Oracle project inventory planning and MMAS Compliance

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The Federal Government contractors need to adhere to DFARS regulations in order to maintain Material Management and Accounting System (MMAS) standards. Most companies in the Aerospace and Defense (A&D) project based manufacturing industry tend to utilize the Hard-Pegged planning approach where material is planned, purchased and manufactured to specific projects and with very strict borrow-payback inventory movement between the projects. This approach hinders lean manufacturing principles, increases inventory costs significantly and leads to an increased number of transactions. The common inventory approach on the other hand helps fulfill the lean manufacturing promise. Since Hard-pegging is required to a certain extent, a mixed planning approach using common inventory and hard-pegging can be used to satisfy the MMAS requirement as well as to help companies reduce their inventory levels. This presentation outlines the high level solution using the mixed planning approach.

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Oracle project inventory planning and MMAS Compliance

  1. 1. Welcome to online seminar onOracle Projects Inventory Planning & MMAS Compliance By: Mahender Bist Rapidflow Apps Inc.
  2. 2. Contents Terms & Definitions “Hard-Pegged” Planning Environment Challenges and Opportunity Common Inventory Process Common Inventory Costing Scenario Process Overview – Project Contract to Customer Billing Common Inventory and WIP Valuation - Material Cost Common Inventory and WIP Valuation - Labor Cost Permanent Transfers and Temporary Transfers Customer Owned Inventory
  3. 3. Terms & Definitions Hard Pegging “Hard-Pegging” also known as “Hard Allocation” MRP/ASCP Planning method - mostly used in Oracle Project Manufacturing environment where the supply of a project/task is not allowed to be shared across multiple projects or tasks Actual costs are incurred against the specific project and task Common Inventory “Common Inventory” also known as “Soft-Pegged” or “Soft Allocation” Planning method where the common components (parts and subassemblies) can be shared by multiple Contracts and Projects. Common Inventory is procured or manufactured under a “Common Project” Cost is shared proportionately by the customer contracts/project Material Management and Accounting System (MMAS) Provides strict guidelines for planning, controlling, and accounting for the acquisition, use, issuing, and disposition of material Defense Federal Acquisition Regulation Supplement (DFARS) govern MMAS guidelines to maintain consistent, equitable, and unbiased logic for costing of material transactions
  4. 4. “Hard-Pegged” Planning Challenges and Solution “Hard-Pegged” Planning Environment Challenges: Excess inventory levels as commingling of piece parts and subassemblies is NOT allowed (Regulatory challenges) Higher cost of procurement due to piece meal procurement approach in project based buying Hard to maintain a lean manufacturing environment Solution: Use common components (parts and subassemblies) in finished products “Soft-Pegged” or “Common Inventory” planning approach for fixed price contract to: • Streamline manufacturing processes • Improve operational efficiencies • Reduce costs Note: For Federal contractors, mix mode approach using common and hard-pegged inventory is an acceptable solution, however, detailed system testing must be recorded to indicate strict adherence to DFAR guidelines and to gain approval while deploying a new system or changing planning methods.
  5. 5. Common Inventory Process
  6. 6. “Common Inventory” Costing Scenario Oracle Projects Customer X Customer Y Contract 1 Contract 2 Customer Project 1 Customer Project 2 Project 1– BOM Material Project 2– BOM Labor Task 2.1: $500 Task 2.1: $1500 Customer Project 1 Customer Project 2 Project 1 – Direct Labor Project 2 – Direct Labor Task 2.2: $875 Task 2.2: $3375 Finished Product 1 Finished Product 2 Project 1 – Support Labor Work Order Project 2– Support Labor Product Family A Product Family A Product Family A- Task 2.3: $250 3 Work Order Product Family A- Task 2.3: $750 5 Support Labor for the Product Family A 25 units FG1 75 units Task 2.3: $1000 Labor: $20/Unit Labor: $30/Unit $500/25 Units $2250/75 Units SA1 SA3 Work Order 2 Work Order 75 units 25 units SA1 4 Labor: $10/Unit Labor: $10/Unit $750/75 Units $250/25 Units 25 units Transfer 75 units transfer Material: $500 Material: $1500 Labor: Labor: $125 $375 Common Project Common Project Common Project – BOM Material Work Order SA2 Task 2.1: $2000 1 Common Project – Direct Labor Task 2.2: $500 Purchase Order Raw Material Project: Common 1 100 units 100 units SA2 Sub Assembly SA2 Purchase Price = $20/unit Qty: 100 $2000/100 units Direct Labor: $5 per unit ($500 / 100 units)
