Suggestion: Allow use of Inventory Kits with Production Orders

ideas
1

As requested, I’m moving this discussion into its own topic.

Original suggestion: When adding a new Production Order, it should be possible to select an existing Inventory Kit instead of only being able to manually enter a new BOM from scratch.

Several responses were:

I’m not convinced that separate tools are needed here, nor that Inventory Kits should be limited to their current intended use only. For all intents and purposes, an Inventory Kit is just a predefined Bill of Materials.

In fact, the word “kit” is often used to refer to a physical collection of individual components that will be assembled in-house. These components are in inventory, so the name Inventory Kit is already appropriate for this purpose.

Imagine:

  1. You create a new Production Order.
  2. You select an existing Inventory Kit representing the BOM for one produced item.
  3. You input the quantity of final items to be produced.
  4. Each used component quantity is automatically multiplied.

To me, this represents an elegant solution because:

  • It’s simple
  • It eliminates repetitious manual entry, thereby reducing the likelihood of error
  • Inventory Kits already exist as an implemented feature

I realize that Production Orders can be cloned, but I think this suggestion has merit nonetheless, in particular due to the automation benefits that follow from #4 above.

Best,
Dan

1 Like
3

This sounds great to me.

I understand the desire to keep sales and production kits separate, so I won’t press the issue much further, other than to acknowledge that they’d be functionally the same thing, differing only in the sense that they’d be selectable from different forms, and that Production Items could involve non-inventory costs and Inventory Kits couldn’t.

In the world of electronics (and perhaps elsewhere too) assembled goods are sometimes simultaneously sold as user-assembled kits, so there is some real-world overlap. The two objects should be able to be “copied into” one another.

Your proposal would have the added benefit of allowing multiple Production Items within a single Production Order (aka multiple outputs), which would be nice.

4

I have been thinking about this concept and like it more and more. I offer the following comments:

  • The suggestion of allowing multiple output inventory items on a single production order has already been in the ideas category for a long time. It was one of the very first ideas when the category was created and is overdue. If nothing else, it is necessary for situations where a single input item is processed into two or more outputs. For example, wheat is processed into bran and germ. Or logs are processed into boards of different standard dimensions. Or any byproduct is saved for sale or further production.
  • There does not seem to be any valid reason for separating single- from multi-output production orders. You would only need the ability to add line items for output.
  • I see no reason to change terminology from Production Order to anything else.
  • The concept of bills of material has also been in the ideas category from the beginning, so this is not new.
  • What is new is the notion of incorporating kits into—or directly as—bills of material. This might be approached by adding checkboxes when defining kits for This kit can be sold and This kit can be used in production. (The same kit could be available for both.)
  • As I have thought about this, the only reason the foregoing distinction might even be necessary is to prevent accidental sale of kits intended only as bills of material.
  • Allowing kits to be used in production orders avoids the need for a new category in Settings for bills of material.
  • If adopted, a kit used in a production should transfer the current average cost of all its components to the output inventory item(s).
  • The biggest question I see in all of this is how to apportion input costs to multiple output items. Probably, the ability for both percentage and fixed amount transfers should be allowed.

I am putting this topic into the ideas category.

3 Likes
5

@Tut, I appreciate your thoughtful consideration of this idea.

I don’t have much more to add, other than to say that I do like the idea of checkboxes to distinguish production use versus sales use, and I agree with pretty much everything else that you listed.

I’d imagine that an equal division would be appropriate in a good number of situations, and should probably be the default behavior unless explicitly overridden, perhaps with a checkbox?

The interface implications of how to specify values that must add up to exactly 100% (either as percentages or fixed) are somewhat non-trivial. I wonder if there’s any good user-interface precedent for this kind of allocation?

6

I doubt this.

Just look at the journal entry’s red difference figure.

7

Maybe simply a flag on the Inventory kit (really BOMs) to distinguish what I would call:

  1. a PTO Kit (Pick to Order Kit), basically exactly what we have now with Inventory Kits;
  2. a Production BOM, to hold the Bill of Materials for a manufactured assembly. Pick it on a production order to populate the components needed for the job.

To me there is a difference although the structure is pretty much a BOM is a BOM, the PTO kit needs sales price info.

8

@alasdair, as I read your post, I think your ideas are in accord with my suggestions. I think your terminology seems pretty good, too. For Pick to Order kits, a sales price field would appear.

9

From the Production Orders - Enhancement ideas topic
Initially, you would have the output costings done on a pro rata basis based on the units produced.
Later this could be expanded to allow the user to modify the costings apportionment.

While its agreed that pro-rata is not ideal you need to start the multiple output production order capacity somehow and by the time the products are sold and transferred to Inventory Cost, there becomes no accounting difference. It just means that in the interim some products are sold with a higher profit margin while others may sell at a lessor or loss margin.

