CHAPTER 22
Case Study: Neptune Corporation

The functional chapters have occasionally cited examples using Neptune Corporation. This case study will explain Neptune’s operations. The case sections correspond to the various chapters in this book. Each case section also comes with a list of activities. Analyze the case section, and use the activities listed in each section as questions for your implementation effort. These activities are not meant to be a comprehensive list of implementation steps; you are encouraged to explore areas and options that are not explicitly mentioned in the list of activities.

Design and Manufacturing Engineering

To understand Neptune’s design and manufacturing engineering functions, it is first necessary to understand its enterprise structure. The company’s manufacturing philosophy also influences its design of items, bills, and routings, and its industry places a premium on rapid product-design cycles. Neptune uses the Oracle E-Business Suite to facilitate communication between its various business units, and thus maintain its competitive advantage in bringing new products to market.

Customer pressure also has led Neptune to adopt flow manufacturing practices, to respond to customer orders quickly while minimizing its investment in inventory.

Enterprise Structure

Neptune manufactures a full range of computers including servers, desktops, and laptops. Neptune offers an Internet service as an option in its products. A company named World Online (WOL) provides this service, and Neptune receives commission from WOL when a customer chooses this option.

Saturn is a 100 percent subsidiary of Neptune and manufactures network communication products such as switches, routers, and related products.

Neptune has two divisions: Neptune Products (NP), which designs, develops, manufactures, and distributes their products; and Neptune Professional Services (NPS), which performs onsite installation and maintenance of computers and networks and also operates parts and service centers around the world.

NP has manufacturing and distribution facilities all over the world. The manufacturing facilities are located in the following cities:

The distribution facilities are in the following locations:

Each facility accounts for inventory in its local currency. The U.S. facilities (Sacramento, Pittsburgh, Orlando, and Denver) use the same chart of accounts. Taiwan uses the same chart of accounts as the U.S. locations. Singapore and Madrid each has its own chart of accounts.

To minimize shipping costs and times, the supply chain is designed primarily by geography; however, alternate sources are modeled, particularly for expensive or long lead-time items. The “Supply Chain Planning” section discusses this further.

Each manufacturing plant has a central store and many RIP (raw in process) stores that serve the various machining and assembly cells. Once the materials are received at the receiving dock, they are normally transferred to the central stores. In some cases, the material that is received is sent directly to the RIP stores. The warehouses are designed to support a serpentine picking model, using Locator Picking Order to define the pick path.

Enterprise Structure Activities

Consider the following activities, as they pertain to Neptune’s enterprise structure and your own:

1. Define the set of books and business groups that are required by this client.

2. Define the legal entities under the appropriate set of books.

3. Define the operating units under the appropriate legal entities.

4. Set up the workday calendar(s) that Neptune will need.

5. Define the inventory organizations under the appropriate operating units.

6. Define appropriate subinventories and locators for each inventory organization.

Managing Items, Bills, and Routings

Neptune uses one item master organization for all its manufacturing and distribution facilities. As part of its implementation planning, it identified the item attribute control levels. To simplify item maintenance, the implementation team began with the assumption that attributes would be master-controlled whenever possible. The team reviewed each attribute with team members from the various functional areas to identify fields that required organization-level control; most planning attributes are controlled at the organization, for example, to enable more flexibility in the planning process.

When new items are added to the item master, each of the functional areas is notified to review and modify the item attributes that affect its function. For example, the procurement department is responsible for an item’s purchasing and receiving attributes, cost accounting is responsible for costing, etc. To prevent unauthorized or inadvertent changes to item attributes, Neptune uses security on the different attribute groups.

To more easily understand the function of the different items in its operation, Neptune has identified a number of item types to classify its items: Finished Good, Subassembly, Subassembly/Spare, Purchased Item, and Phantom. It has developed a unique template for each item type to facilitate item entry.

Neptune uses item status primarily to identify phases in an item’s lifecycle. The default status is New, which prohibits all activities. Other statuses include Prototype, which allows most activities except sale to customers; Active, which allows all activities; and Obsolete, which permits inventory stocking and inventory transactions, but prohibits other activities.

Item status can vary by organization. For example, an item might be in Prototype status in one manufacturing plant, but fully active in another, therefore, item status and the attributes it controls are maintained at the organization level. The one exception to status control is the BOM Allowed attribute. This is controlled at the master level and is set when the item is initially defined; it does not change during the product’s lifecycle.

