Stop Backflushing Your Money Down the Drain

Recently, my lawn mower blades hit a rock and damaged the blades to where they were severely bent and were carving divots in my lawn. Ugh!!! When I first bought the riding mower six years ago, I changed out the blades to mulching blades. I tend to not throw anything away and so in order to prevent a trip to the local home center, the search for the original blades ensued. Well about an hour later, I still could not find these original blades. Oh, my frustration. I could have sworn I had those in my inventory but come to find out, these must have gotten thrown out. For the amount of time I spent searching for those elusive blades, I could have been to the home store and back. Wasted time is the one thing I hate more than wasted money! I can always make more money; however, time is something you can’t get back.

The ERP backflush assumption.

Over my career I have visited and consulted with 100’s of manufacturing sites. There is one problem that they have in common with my plight: they waste too much time searching for non-existent inventory. In many cases, ok most cases, they are searching because the scheduler has made a production schedule based on available raw material inventory identified in the ERP that cannot be located; or the scheduler is searching to confirm for themselves before they make the production schedule in hopes of preventing the first scenario. Despite the readily available software on the market, these organizations don’t have an MES that handles real-time manufacturing, and in particular, are not tracking actual raw materials consumed against the actual Work In Progress (WIP/Semi-finished goods) and finished goods materials produced. They instead rely on a typical but little-known ERP concept called backflushing. For those not indoctrinated, this is the practice of assuming the raw materials consumed based on the bill of material requirements for each unit of produce finished good. This means that if an operator identifies that they produced 5000 packs of cookies, then they must have consumed 500 lbs. of sugar, 500 lbs. of flour, 250 lbs. of lard, 20 lbs. of salt… you get the idea. This is the formulation components of the finished goods or otherwise known as the Bill of Materials (BOM). Now ERP implementers are not dumb, they know that production isn’t always perfect and so they do account for waste in the backflush calculation. It serves as a sort of fudge factor to try and account for waste. Great concept but there are many reasons this approach just isn’t the best idea: 1) it assumes historical waste is consistent 2) does not factor in anomalous production losses and events 3) does not account for unique operator’s skillsets 4) assumes consistent raw materials 5) does not account for loss due to spillage or spoilage. The industry calls this ERP function, backflush consumption, but I call it backflush assumption. We all know what happens when you assume, you make an a… ok, you know how it finishes.

“Sub-optimal” process.

In an ideal world there would be a near perfect accounting for the actual raw materials consumed as finished goods are produced, which in MES terms, is called produce and consume; however, by using backflushing, an organization is in effect doing produce and assume. I can guarantee that you if talk with any production scheduler who has an ERP system that is performing backflush operations, they spend most of their time verifying what raw material inventory they have by visually inspecting the warehouse or searching for non-existent inventory. To borrow a phrase from my colleague and boss, this seems sub-optimal. Not only is this sub-optimal, but it is also extremely challenging to quantify and wastes one of the resources we and manufacturers cannot get back… time.

A real-world tale.

Here is one recent real-world tale that occurred while I was visiting a manufacturer. The production scheduler used the ERP to validate raw material availability to handle production from 8 AM to 2PM. In fact, inventory stated that there should be enough existing raw materials, in this case lids and cans, to handle production packaging until a new shipment of lids came in to support production beyond 2PM. And so, the scheduler posted a schedule based on this availability. When the operators went to pick the raw materials from the warehouse, they found the cans but not the corresponding lids. The search ensued. An hour later, no lids and no production. How much did that cost? Because the WIP materials that needed to be packaged takes hours to prepare, they could not pivot manufacturing to a different product and therefore lost production not just for the hour but until the lids came in. When asked, they freely admitted this was a frequent occurrence. Share this story with your scheduler friends and you will find out how often this really occurs. How much time they spend…strike that…waste verifying inventory.

MES is for all manufacturers.

I recently watched a webinar where a consultant was differentiating MES, IIoT and OEE, and one of the characterizations was that MES is primarily for regulated industries. I wanted to jump through the screen. MES is for all manufacturers. MES is fit-for-purpose to bring accuracy to your ERP. ERP systems are designed for bulk financial transactions, not to manage your real-time operations on the plant floor and therefore, rely on less frequent transactions such as bulk production numbers to account for inventory. All manufacturers can benefit from tracking actual raw material consumption. The payback is very quick for most all manufacturers to implement production tracking of an MES unless you are bottling tap water, then maybe you don’t need an MES. So, I say to the rest of you “stop backflushing your money down the drain and invest in an MES.” It will save you time, money, and general team frustration. And with that extra time, perhaps you could help me finish mowing my lawn.