the top level systems in that they are more pre-configured and have implementation cost to software license costs that do not typically go beyond 1.5 to 1.0 for dollar cost (example is software that costs $300,000 should not go beyond $500,000 to implement).

Pricing for these solutions, for budgetary purposes, should be estimated at $8,000 per concurrent user, $15,000 to $30,000 for special modules depending on unique user counts, maintenance at 20% of final negotiated cost and implementation at a 1.5 to 1.0 ratio.

Tier One Solutions

These solutions offer full functionality and are sometimes sold on the premise that they will be almost totally configured to the needs of the customer. Because of this philosophy they really do not lack any functionality that is documentable. The have versions for discrete and process companies and have significant international presence on all continents. These solutions are typically considered by companies with hundreds if not thousands of users and have price points that frequently start at $1 million for software licenses and increase dramatically from there. For budgetary purposes maintenance is still around 20% of the software licenses and implementation costs are at least 2.0 to 1.0 against software license cost.

Conclusion

For comparisons of different manufacturing software products, download the free Manufacturing Software Selection Kit.

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