Because of the extensive use of categories for reporting and processing across the Oracle E-Business Suite, Neptune’s implementation team carefully reviewed the categorization needs of the various functional departments within the company. The Engineering, Materials Management, and Planning departments agreed on a common categorization scheme that groups items by anticipated usage: raw material, subassembly, finished good, or mixed usage. The Procurement department determined that it would use categories to represent an item’s commodity code. The Cost Accounting, Order Management, and Service organizations identified a need to group items by their primary product family.

Item relationships are used to identify items that have superceded other products and to maintain a relationship between a product and its repair kit(s). Neptune also uses customer-item cross-references to identify customer part numbers for some of its larger customers and item cross-references to specify the UPC code for some of its products.

High-volume products produced on flow lines have flat bills of material, in keeping with demand-flow best practices. Complex and specialized products, such as large servers, might have deeper bills of material, but Neptune strives to keep the bills as flat as possible. If a specialized product proves popular enough, it will be moved to a flow line. In this case, Neptune might temporarily identify some subassemblies as phantoms to quickly affect the “flattening” of the bill; for long-term production, such bills are ultimately revised to eliminate the phantom level.

Neptune maintains some component substitutes in its bills of material for items it has identified as frequently on allocation. This enables planning to automatically generate requisitions for the alternate components and also serves as documentation of acceptable substitutes for manufacturing.

Routings are relatively simple and are used primarily for standard cost development. Most components are set up to be backflushed at operation completion. Because labor is a small percentage of the products’ cost, all labor resources are set up to be automatically charged. Operation method sheets for flow production are maintained as operation attachments, so they are visible in the flow and discrete workstations.

Neptune maintains alternate bills and routings for a few high-volume items. Optimized planning occasionally suggests an alternate routing (and associated bill) to alleviate short-term capacity problems. It also maintains product families for its popular products, such as the Asteroid laptop family. These product families are used in manufacturing engineering and reporting.

Item, Bill, and Routing Activities

The following activities will help you think about how Neptune and your own company can best use the Oracle E-Business Suite for item, bill of material, and routing maintenance:

1. Review the item attribute controls, and determine the appropriate control level for each attribute in order to meet Neptune’s needs.

2. Review the status control attributes, define appropriate status codes, and specify their effect on each of the status control attributes.

3. Define the category sets, category codes, and default categories that this client requires.

4. Identify the item types that Neptune is likely to use.

5. Review seeded item templates and modify as necessary to meet the company’s requirements.

6. Define cross-reference types to meet Neptune’s needs.

7. Define appropriate resources, departments, and resource availability.

8. Define alternate designators for bills and routings.

9. Define the appropriate items, bills, and routings.

Design Engineering

Neptune designs and develops products in a research facility, which is located in the primary manufacturing location. The new product development process includes gathering of requirements, design, prototype development, and product proving. The manufacturing engineering teams take this information and establish their manufacturing processes to deliver the products that have been developed.

A typical design cycle begins with a prototype (engineering) bill of material to control access to the bill and prevent unnecessary confusion on the shop floor. A WIP job is created to build the prototype, with most components and labor charges entered manually.

The completed prototype is often issued to the service organization for field testing using an internal transfer. Field test data is collected using a quality collection plan, and the data is analyzed.

Engineering Change Orders (ECOs) are used to change products after they have been released to manufacturing. Change requests can be initiated based on a variety of factors: customer requests or complaints, production problems, or cost-reduction opportunities. Typically, an engineer studies the request or problem and proposes an ECO as a remedial action. ECO types at Neptune correspond to the source of the change (Customer Request, Production Improvement, Cost Improvement, etc.). The ECO is approved or rejected by an ECO committee made up of the department heads of Research and Develpoment, Quality, Manufacturing Engineering, Procurement, Marketing, Finance, and Service. The committee also decides on the effectivity of the change and the disposition of existing material.

Mass change ECOs are occasionally used. For example, if a component is found to have a high defect rate, it might be replaced in all the bills where it is used, or a customer might request a change to the configuration of all the machines that are supplied to them. Neptune will use a mass change to make the appropriate changes to all the configuration items that were created for that customer.

