Why CMSR or CMSR-Integrator?

Elsewhere on our web site, we deal with the unique needs of Remanufacturing in the areas of core banking, accounts receivable, and general ledger processing. This article will focus primarily on the unique manufacturing and costing aspects of the remanufacturing process.

The Problem

Remanufacturing organizations face similar sets of challenges independent of their market or product. Common pains include:

Trying to shoehorn in a traditional software solution, or even certain industry directed ones, further magnifies the problems when trying to manage a business without the proper tools. Remanufacturing presents unique challenges as its basic raw material is a defective part (dirty core) and the process of acquiring components (salvage parts) for saleable item (reman item) production use is largely dependent on disassembly/rework process (tear-down). Equally important are other industry demanding aspects regarding costing, accounts receivables, and core banking. To understand this better, let's start where the rubber meets the road with reman inventory strategies and sales. Most systems can do a good job here - if they recognize the relationship of reman items to cores from a pricing, costing and banking perspective. Not many do.

Today's strategies include the need to minimize inventory at all levels while decreasing delivery lead-times and COGS; achievement of which can often lead to significant improvement in market position and profitability. This is also an absolute requirement for certain items that have a high degree of product variability and market volatility within or between product lines and the investment to stock all variants is cost prohibitive. The name of the game is inventory turns improvement; the classic tug-of-war between sales and production. This demonstrates the case of Sales desiring a build-to-demand strategy, and Production leaning toward traditional lot sizing practices. Many factors lead to this situation, but the only real reason for not supporting a beneficial build-to-demand rapid response strategy is the lack of proper system support tools. The next sections of this document explore this in more detail.

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Reman Scheduling

Reman scheduling represents the manually intensive derivation of a list of items that can be built and cannot be built based on known available capacity and available material(s), including salvage parts and dirty cores. Normally, this is done weekly and the scheduler/planner must rely on available inventory levels as the basis for the schedule. Additionally, current systems cannot extend down from the reman build schedule through the tear-down process to the dirty core to calculate the expected yield of salvage items and requirements for dirty cores. This is most crucial for proper planning and procurement needs for new components on certain salvage items when the expected yield is less than 100%. As a result, this often leads to the practice of tearing down the dirty cores upon receipt as the physical stocking of salvage components becomes the only viable way to accurately analyze build requirements. This solves the salvage availability side of the equation but results in other undesirable effects, such as:

Another major problem of tearing-down upon core receipt is that real plans are only generated as far out as the available salvage inventory levels support them. For instance, you are trying to create a plan that goes out several months but the salvage on available cores has only resulted in enough for a two week plan. How do you accurately plan beyond this point when critical materials, cores, and salvage components are not in stock? If you do plan and ignore them, how do you plan for the availability of the purchased item counterparts for the salvage items when the expected yield is less than 100%? Normal practices are to use some sort of min/max or reorder point logic. The problem with this, is that they ignore projected demand patterns and as such, either create excess inventories when demand is forecasted to go down, or shortages as demand is rising. Both are equally problematic as they result in paying for items you do not need now, and may not ever need, or expediting certain items. One raises inventory/costs, and the other affects the ability to get the customer order. This process of arbitrarily purchasing materials will most certainly result in accumulation of excess inventory over time and, therefore, create obsolete inventory as time progresses.

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Tear-Down Planning

With this, we mean the lack of an integrated approach to scheduling tear-down in order to fulfill actual demand patterns. As stated before, tear-down, for the sake of tear-down itself, will create or render recoverable parts and components which can then be utilized in future production jobs. Unfortunately, if the re-use of such components is not closely associated with the reman process, yielded components then become inventory items which bring on their own unique issues such as storage, aging, obsolescence, and in some cases, a deterioration of quality by such simple external factors as rust. This type of age deterioration results in an increased cost per part, thereby reducing the overall profitability in the remanufacturing job where such parts are used. Proper Tear-Down Yield Planning and Tracking will lead to balanced purchases for inventory items. If the yield tracking process is lacking, purchasing occurs without coordination or balance and the similar set of issues related to tear-down planning are further exacerbated.

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Core Supply Management

Two problems normally occur here. First is the issue that many current core tracking systems are off-line from the business functions, requiring heavy manual maintenance, and further, that they often do not provide the necessary functionality to properly manage core banks based on product type, commodity vs. capital item, and specific customer/product negotiated policies. The other major problem resulting from off-line core tracking, is that no visibility exists to the planners/buyers of potential customer sources for return. Therefore, often a remanufacturer will buy cores in order to satisfy short-term production forecasts and end up in an excess position based on actual core returns over the same period. This is because, in many cases, cores are purchased from brokers to fulfill plan requirements, rather than expecting or expediting returns from the customer.

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Purchasing and Order Release Execution

In every reman environment, there are two types of purchased items. Ones where you always use new (such as gaskets), which traditional systems plan properly, or others purchased to compensate for salvage yields of less than 100%, either by batch or expected over time. The focus of the next discussion is the second type, unique to remanufacturing, thus representing the greatest challenge to properly plan and manage.

