One of the business questions regularly encountered by Industrial equipment manufacturers is whether an ERP system, in our case Microsoft Dynamics AX, is able to handle reconditioning and overhaul. Many of these businesses exist in the US, and reconditioning is something typically done for equipment with a long life span like power trains, turbines, gears, etc. Reconditioning and refurbishment have become an increased source of new revenue and an important business concern.
In this scenario, the customer sends in a used piece of equipment and the reconditioning process makes it ‘as good as new’ again through full or partial disassembly with a combination of replacement and repair of different components. Reconditioning operations exist often in conjunction with ‘new build’ but they can also run in separate facilities. Some Reconditioning businesses are Make-to-Stock, where no engineering is required, for example the refilling of ink cartridges, the remanufacturing of engine starters, etc. In this case the remanufacturing or reconditioning is a standard process.
The most interesting reconditioning business for larger equipment is by definition an Engineer-to-Order business. Although no new designs are created, each job is unique, based on the condition of the equipment that is coming back from the customer. The remanufacturer does not have design engineers but rather service engineers that evaluate each case and come up with a specific reconditioning BOM and Routing, defining which components to replace, which ones can be used as-is and which ones can be repaired in the reconditioning facility.
Regardless of the variations in the reconditioning business mentioned above, a standard ERP system has some difficulty with this type of business, because it has characteristics of both production and service. On first view, the production module seems a necessity, because the overhaul or reconditioning shop floor has all the appearances of a manufacturing operation. Although it runs into problems with standard production functionality because the BOM and Route are different for each job, dependent as they are on the condition of the equipment. Another problem is that the final re-assembly is always preceded by a phase of disassembly and inspection and diagnostics that does not easily find a home in ERP functionality. Here, the service module appears a better fit, because it has functionality for inspection and diagnostics and because it allows the definition of customer-installed equipment with an “as shipped” and “as maintained’ BOM.
When looking closer, the transactions around a ‘service object’ do not fit very well. A service work order is good for a time/material job (to repair something) but it does not have functionality of BOM’s and Routings, and does not generate the typical shop floor paperwork that we need in a facility.
A reconditioning customer finds himself between a rock and a hard place and some customization is often necessary. What are the most critical requirements?
(1)The existence of a database for installed equipment. A customer can have one or more applications where serviceable equipment is running. A service module typically has this type of master data, with the restriction that production orders typically cannot transact against this service object. (See (4)).
(2)The ability to diagnose an assembly after taking it apart, then indicate which components will be repaired, which ones will be replaced, etc. This requires a single- level BOM- screen where each component has a switch that can be set to values like “repair”, “use as-is”, “replace” etc. This is critical functionality and is not found in any ERP system. (“dispositioning”).
Microsoft DAX has the feature of “item dimensions” that lends itself remarkably well for this purpose, avoiding customization or interfacing with stand alone “dispositioning” system.
(3) The ability to have different cost for different “conditions” of the same item. “Used” items would have lower or zero cost, “new” would have the regular cost and ‘reconditioned’ items would have a cost in between.
This is supported by standard Microsoft DAX.
(4)The ability to work with production orders on a service object. This is typically impossible in a service module and has to be programmed as an enhancement. The last “as shipped” production BOM would have to become the “as maintained” BOM on the service object. The next time this equipment comes back for reconditioning, we can see immediately how it had left the facility the last time. In Microsoft Dynamics there is an interesting possibility of linking projects to service objects. The project transactions can be used for diagnosis and disassembly activities. The actual reconditioning is a production order with a job-specific BOM and Routing. In an instance one can see how many times a specific service object came back for reconditioning and the latest “as shipped” BOM will show the current situation of the equipment.
(5) The ability to use projects and start a project when the customer returns their equipment for reconditioning. This project would allow recording of inspection and disassembly hours as project labor, a necessity when we are preparing a quote for the reconditioning job and there is no production order yet to report time against.
(6) The ability to keep customer owned inventory segregated “per job” or “per project”. This requires something like a project warehouse or project location and could require customization.
Number (3) is a difficult requirement from the engineering perspective. Many overhaul businesses have special part numbers for each “condition” of the item, using prefixes or suffixes. Some systems have an item “attribute” that could function as a condition. But accounting-wise, in that case we are really dealing with a new part number. There is no way around it: the same physical item is represented by different part numbers, dependent on its “condition”, violating the “Form-Fit-Function” rule.
Most ERP systems will not easily fit a reconditioning business. Microsoft DAX, as we have found out in practice, has a few remarkable features that work well for this industry and the necessary customization can be very limited, providing this industry with a solid ERP solution.
Evert BOS, CPIM, CIRM – Sr. Solution Architect, Streamline Systems, LLC
Mr. Bos is a senior implementation specialist, client manager, and project manager. He teaches and implements general business practices in relation to integrated ERP computer systems. He has 20+ years in consulting and project management expertise and experience in all applications including, but not limited to CRM, Sales and Operations Planning, Master Scheduling, Lean and Demand Flow, JIT, Capacity Planning, Field Service, Procurement, Warehouse and Inventory Management, Manufacturing, Distribution, Equipment Management, Job Cost, Contract Billing, and Change Management. He has successfully implemented ERP systems in both public and private sectors.
Tags: BOM, Dynamics AX, ERP System, Industrial Equipment Manufacturers, Item Dimensions, re-assembly, Reconditioning, refurbishment, remanufacturing
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