Design Engineering Activities

Use the following activities to analyze how you would apply the Engineering module of the Oracle E-Business Suite to Neptune, and to your own company:

1. Define appropriate responsibilities and profiles to control access to Engineering bills and routings.

2. Determine the numbering method for Neptune’s Engineering Change Orders, and set up the numbering controls.

3. Define the ECO types and priorities needed by this client.

4. Review ECO approval workflow for proper routing of ECOs.

5. Transfer engineering items and bills to manufacturing.

6. Set up and implement mass change orders using category sets and categories.

Assemble-to-Order and Pick-to-Order Products

Popular product families, such as the Asteroid laptop family, are offered with a variety of options. For example, customers can order an Asteroid with his or her choice of processor, memory, hard drive, and CD-ROM/DVD. As a result, the Asteroid product is configured and assembled only in response to customer orders. An Assemble-to-Order (ATO) model bill defines the available options and is used in the configuration process.

Sometimes customers will order the Asteroid as part of a kit that might include a carrying case, spare battery, external floppy drive, or other options. These kits are identified as Pick-to-Order (PTO) models and include the ATO model for the computer itself as part of the model bill of material.

For some large corporate customers, Neptune will apply the customer’s logo to the CPU as part of the final assembly process.

ATO/PTO Activities

Consider the following ATO/PTO activities as they pertain to Neptune’s and your own business:

1. Define appropriate option classes for the Asteroid laptop.

2. Define the model bills and routing for the Asteroid line.

3. Determine which routing operations are option-dependent, and set the appropriate flags.

Manufacturing Engineering

Neptune has many production lines to manufacture its products. The Asteroid line is used for regular production runs of the Asteroid model laptops. A schematic layout of this line is shown in Figure 22-1.

FIGURE 22-1. Asteroid laptop line

The line design began with identification of all the discrete events in the process; identification and removal of all non-value-added events; and the grouping of events into logical, standard line operations. After this was done, Neptune created a forecast that represented the anticipated mix and volume for the intended line design and used this forecast to generate the Mixed Model Map. This process identified line operations with a takt time higher than the line takt time. For such operations, Neptune’s engineers reviewed the events within each line operation. In some cases, they could move the events to other line operations; in other cases, they redesigned the process. They repeated the process until the line was reasonably balanced and designated the use of in-process kanbans where necessary.

As part of the process, manufacturing engineering identified alternative resource deployment scenarios for demand levels that are 60 and 80 percent of the designed capacity.

Line designs are reevaluated with each major new product release and are evaluated weekly using actual demand to determine if the alternate scenarios must be used or if the line should be redesigned.

Because the Asteroid model can be supplied in over a hundred configurations, Neptune starts assembling its laptops only after it receives a firm order. The speed of the line is adjusted to suit the demand requirements, so there is minimal inventory buildup between processes. Other assembly lines operate based on an anticipated build schedule, which in turn is constructed based on forecasts. The motherboard assembly is produced in batches using discrete jobs.

Manufacturing Engineering Activities

Use the following manufacturing engineering activities to analyze how you would apply the Oracle E-Business Suite to Neptune, and to your own company:

1. Define the Asteroid production line and other needed lines for flow production.

2. Define the standard events, processes, and line operations needed for the Asteroid line.

3. Design a preliminary flow routing for the Asteroid product family.

4. Using a forecast or other source of demand, generate the Mixed Model Map for the Asteroid line.

5. Review the results, and adjust the line design if necessary.

Supply Chain Planning

Neptune’s planning process covers its entire supply chain. It begins with a forecast, generated by the Marketing department, with collaboration from some of its larger customers, and reviewed weekly before being published back to individual forecasts in each organization. Forecasts are consumed by sales orders, and the combination of unconsumed forecast and actual orders is used as input to its supply chain plan.

Demand Planning

Neptune uses the item and customer dimensions for forecasting aggregation. The Item dimension uses the following item categories:

The customer dimension groups customers into the following customer classes:

Demand planning is an activity carried out by a forecasting and demand planning group within Neptune’s Marketing organization. There is a planner for each combination of customer class and product category.

The demand planning cycle is a monthly activity. Planners are notified every day of deviations between the forecast and the orders received. An example alert might be:

"Select Geography within Geography:Country by Value where Difference between Sales and Customer Forecast is greater than the value 100".

Demand plans are reviewed on a weekly basis and pushed back into ERP on a monthly basis. Distributors have extranet access to review and adjust forecasts.

