Multioperation make-to-order process

The multioperation make-to-order process is a production process that meets the following conditions:

• It starts upon a customer’s order for a finished product.
• It includes multiple technological operations.
• It requires accounting for manufacturing overheads by completed technological operations.

For example, furniture manufacturing.

If a company sells finished products, the multioperation make-to-order process is a subprocess of the company’s quote-to-cash process.

The steps of the multioperation make-to-order process can vary depending on the company business needs. In general, the process starts when a sales order is received and ends when the finished product is ready for dispatch.

1C:Drive supports the following multioperation make-to-order steps:

• Set up the multioperation make-to-order process.
• Place production orders.
• Monitor production order statuses.
• Plan materials.
• Arrange materials supply.
• Transfer materials to a manufacturing site.
• Register completed technological operations.
• Register finished goods.
• Register actual manufacturing overheads.
• Process overallocated or underallocated manufacturing overheads.

Setting up multioperation make-to-order process

When you start the multioperation make-to-order process, do the following:

• To manage multioperation production, select the Use WIP documents check box in Settings > Production > Other.
• To account for manufacturing overhead using predetermined overhead rates, set the Manufacturing overheads allocation methodin the company’s accounting policy. You have the following options:
  • Plantwide allocation (PA). A single overhead rate is used across the company.
  • Departmental allocation (DA). An individual overhead rate is used for each department.

  After you set a method, specify the overhead rates. Do one of the following:

• For Plantwide allocation, create a single overhead rate in the Manufacturing overheads rates list.
• For Departmental allocation (DA), add departments to the Departments catalog. Then create an overhead rate for each department in the Manufacturing overheads rates list.

  Note. If you do not want to use predetermined overhead rates, select the Plantwide allocation method and set a single overhead rate to 0.

• To process overallocated or underallocated manufacturing overheads, set Under/Over-allocated overheads to Write off to cost of goods sold in the company’s accounting policy.
  Then go to Company > Default GL accounts and set a COGS account as the default GL account for business transaction Write off over/underallocated manufacturing overheads to COGS.
• To define a GL account for manufacturing overheads, register an account with the Manufacturing overheads account type in the Primary chart of accounts.
• To define cost allocation base, register a cost driver in the Cost drivers catalog.
• To define a new cost pool, register a cost pool in the Cost pools catalog. Cost pools are used for accumulating costs with the same allocation base. This simplifies manufacturing overhead allocation process.
• To define technological operations, register them in the Operations catalog.
• To manufacture a product that requires a new bill of materials (BOM), register the BOM and fill in its operations in the Bills of materials catalog.

Placing production orders

When you receive a sales order that requires product manufacturing, register a production order.

Monitoring production order statuses

To ensure that you complete production orders in time, track production order statuses in the Production orders list.

Planning materials

To ensure that you have sufficient materials to fulfill production orders, use the Demand planning tool for material requirements planning.

Arranging materials supply

When the materials for production are out of stock or insufficient, you need to arrange their supply. To learn how to do so, see Procure-to-pay process.

Transferring materials to manufacturing site

When you transfer materials to the manufacturing site, register and post an inventory transfer. This automatically posts an inventory transfer entry to the general ledger journal.

Registering completed technological operations

When a department has completed a technological operation, register a work in progress document. To accurately trace manufacturing cost, ensure that you specify the following:

• Department.
  A department responsible for completing a technological operation.
• Production order.
  A production order that triggers manufacturing.
• Product.
  A manufactured product.
• Operations.
  Technological operations that the department completed.
• Components.
  Materials that the department consumed for completing the technological operations.

When you post a work in progress document, the cost of operations and components is posted to the work in process (WIP) account.

Registering finished goods

When manufacturing is finished, register its output. To do so, register a production document and set the Operation field to Convert from WIP.

When you post production documents, the following entries are posted to the general ledger journal:

• The finished goods account is increased by the finished product cost.
• The WIP account is decreased by the finished product cost.
  The finished product cost is based on the allocation details of the production document.

Registering actual manufacturing overheads

When you receive supplier invoices for goods or services that you have consumed for manufacturing, register these supplier invoices. In a supplier invoice, ensure that for each consumed item, you specify the GL account of the Manufacturing overheads account type.

Processing overallocated or underallocated manufacturing overheads

When you close out the current posting period, register a month-end closing document. Ensure that you select the Cost allocation check box.

When you post the month-end closing document, overallocated or underallocated overheads are posted to the COGS account specified in the Default GL accounts catalog for business transaction Write off over/underallocated manufacturing overheads to COGS.

Multioperation make-to-order diagram

The following diagram illustrates common steps of the multioperation make-to-order process.