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204 CHAPTER 6 The Production Process

In our example, GBI creates a production order for the requested 25
bikes. When the order is saved, the system reserves the necessary materials
as well as capacity in the three work centers in the Dallas plant, based on the
BOM and routing for the bikes. The production order also includes an initial
cost estimate. Figure 6-22 displays the cost estimates for the materials needed
to build one bike. For each bike, raw materials are expected to cost $350, wheel
assemblies (semifi nished goods) $230, and labor $25. Thus, the estimated cost
for the production order is $15,125. (For the sake of simplicity, we will include
only material and labor costs in our example and will not take into account
other direct costs [e.g., machine and setup] or indirect overhead costs.) When
the production order is created, these estimates are copied to the produc-
tion order (Figure 6-23). The other columns in the fi gure—actual, target, and
variance—will be discussed in later steps in the production process.

Figure 6-22: Production cost estimates for men’s off-road bike

Figure 6-23: Cost estimates in a production order

Demo 6.5: Create a production order

ORDER RELEASE

An order status of created limits the process steps that can be executed. For
example, goods movements and confi rmations cannot be performed. An order
must be released for production before subsequent steps can be carried out.
The system can be confi gured to release an order automatically as soon as it is
created. However, if the company needs time to verify the order or to prepare
for production, then the order remains in the created status until it is ready for
release. In this case, the order must be released manually. Figure 6-24 diagrams
the elements of the order release step.

Data
The data that are required to release an order are the order number(s) and
system parameters that determine which steps are performed automatically
and which ones require manual interventions.

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