Demand Planning Activities

The following activities will help you think about how Neptune and your own company can best use the demand planning capabilities of the Oracle E-Business Suite:

1. Define the dimensions that Neptune will use for demand planning.

2. Assign the appropriate dimensions to the correct demand planners.

3. Determine forecast scenarios to be generated, and select the forecast method and parameters for each.

4. Determine the allocation method for spreading aggregate forecasts.

5. Review standard reports, and assign the desired reports to the demand planners.

6. Set up usernames for external distributors, and ensure that the appropriate security is enforced so that external users can view and update only their assigned portion of the demand plan.

7. Review the demand planning cycle for completeness.

Advanced Supply Chain Planning

Neptune includes both orders and forecasts in its production plans and uses a single, holistic, advanced supply chain plan that covers all manufacturing and distribution facilities. The company is subject to various constraints in its manufacturing facilities and uses the advanced planning system to model and factor its constraints into its plans.

The supply chain for Neptune, illustrated in Figure 22-2, is determined primarily by geography. The Pittsburgh manufacturing plant typically replenishes the distribution centers in Denver, Orlando, and Madrid, while the Taiwan plant replenishes the Singapore distribution center. The Sacramento plant is the sole plant for large servers, which are shipped directly to their customers. Sacramento also provides extra manufacturing capacity, if needed, to supply Singapore.

FIGURE 22-2. Neptune’s supply chain

Customer orders are normally fulfilled from the closest distribution center, except in the case of large servers that are shipped directly from Sacramento. Alternate sources of supply are defined for some high-ticket items, such as highend desktop systems.

Neptune uses ASCP but has approached the process gradually. Its planners began with a basic, unconstrained, multiple-organization plan that encompassed their manufacturing facilities and distribution centers. Over time, they added internal constraints and optimization. At each stage, they ran simulated plans that incorporated the new options, compared those plans to the current state, and designated the new plan as the “production” plan only when they were ready. Planners and buyers are in the process of identifying supplier capacity from a few of their largest suppliers to further optimize their planning process.

Many of Neptune’s items are kanban-controlled, and its planners use Kanban planning regularly, as part of their new product release process, to evaluate the kanban assumptions. At least once per quarter, they run the Kanban planner using actual demand to verify that the kanban sizes are suitable for the actual demand; they make adjustments if necessary.

All component items appear on the ASCP plan. The purchasing department uses this information in its pricing negotiations. Most items are single-sourced, but Neptune has identified a few alternate suppliers for critical items that are often allocated due to limited supply. For many single-sourced components, global sourcing rules are used to define the supplier and are assigned by item categories; exceptions are made by item/organization if necessary.

Although most items are procured using kanban signals, purchase orders for some long lead-time items are released from the ASCP plan.

On occasion, customer service will receive an unusually large order and contact planning to assess when it can be built. A planner will perform an online simulation of the new demand, to determine when it can be added to the production schedule, or what additional resources are needed.

ASCP Activities

Consider the following advanced supply chain planning activities, as they pertain to Neptune’s business and your own:

1. Determine how to model Neptune’s supply chain.

2. Review item attributes that affect the planning process.

3. Define Master Demand Schedules in each distribution center or plant that has independent demand.

4. Define the “production” plan (i.e., the plan Neptune will use for its execution activities) and alternates to be used for analysis.

5. Review workflows for appropriate routing of exceptions.

6. Generate an ASCP plan, review the exceptions and recommendations, and release suggested orders.

7. Define the pull sequences needed for Neptune’s Kanban planning.

8. Execute a kanban plan, review the results, and update the pull sequences as required.

Supply Chain Execution

Neptune supplies its computers to corporate customers worldwide and also sells computers to individual customers. A common order desk serves the two divisions of Neptune. The same order desk serves Saturn. A few products such as monitors are drop-ship products. Neptune’s warehouse personnel also perform light assembly and merge-in-transit in their distribution centers. Some of the products arrive directly at the customer from different supply points.

Order Management

Neptune has defined several order types to support different order-processing characteristics:

Using Global Order Promising, the order service desk quotes each customer an available date as the order is entered. Because most of Neptune’s products are assembled to order, order promising is based on the availability of key components and critical resources used in the final assembly process. Order promising attempts to satisfy customer orders from the closest distribution center, although alternate distribution centers are defined so that a customer service representative can select an alternate warehouse if the requested item is unavailable at the preferred location.