The major issue here is, at order release and execution, to always use salvage inventories first. In most cases, this is also a very manually intensive process as typical approaches to solving the planning aspects include the use of historical percentage factors in the reman bill of material which do not do much for this phase. For instance, a salvage item that is yielded 70% of the time means purchasing the new item 30% of the time. For long range planning, this may work for the purchased item, but the real problem lies in the short term scheduling and execution. On the scheduling side, let us say that the last tear-down resulted in less or more than the 70% yield over time, so that it is consistently resulting in that new level. Without integrated tear-down planning in the planning process, to capture and analyze actual yield patterns, the system would just continue along at the stated rate until somebody recognized the problem because of excess inventories, continuous expediting, or high safety stock levels.

Now, from the execution side, either you just release the order based on the bill percentages (which could result in the extra yield rusting over time), or a shortage condition when yield was less than expected. To avoid this, the planner needs to review every order and check the inventory positions on both items, salvage vs. new, and manually adjust the issued quantities at order release. If this is so, it normally represents a large part of the lead-time scenario above and a lot of non-value-added activity to compensate for software deficiencies. Further, adding to the planner's confusion factor, is the problem that occurs within many systems when the salvage component yield from tear-down is not on a one to one basis. In this situation, when you get two from each tear-down 70% of the time, your yield is 140% and your purchase is 60%. What you need here is to be able to state that you get two back 70% of the time. What is needed is a software solution that performs this work for you.

Why do such problems exist? It is all too common for purchasing to react to short-term needs rather than long range planning. Not because it is an "easy way out" but as a result of a lack of visibility into an inventory management environment, and most explicitly, a strategic planning environment. Inventory deficiencies can slowly manifest themselves into overwhelming proportions.

An "Inventory not Balanced" situation can occur when cumulative inventory is not structured towards a balanced set of parts. Add the fact that acquisition of inventory may not be linked to production demands. With little to no visibility into core yield and no tear-down planning, it is evident that the above observed problems can easily become enterprise level issues that will threaten profitability if left unchecked. In many cases the remanufacturer who has the best price/delivery, gets the order. Profitability and sales volume are the areas that suffer under these practices.

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Solutions

There are solutions within CMS-R for remanufacturing that, inherent by its design, offer visibility and, through real-time integration of all aspects of the remanufacturing environment, allow pro-active management of the total environment.

Full visibility into tear-down planning process will enable management of parts yielded from core tear-down. The by-product phantom BOM item properties will allow a new part reference in the phantom BOM item, however it will allow the use of yielded components first. The system will authorize new part purchases only as needed.

Full visibility into inventory management is offered through the CMS Planned Inventory Position, or "PIP". The Planned Inventory Position is linked to sales and forecast demands as well as actual inventory (real-time) values. The PIP is also sensitive to Tear-down Planning and Yield Forecast/Usage and utilizes the CMS Phantom BOM Line Item(s) including By-Products and Yielded Components from planned tear-down operations, and includes purchased components as required.

Having full visibility towards purchasing requirements means visibility into Planned Inventory Position. One may now purchase only what is required, as opposed to purchasing from a min/max, or reorder point concept. Additionally, visibility into core requirements will show what is needed for tear-down and to satisfy future production demands. This visibility will offer knowledge of by-product yield and promote proper use of existing by-product items. This is accomplished with the use of the CMSR-Phantom BOM Line Items(s). This function offers the ability to consume existing inventory first, either core or discrete part, prior to planning procurement of a new part. In the event the required part is in a "core" state, the appropriate tear-down of said core, in order to yield the required part(s), is a function of the planning aspect of the CMS-R application.

The above defined environment fosters a true Demand Driven Purchasing Operation where procurement is directly linked to production demand(s). This is very efficient in short-term planning while extremely effective in long range planning. This environment is beyond "Reorder Point" and/or "Min/Max" systems of inventory procurement.

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Reman Product Costing vs. Core Value Tracking

When a part is remanufactured, the value-added reflects the new parts used in the process, along with other consumables, replacements for broken or used-up components, and new components added to upgrade the part. The value-added also includes the labor and other costs of the remanufacturing operation. However, the core value, once established, remains constant as the core flows through the system and is not diminished in the cycle of use and remanufacture, and re-use. A key to clear financial tracking is that the core value remains isolated from the value-added throughout the process. This is easy to do only when the system recognizes that costing for core is a special type of inventory item.

However, the value of a software system that gracefully and intelligently accomplishes this separation as the core moves through work in process and finished goods inventory transactions, greatly eases the job of financial control. The system should accomplish this trick through tight, automated integration between inventory transactions for cores and remanufactured items and the general ledger. The system must sense when a core part or a remanufactured part containing a core is transacted and immediately update the general ledger in such a way that it properly separates the value of the core and value-added portions of the cost.

When a remanufactured item is sold, the cost of the goods is seen as the cost of the labor, new parts, and burden. Profit is calculated on the value-added. The core value remains isolated from this picture.

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Summary

Only when such real-time linkage and visibility is available (as in the CMS-R or CMSR-I systems) can a demand-driven, purchasing and inventory control environment become an effective business tool for management and control of a remanufacturing operation.

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