As it currently stands, Inventory Kits are the ability to combine multiple standalone finished goods into a package which may sell for a concessional price. One Harry Potter book may sell for $10, but the package of all books in the series may sell for a average price of $6 each.

The thing to remember here is that the Inventory Kit item - Harry Potter Set - has no average cost of its own. The cost of goods sold value remains with the individual books.

Therefore if you make circuit boards for sale or for inclusion into a computer build you need that circuit board to be an Inventory Item so that it can have a cost base (average cost). If the circuit board is created as an inventory kit then it will currently have no cost base which can be incorporated into a computer build via the production order.

Unless, you require the production order to go into sub-set values so as to be able to incorporate these inventory kits into a production order which can be so complicating. For example, if the circuit board is an inventory kit, the current production order would need to look up the componentry costs of that circuit board to establish costs for the production order finished good.

Now imagine if an inventory kit itself had another inventory kit as a component and that can be called into a production order - an absolute programming nightmare.

The current Production Orders - Enhancement topic has been listed for almost 2 years and none of even the most basic suggestions have been added as a feature to date, so to think that such complicated tasks as proposed here have a chance as an idea topic is just dreaming.

Inventory (Sales) Kits should remain as selling tools and Bill of Materials should become available for production orders. If a user has an item which can be both, then they need to create it as an inventory item - simplicity at work.

10

The observation that inventory kits have no cost basis is correct. But I don’t see why that should be a problem when incorporating one into a production order. The program already has the ability to look up component costs when selling an inventory kit in order to transfer those costs to the cost of goods sold. Looking them up for transfer to cost of a produced inventory item would be identical.

And there is no need to allow multiple levels of kits made up of other kits. You cannot currently define inventory kits as containing other kits. You would not do that for a bill of materials, either. You currently define each component inventory item of a kit, and should continue in the same manner, whether for separate bills of material or inventory kits for production orders.

The more discussion that occurs about @loglow’s original suggestion, the more sensible it seems. More and more commonalities appear. Whether the idea is picked up for implementation is a separate question.

2 Likes
11

I agree with this limitation, at least for the time being, for the sake of simplicity.

12

It is hard to think of circumstances under which kits of kits would even make sense. Suppose you stock electronic parts: resistors, integrated circuits, capacitors, relays, etc. You sell these individually and also as a circuit board kit that includes everything necessary to build, for example, a power supply. Now suppose you also produce radios and sell radio kits. If the radio, whether fully produced or in kit form, includes a power supply, you will include that in one of two forms:

  • Individual piece parts, or
  • A pre-assembled power supply.

But to sell the radio kit with an assembled power supply, you would first need to produce the power supply from its individual components. A technician gathering components for a radio kit that includes an assembled power supply is not going to look in piece part bins for the power supply. If there are no assembled power supplies on hand, the technician would need a production order to build one. Only then can the bill of materials for the radio (finished or kit) can be pulled from stock.

On the other hand, if putting together a radio kit made entirely from piece parts, the technician would need a list of all piece parts. A list of subassembly kits would do no good, because those are not what the sales or production order specifies.

In summary, even if intermediate kits are defined (like the power supply), a production order step is always required before they can be incorporated into a higher-level kit. And at that point, they become output inventory items, no longer kits. Therefore, no kits of kits would ever be necessary.

13

:+1:

14

Correct, as currently Inventory Kits can only represent a combination of Inventory Items that are Finished Goods.
But once you allow Inventory Kits to represent a combination of Inventory Items which aren’t in themselves finished goods (can’t be sold - work in progress) then you create the “opportunity” for kits on kits to be created rather then using fully detailed Bill of Materials, which can occur in food manufacture.

A manufacturer has a range of food products that have a standard group of ingredients.
They create an inventory kit for that standard group as they manufacture it in bulk - so a vat of 1000 L
Then the food products have a range of flavours and each flavour is created as an inventory kit.
So a flavour inventory kit becomes inventory items a,b,c, plus 80 L of the standard group inventory kit. An inventory kit within an inventory kit.

Whilst I fully understand the short comings within the above model the point being made is this, if Inventory Kits are given the perception that they can represent groups of inventory items which aren’t saleable finished goods combinations (i.e. work-in-progress inventory) then you create the opportunity for inventory kit abuse.

15

I don’t see how. My suggestion in post #4 was to have the ability to designate both whether the kit could be sold, was only for production, or both. In your example of the 1000 L vat, the contents of the vat (a kit) could well be for production only, but still a finished inventory item. It would be stored and used as an input inventory items a few liters at a time. Another production kit would include, to pick up your example again, 80 L of vat contents, plus items a, b, and c.