Distributors can order using their own item numbers, which are set up as customer item numbers at the customer level. Industrial customers can order using UPC numbers set up in item cross-references. Consumers can order using the Neptune number.

PDAs are available with a gift-wrap option. The PDAs are defined as a pick-to-order model with the gift wrap as a separate order line. There is no attempt to model the light-assembly operation as a job.

Order Management Activities

The following activities will help you think about how Neptune and your own company can best use the Oracle E-Business Suite for order management:

1. Determine the order types that Neptune needs.

2. Review the associated workflows, and modify as necessary.

3. Define the sourcing rules to be used for order promising, and perform the appropriate setup steps.

4. Review processing constraints and defaulting rules.

5. Enter and process a sales order for each of the following scenarios: standard products, ATO products, PTO products, and customer returns.

Supply Base and Procurement Management

Neptune buys most of its components from outside suppliers and has worked very hard to limit the number of suppliers in its supply chain. Direct materials are procured from established vendors. Neptune sends planning schedules to its largest suppliers so they can plan ahead; this advance visibility has facilitated the negotiation process and resulted in better terms for the company and less uncertainty for its suppliers. Much material is actually ordered based on kanban signals, which automatically generate releases against approved blanket purchase agreements. For some long lead-time and low-volume items, Neptune sends shipping schedules as required and occasionally creates individual purchase orders from its planning process.

Neptune also provides its largest suppliers access to purchasing information through the Internet Supplier Portal; this has proven to be a very effective communication tool. The selected suppliers can see notifications and details of new requests for quotations, orders, schedules, and releases. They can see Neptune’s measurement of their performance in terms of on-time delivery and returns, and they can view order and payment history. A few suppliers even provide Neptune with capacity information, which Neptune is starting to use as a constraint in its planning process.

In the case of indirect materials, users create purchase requisitions. On approval, the required products are procured from pre-established vendors or new vendors, depending on the requirement. All employees have access to self-service procurement for normal supply orders.

Supply Base and Procurement Activities

Consider the following activities, as they pertain to supply base and procurement activities within Neptune’s business and your own:

1. Set up suppliers, blanket agreements, and supplier-item relationships needed to automatically create releases based on kanban signals.

2. Research supply sources using RFQs and quotations.

3. Select and set up the appropriate items for supplier scheduling.

4. Review approval and account generation workflows.

5. Review the requisition pool and create purchase orders.

6. Review supplier performance, and update approved supplier lists accordingly.

Inbound Logistics

Neptune has three receiving dock locations, as illustrated in Figure 22-3. One is used for back-to-back orders that are received to the loading bay. For example, Neptune uses Sanyc monitors, which it delivers with its processor units. These are not put away in inventory; they are purchased to order and delivered to Neptune to assemble the load for delivery.

FIGURE 22-3. Neptune’s receiving dock and warehouse layout

The layout of the main receiving bay splits the deliveries into quality-inspected and non-quality-inspected deliveries. QA is informed when inventory for inspection is delivered. To reduce non-value-added movement of material, it is inspected in the receiving bay.

More than 50 percent of Neptune’s direct material suppliers have access to quality specifications on the Web and can record their test results. QA can review the results online; on receipt, they need only to verify batch numbers.

Neptune uses mobile devices for receipts from 80 percent of its suppliers. Purchase order number, item, supplier item, and shipment number all appear on the label.

Deliveries for indirect purchases are picked up by internal distribution twice a day. Deliveries into Inventory of verified material are continuous. The receiving pipeline must be clear of material at the end of each shift. Receiving and QA work two shifts, from 6 AM to 2 PM and 1:30 to 9:30 PM. The receiving dock is closed to deliveries for one hour before the end of shift.

Inbound Logistics Activities

Use the following activities to analyze how you would use the Oracle E-Business Suite to manage inbound logistics at Neptune, and at your own company:

1. Review receiving controls at the organization, supplier, and item levels.

2. Define the location codes needed to represent Neptune’s receiving dock.

3. Receive and inspect supplier shipments.

4. Process unexpected (unordered) receipts.

5. Return rejected material to vendors.

6. Deliver to material to stores.

Inventory and Warehouse Management

To simplify the planning of low-value, high-volume products, Neptune uses Min-Max Planning for these items and has its suppliers manage the inventory of a few products. The company uses kanban replenishment for both internal replenishments and external replenishments. In order to maintain the accuracy of their inventory, inventory personnel perform cycle counting weekly. Neptune performs ABC analysis based on various criteria; it uses annual planned usage dollars in their manufacturing plants and forecast usage dollars in their distribution centers. The company uses this analysis to group its items and schedule cycle counts.