  7. 7. Process Overview - Project Contract to Customer Billing Load Awarded Contract into the Project Contracts Enter Contract Deliverable Tracking System (DTS) with Projects and Task Propagate DTS demand to MDS Run ASCP Plan to generate supply schedules based on: • Exploded demand based on Bill of Material (BOM) structure • On hand inventory and receipt schedule • Procurement and manufacturing lead times “Hard-Pegged” planning can be used for Cost Plus Contracts “Soft-Pegged” planning can be used for Common Inventory Depending on the contract type, the customer will be billed: • After shipment of the deliverables or • After acquisition or consumption of the parts in progress billing
  8. 8. Common Inventory and WIP Valuation – Material Cost Material Cost (Average Costing): Common Inventory parts - Valued at a “Rolling Weighted Average” “Rolling Weighted Average” – Calculated based on actual costs of piece parts Material issues to “Common Project" work order - at the current weighted average Material issue increases the Common Project’s Work in Process (WIP) valuation and reduces the Common Project’s Inventory account valuation Work order completion relieves the Common Project’s WIP valuation and increases the inventory valuation ASCP can reallocate common inventory material anytime until consumed Transfer of common inventory from the “Common Project” to “Customer Specific” project decreases the “Common Project” valuation and increases the “Customer Project” valuation by current weighted average cost at the time of transfer
  9. 9. Common Inventory and WIP Valuation – Labor Cost Labor Cost (Actual Costing) Cumulative Average Labor Cost can be updated from actual labor cost Transfer or allocation of Labor value from “Common Project” to the “Customer Project” Support Cost can be allocated to Customer Project based on shipment quantities Overhead cost can be allocated as a fixed percentage of the Labor Cost
  10. 10. Permanent Transfers and Reporting Permanent Transfers Issue of the “Common Project” to “Customer Project” at piece part or subassembly level: • Credits the weighted average value (Material, Labor and Overhead) of the part from the “Common Project” and • Debits the same amount to the “Customer Project” Permanent Part Transfer from one “Customer Project A” to “Customer Project B” : • Credits the value of the part (Material, Labor, Support Labor and Overhead) from the transfer-from “Customer Project A” and • Debits the same amount to the transfer-to “Customer Project B”
  11. 11. Temporary Transfers Temporary Transfer or Borrow/Payback Temporary Transfers from one “Customer Project A” to “Customer Project B” : • Credits the weighted average value of the part (Material, Labor, Support Labor and Overhead) from the “Customer Project A” and • Debits the same amount to the transfer-to “Customer Project B” Payback of Borrowed part from one “Customer Project B” to “Customer Project A” : • Original transfer-from value of the part is transferred from the “Customer Project B” back to the “Customer Project A” • Any variance is charged to the borrowing contract
  12. 12. Customer Owned Inventory Customer owned inventory is not to be commingled with the common inventory Customer owned inventory is stored in “Customer Project” in Oracle and is not issued to the other projects
  13. 13. About Rapidflow Apps About Rapidflow Apps Oracle Gold Partner Oracle Business Accelerators Specialized Partner Areas Expertise Supply Chain Planning Product Lifecycle Management Master Data Management Business Intelligence Industry Solutions • High-Tech Manufacturing (Experience with Fab and Fabless) • Process Industry (CPG and Pharmaceutical) • Retail and Distribution • Medical Devices • Aerospace and Defense Rapidflow Apps Methodology Our business flow based methodology significantly reduces the implementation time and cost of ownership.
  14. 14. Q&A About the Presenter Mahender Bist from Rapidflow Apps Inc. Mahender Bist has over 20 years of industry experience in Operations Management and Information Technology consulting. He has been part of many complex and challenging Manufacturing, Planning, PLM and MDM assignments. About the Company Rapidflow Apps was founded with the sole objective of providing high quality, innovative and practical solutions to the real world business problems of our clients in the areas of Supply Chain Planning, Product Lifecycle Management, Master Data Management and Business Intelligence. Visit our website for more details- www.rapidflowapps.com If you have any feedback, please write to us at feedback@rapidflowapps.com For services, please contact us at info@rapidflowapps.com 14
  15. 15. Disclaimer The information contained in this presentation is for information purposes only and is based on the Rapidflow Apps Inc experience and publicly available material from Oracle Corporation on the subject. The presenter is not responsible for the claims made about the product benefits by the product vendor.

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