There would still be a production order between the first kit (used to make the vat contents) and the second (used to make the marketable product).

Yes, this requires a shift of perception, from kits only being useful as sales shortcuts to kits being useful for production or sales. But both would remove items from inventory, either to produce other items going back into inventory or for sale. Either way, the technical demands are the same: pull items from inventory and assign their average costs to a new account or subsidiary ledger (to cost of goods sold or to the average cost of the output inventory item).

16

whats wrong with adding some lines for specifying bom and non inventory costs in the items details as a recipe and and production order autofills itself from that recipe ?

17

I don’t think anything is wrong with that idea. What is being discussed is whether inventory kits can be part of the recipe.

18

The overall problem with this topic is two things

One - that the proposed processes are in reverse progression:
Inventory Kits are a final transaction - occurring only at the point of sale, whereas
Production Orders are an intermediate transaction - occurring prior to a sale (or as a point of sale).

Therefore, having a final transaction constructing an intermediate transaction is counter intuitive.

However if you take the initial suggestion and put it in a positive hierarchal progression you have:
“Allow use of Production Orders to create Inventory Kits” - so the initial suggestion

Becomes:

  1. You create a new Production Order representing the BOM for one produced item.
  2. There is a tick box, “this production order BOM can also be a Inventory Kit” which creates the kit.
  3. You input the quantity of final items to be produced.
  4. Each used component quantity is automatically multiplied.

Regardless of how you look at it, until Production Orders have the feature of point A from the Production Orders - Enhancements topic - “enable a “recipe” to be created for a single unit of output and then allow that “recipe” to be multiplied” is implemented nothing much can happen either way.

Two - and more importantly, Inventory Kits are currently not an actual Inventory Item, (can’t have a qty on hand) therefore, they are un-selectable as an Inventory Item within the Production Orders BOM.
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However if you change from reverse progression to hierarchal progression that limitation within “two” automatically disappears.

Furthermore, I suspect the developer will never ever allow Inventory Kits to become selectable within Production Orders as that would be a major change of philosophy therefore I am going to remove this topic from the Ideas category, but will add an extra point within Production Orders - Enhancements topic which creates a linkage to Inventory Kits.

19

Let’s allow him to decide that.

20

But then how can the one Vat of product be both an Inventory Kit and a finished good at the same time.

Vat A (1000L) is created by an Inventory Kit (which can be sold).
However the same Vat A contents can also be used in a Production Order (a few litres at a time), therefore Vat A also needs to be its own Inventory item, otherwise, the production order will be calling the Inventory Kit which created the Vat.

If the production order itself is creating a kit, then you have kit on kit. Therefore as I suggested, not decided, will never ever happen and wasted being included under Ideas.

21

I am not suggesting that. I believe where we are miscommunicating is on the following:

  • You seem to be envisioning inventory kits as only for sale of separate, already finished inventory items.
  • @loglow’s original idea, endorsed by @Genti_Ge, and picked up by me, is that a kit is really nothing more than a bill of materials for one or more end uses. One such use (currently the only one available) could be for sales to a customer. Another use could be for production orders.

I guess I was not clear enough with some of my examples, or my adoption of your examples. Let me try to clarify a couple:

  • When I wrote about power supplies, I was thinking of having a power supply kit. You could sell the kit and allow the customer to assemble it. Or you could pull the kit parts and assemble it into a finished inventory item under a production order. But at that point, it would no longer be the power supply kit; it would be an assembled power supply and would require its own inventory item.
  • When I used your example of the vat, I wrote, “In your example of the 1000 L vat, the contents of the vat (a kit) could well be for production only, but still a finished inventory item.” I would have been clearer if I’d written “produced from a kit” instead of just “a kit.” What I was trying to convey was the idea that the same kit—which is nothing more than a list—could have been used to produce an interim stage product as part of a broader production order or a finished good that would be stored and used or sold on its own.

So, what several of us are suggesting is not that inventory kits would exist as both lists and finished inventory items. We are only suggesting that kits could be used both for pulling together amalgamated sales of separate items and for including the very same items in a production order of a separate finished good. Addressing some of your specific comments:

This would only be true if Vat A (1000L) was defined as an inventory item. In that case, the inventory item would be different from the inventory kit, and should probably have a different name to avoid confusion. If the inventory kit can be sold, the customer would receive 700L of X, 200L of Y, 50 kgs of Z, and so forth, not 1000L of whatever the recipe makes.

Agreed, as noted above. Your observation on this point matches what I was originally trying to convey.

Very true. And this would never happen with what we are suggesting. A production order can only create finished inventory items. Kits would enter the picture only as shortcuts for specifying input inventory items.