ABC assignments vary from organization to organization. The manufacturing plants use five ABC classes—A, B, C, D, and X (uncounted)—while the distribution centers use only A, B, and C. Assignment criteria also vary by organization; most of the material in the distribution centers is classified as A in the plants where it is manufactured, but that material is subdivided into A, B, and C classes in the distribution centers for better control.

Neptune has been so successful with its cycle counting program that it has satisfied its auditors that an annual physical inventory is no longer necessary. This has saved the disruption and inherent inaccuracy of traditional physical inventory practices. Following conversion of each of its facilities, however, the company performed a physical inventory to verify the accuracy of its initial on-hand balances.

The company uses lot control and serial control for a few items and maintains the genealogy of the products they sell (the as-built configuration) so it can better serve its customers. For example, the customer-service organization proactively sends service bulletins to the appropriate customers if a defect is discovered with a particular lot.

Neptune uses LPNs to track each container in its warehouse and often consolidates multiple items in small cartons into larger cartons or pallets, also identified with an LPN. It uses cartonization rules to instruct pickers how to pack material for shipment.

Several material statuses are used within the warehouse, to identify locations or LPNs where the count is inaccurate, or the material, its containers, or locations appear to be damaged. These status codes effectively place such material on hold, by prohibiting selected transactions, until the problem is resolved and the hold removed.

Neptune uses third-party labeling software in conjunction with the labeling rules in Oracle Warehouse Management. It has defined different material label types for material that is lot or serial controlled and prints the appropriate label at material receipt. Most customers accept Neptune’s standard shipping label, but a few have special requirements, which the labeling rules also accommodate.

Warehouse resources are identified by instance (individual people and serialnumbered equipment) to allow task dispatching.

Neptune’s warehouses receive material from the manufacturing facility and other suppliers. Warehouse employees sometimes perform packing and light assembly operations before shipping material to the customers. From the receiving dock, operators choose containerized stock and are directed to the appropriate putaway location, based on predefined rules. For example, hazardous material (identified by item category) is stored in special subinventories; some items are stored based on their supplier.

Similarly, when a customer order is released for shipment, these releases are broken into warehouse tasks and scheduled against the appropriate resources. To minimize operator travel and repacking activities, typical picking rules respect the picking unit of measure of the different zones (subinventories) in their distribution centers. For example, a large corporate order might require a full pallet of a single product. Such a pick will be directed to the “Pallet” zone of the warehouse, and the task will be dispatched to an operator logged on to the required forklift.

Inventory and Warehouse Management Activities

The following activities will help you think about how Neptune and your own company can best use the Oracle E-Business Suite for inventory and warehouse management:

1. Identify appropriate items for min-max planning, and set the required item attributes.

2. Define ABC classes, perform an ABC analysis, and assign ABC classes to all items.

3. Set up an organization-wide cycle count for each manufacturing plant and distribution center.

4. Review physical inventory setup and procedures for initial inventory verification.

5. Define material status codes for Neptune.

6. Define container items.

7. Define the appropriate rules, strategies, and strategy assignments to meet Neptune’s putaway, picking, labeling, and task dispatching requirements.

Manufacturing Execution

Neptune uses demand flow manufacturing techniques for its most popular products. Flow schedules are created each day for a two-day window, looking at orders within a five-day window. Performance to schedule is evaluated daily, and uncompleted schedules are rolled forward if necessary. Production is completed using the Work Order-less Completion transaction.

Prototypes and high-end servers are built on specific discrete jobs for better analysis of the cost. Prototypes often use engineering bills of material, and security limits the number of people who can create jobs for a prototype. If a manufacturing routing is available for a prototype, the supply type of all components is typically changed to “Push” so that material usage can be more closely monitored.

A few manufacturing processes are performed by suppliers outside of Neptune, for example, conformal coating on circuit boards that will be used in certain environments. For such processes, purchase requisitions are created when the discrete jobs are released. In most cases, blanket purchase agreements are in place for such services, and the blanket releases are automatically created at the same time.

