Manufacturing; Single Item, multiple ship points

By Charles L. Gaby, CPIM

About the Author

Not every manufactured product leaves the final assembly as a unit.  Not every  “Distributor” ships a single final product from the same facility.  The logistics of single item-multiple ship points are confusing enough to Management, but toss in a computer and a difficulty may seem impossible. Several years ago we encountered the problem. The end result was a change in the system design of our ERP solution.  The concept seems to be as unique today as it was back then. Does the following describe your company? 

Profile of a Distributed Manufacturer:

A single Item (assembly) is cataloged for sales

            Customer orders a single item

Customer expects single line item invoice

A Bill of Material for the assembly exists

Costs of Component Items are “rolled” to Assembly 

Assembly Cost of Goods Sold is a unit

Final assembly is not stocked

Components may be shipped from separate locations

Components may be drop shipped from Vendor or vendors

Components may be partially manufactured or assembled at one or more plants

Shop routings exist

Assembly at customer site is practical

Engineering drawings may exist

Customer typically wants a single line invoice

Profit Center (Plant/Warehouse) declared at line Item level

Inventory may be backflushed or issued by Plant.

Divisional Inventory accounting is required 

There are several “opportunities” presented above that most would consider mutually exclusive.  One Bill of Material and multiple Plants/Warehouses for instance presents a bit of a logistics nightmare.  Divisional accounting of a single “Item” is another; the customer’s Purchase Order reflects what the manufacturer represents as an “Item”…  and the customer certainly will want to account for this “Item” as a single unit on their books.  

The first step is to establish the “sale” item as a product. At that time default information is entered, including the Plant/Warehouse typically responsible. The Warehouse must control the Profit Center. 

Customer Order entry has the first opportunity to establish control of the Item.  The assembly Item is entered as the sale item. At this point a Plant/Warehouse  “Division” is established.  Warehouse information should have been assigned when the Item was established… but may be modified through Customer Order entry.. the 80 / 20 rule should apply. This is the profit center of record regardless of component shipments.

Manufacturing.  The Plant assigned at Order entry will be the designated manufacturing plant. Unless specific action is taken, this will be where all the manufacturing is done, but when another facility is called upon to perform some of the shipping, an order split is made. The split spawns subordinate fractions of the customer order in order to make the necessary granularity required to assign responsibility of certain portions of the manufacturing or assembly/shipping to another plant. This seamless complexity is performed by the software and enables backflushing from the correct facility.

Purchasing  “Drop shipments” take on a similar roll; these components are no longer requirements of the plant, but rather are automatically assigned to a purchase order that is related to the manufacturing order... which is related to the customer order.  Or for illustration:

Customer Order (spawns)…..

                                  Manufacturing order (spawns)…..

                                                                          Purchase Orders

The interrelationship of the spawned orders is a requirement for traceability and accountability. As noted above, inventory accountability must be divisional; separate assets for each plant are quite common. With the Drop Shipment tagged to the P.O., receipts may be recorded based on vendor notification, or automatically “received” while invoicing the Customer for the final product.

All inventory activity is automatically linked to the customer order, insuring orchestration and “traceability”.

Invoicing the customer for the single “assembly” is accomplished by mating the Customer Order Line Item to the various facility shipping/receiving documents. While this step does require some human feedback, the inventory is automatically accounted for seamlessly.  For instance, Vendor shipments need to be “Received” in order to trigger the vendor “shipment”.  Manufacturing facility “shipments” may be automatically recorded through the software provided Bill of Lading or Pack/ship programs; if not triggered, inventory is backflushed by the Invoicing procedure. 

Invoicing seamlessly accounts for the Balance sheet entries and the Income statement..by profit center. This automatic integration greatly reduces month end accounting reconciliation problems.

Measure the results

The end result is..

A single product sold…that may be assembled at a customers sight. 

Sales History recording an assembly sale price and cost

Inventory usage recorded by warehouse/facility

Manufacturing order “received” manually or automatically

Purchase Orders “received” manually or automatically

Inventory issues or Invoice “backflush” automatically

Arbitrary Profit Center credited for the sale

Balance sheet credited by warehouse

Customer pays for single Item Purchased

            (matches to his P.O. issued)

Reduced manual steps

Reduced errors

Books balance

Profits rise

Win / Win

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