For prototypes of some high-value items, labor costs are entered manually and are reviewed against the routing standard, which is adjusted if necessary before the product is released to full production. By definition, work order-less completions automatically charge labor at the standard rate and amount; most discrete jobs also auto charge labor because it is a small constituent of the product’s total cost.

Non-standard discrete jobs are also used for repair or upgrade of returned material. Orders are created as products are returned, necessary components are issued as needed, and no bill of material is used. One exception is when Neptune promotes a specific upgrade of existing products. In that case, it will create an alternate BOM that is used to specify all the required upgrade components for a product; additional components can still be added or replaced as needed.

Manufacturing Execution Activities

Consider the following activities, as they pertain to the manufacturing processes at Neptune and your own company:

1. Review WIP Parameters.

2. Set up appropriate accounting classes and reason codes for WIP transactions.

3. Review and modify scheduling rules for flow scheduling.

4. Define any needed shop floor statuses.

5. Set up the appropriate items, resources, and blanket purchase agreements to meet Neptune’s outside processing needs.

6. Create and process a standard discrete job to completion.

7. Record flow production using a work order-less completion.

Outbound Logistics

The arrival and departure of carriers are maintained using a dock appointment scheduling system. Consumer products are shipped from Neptune’s distribution centers on a regular basis. Orders are normally prioritized by scheduled ship date, using a default Release Sequence rule; however, at the end of the quarter, a special rule is used that gives priority to orders with the highest revenue potential. Pick release is run nightly and automatically generates and details the move orders to stage the material. Material handlers transact the move orders (using RF scanners) as they move material to the designated staging lane. Ship confirm is performed as material is picked up, usually by UPS for consumer goods.

Most corporate orders and parts orders follow the same process.

Rush orders (most often for parts) are processed immediately. Pick release is run on line, the orders are typically shipped using next-day delivery, and special shipping charges are added when the shipping method and carrier are determined.

Some large orders, including many of the internal shipments to Neptune’s distribution centers, are planned in advance. This has resulted in more favorable freight terms and significant cost savings for Neptune.

Outbound Logistics Activities

The following activities will help you think about how Neptune and your own company can best use the Oracle E-Business Suite for outbound logistics:

1. Define Release Sequence rules.

2. Define special freight charges

3. Define carriers and ship methods.

4. Ship a simple order by running pick release, transacting the resulting move order, and confirming the shipment.

5. Define a trip to represent a shipment of material from Sacramento to Orlando, with a stop in Denver. Assign the appropriate delivery lines to the trip.

6. Record the progress of the trip by stop.

Support Functions

The following sections discuss the support functions of Cost Management, Quality, and Pricing. These functions often require the input and cooperation of many other departments within the enterprise, so they are described separately.

Cost Management

Neptune uses standard costing throughout its enterprise and identifies variances on a period basis. Every quarter, the company goes through a profit forecasting exercise, which includes review and revision of its standard costs.

The company undertook an activity-based costing exercise 18 months ago. This identified that Neptune’s imbedded systems division, long considered an “also-ran” in the portfolio, was a major contributor. Support and development costs for imbedded systems were much smaller than for consumer or industrial products, thus its contribution to corporate profits was higher than anticipated.

Chip prices are very volatile, so costs for chips are forecast according to the R&D and obsolescence cycles of the major chip manufacturers. Purchasing standards are updated every month and reflected in inventory balances. Affected assemblies have their costs re-rolled and updated accordingly. Often, this can be done by product family, but occasionally Neptune’s cost accountants perform a where-used inquiry to determine all affected assemblies.

For consumer products, packaging is a significant component of the costs. For easy identification of these costs, Neptune has defined a material cost subelement for packaging material, as well as a generic “material” subelement

Resources are initially defined by manufacturing engineering, in order to define routings, but their costs are set and maintained by the cost accounting department. Neptune’s resources include major work centers, machinery, labor, and outside processing. The paint shop and anodizing bath are defined as resources. Each auto-insertion and surface-mount machine is defined as a separate resource. Wiring, PCB assembly, and final assembly have resources defined for the number of trained personnel.

Although its prior ERP system provided only one plant-wide overhead rate, Neptune uses several overhead subelements to more discretely identify product cost and more equitably absorb indirect costs. Each overhead has its own absorption account for comparison against actual expenses for that cost. For example, the cost of employee benefits is defined as a separate overhead, assigned to labor resources on the basis of labor cost. Each absorption account is compared with the discrete expense account that captures the corresponding actual expenses, such as insurance and vacation pay.

Cost Management Activities

Use the following activities to analyze how you would apply the Cost Management module of the Oracle E-Business Suite to Neptune, and to your own company:

1. Define the cost types and subelements needed by Neptune.

2. Review standard costs and reset as necessary.

3. Perform cost rollup, review the results, and update standard costs.

4. Investigate variances from purchasing and manufacturing.

5. Verify engineering standards.

6. Review overhead absorption against actual expenses. Revise rates as needed.

Quality Management

For new purchased products, Neptune’s product engineers typically develop item specifications. The Quality department will define collection plans, usually requiring incoming inspection. Data that are outside of the specifications trigger an e-mail to the item’s buyer. Quality data for new products are analyzed weekly; when a particular supplier-item combination is deemed certified, the inspection requirement and the quality plan are removed.

Quality collection plans are also used for new manufactured products, most often required with a manufacturing completion transaction. The data are analyzed to determine process capability, and the results are shared with engineering if corrective action is needed.

When an item is moved to flow production, quality plans are no longer required, as Neptune feels that its manufacturing engineering process has incorporated quality events and visual operation method sheets in the flow routings.

Quality Management Activities

Consider the following activities as they pertain to Neptune’s quality programs and those of your own company:

1. Define quality specifications for purchased and manufactured items for this client.

2. Define collection elements.

3. Define collection plans.

4. Generate the various charts and analyze the results.

5. Perform a process capability study on the process of your choice.

Pricing

Neptune has separate domestic price lists for distributors, business customers, consumers, and education customers. There are Export price lists for Canada, Mexico and Brazil, Western Europe, Eastern Europe, and Scandinavia. Price Lists in the Americas are expressed in U.S. dollars (USD). Price lists in Europe are expressed in euros.

There are discounts that are qualified to apply only to customer classes of “research institutions” and “elementary schools” when buying desktop computers. There is a surcharge for “dot.com” business customers. The Neptune brand is wellrespected in the server segment, and the company provides extensive after-market support for its “dot.com” customers; therefore, it can command a premium price.

Neptune is heavily promoting its products in lifestyle magazines as it launches a range of entertainment appliances with Internet access, video on demand, TV tuner with playback, DVD, and video-editing units. Customers must ask for the promotion. Coupons have been placed in three magazines for $75 toward the purchase of a digital video recorder when a customer buys an entertainment appliance.

Pricing Activities

Use the following pricing activities to analyze how you would apply the Oracle E-Business Suite to Neptune, and to your own company:

1. Define the price lists that Neptune will need.

2. Set the prices for products and categories of products on price lists.

3. Define discounts and other sales incentives, such as coupons and promotions.

4. Qualify discounts for appropriate customers and products.

5. Rebate customers for retroactive discounts.

Business Intelligence

Neptune has implemented Oracle Portal as the desktop for all its employees. The VP of Operations has a Portal with tabs for Order to Cash and Demand to Build. Buyers use the Savings Opportunities Analysis workbook to focus their energies on consolidation opportunities. The VP of Procurement checks the Savings Opportunities Portlet on his Portal Page every day to see if there is any rogue (or “maverick”) buying that should be using negotiated contracts.

Because Neptune still performs some Order Management on a legacy system from a recent acquisition, Neptune has implemented Oracle’s Enterprise Data Warehouse. It uses Oracle Warehouse Builder to map data from the legacy systems.

Summary

Neptune is presented in this chapter as a hypothetical company making good use of the Oracle E-Business Suite to manage its manufacturing and supply chain activities. This chapter described how Neptune has modeled its enterprise structure, its design and manufacturing engineering activities, its supply chain planning practices, and its execution of the plan: order management, procurement, inbound logistics, warehouse management, manufacturing, and shipping. This chapter detailed the costing techniques the company uses to manage and evaluate product costs, quality management activities, and the pricing techniques it employs to maintain profitable margins in a very competitive business environment.

This chapter also outlined the business intelligence capabilities that Neptune employs to measure its performance, identify problems early, and work for continuous improvement. Hopefully the examples presented here and throughout the book will help you do the same in your business.