IT SYSTEMS OF CONVERSION PROCESSES (STUDY OBJECTIVE 5)

Because of the potentially large number of inventory items maintained by a company and the variety of processing flows that may affect them throughout the conversion process, it is often difficult to keep current inventory and production records with manual systems. IT systems can be a true friend of the conversion process. Recent technological developments have resulted in significant changes in the way that many companies conduct their conversion processes. Computerized systems may provide the following benefits in this process, which result in huge savings in terms of productivity, quality, flexibility, and time:

• Automatic computation of materials requirements based on sales orders and sales forecasts
• Systematic scheduling that allows for greater flexibility and increased efficiencies
• Timely transfer of inventories throughout the process, due to the automatic notification features
• Validation of data entries that detect errors before they are recorded
• Automatic updating of inventory status reports that saves time and increases accuracy
• Automatic preparation of financial accounting entries and cost accounting reports

In addition to these advantages, integration of all or part of the company's processing applications, planning, resource management, operations functions, and cost accounting system will yield even greater benefits in terms of workforce efficiency, paperwork reduction, and other cost reductions.

A computer-based conversion process needs to have a significant amount of data input into the system. All of the information supporting the bill of materials, operations lists, production orders and schedules, routing slips, time sheets, and inventory status reports must be captured by the computer applications. There are many options for inputting this data. It can be keyed in from terminals or preformatted touch screens, scanned in from bar codes or magnetic strips on the inventory items or employee identification cards, or received automatically from integrated systems in the production process. Once the supporting data are entered, the system can automatically generate the documents listed. It can also identify inventory shortages, calculate economic order quantities, dispatch inventory items to be issued into production, and accumulate information to be used for the periodic posting of conversion activities to the general ledger.

A database containing conversion process information must include files for each category of inventory (raw materials, work-in-process, and finished goods) as well as for key transactions that occur, such as the initiation of production orders, materials issuance, labor application, and the accumulation of other costs incurred in the production progress. The inventory files include both standard and actual data. In addition, both inventory and transaction files need to be maintained for each production station at each operating facility.

Computerized systems can have programmed constraints that enhance internal controls over the conversion process. For example, the system may be programmed to issue error reports whenever a work-in-process record is not generated for an existing production order, or when the same operation is performed at multiple production stations, or when a single employee performs incompatible operations. These situations indicate that an error has occurred in the production process. The timely notification can allow for corrections to be made with minimal cost and disruption.

Additional trends in computer systems that enhance the conversion process are described in the following paragraphs.

Computer-aided design (CAD) techniques may be used to enhance the engineering function. CAD software allows engineers to work with advanced graphics at electronic work stations to create 3D models that depict the production environment.

Computer-aided manufacturing (CAM) involves the complete automation of the production process, including the full replacement of human resources with computers. Industrial robots may also be used in a CAM environment. Industrial robots are computers that are programmed to perform repetitive procedures.

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Materials resource planning (MRP) involves the automated scheduling of production orders and movement of materials in the production process.

Manufacturing resource planning (MRP-II) considers all manufacturing resources, rather than focusing on materials. MRP-II systems are an expansion of MRP. MRP-II adds features that provide for the forecasting of capacity requirements and for developing schedules for future production processing.

Enterprise-wide resource planning (ERP) systems have evolved from MRPII. ERP systems integrate all of the conversion processes into a single software program while still meeting the needs of each functional area. In addition to the manufacturing applications included in MRP-II systems, ERP offers additional functions such as purchasing, accounts payable, human resources, and payroll.

Computer-integrated manufacturing systems (CIMs) integrate all of the conversion processes to allow for minimal disruptions due to reporting requirements or inventory movement issues. They are similar to ERP systems in that they integrate all of the functional areas of the conversion process. However, CIMs are unique because they also integrate the financial and cost accounting applications. In the modern business environment, more and more companies are turning to CIMs to gain competitive advantages. CIMs are built upon a network of production equipment that is integrated with the company's computers and record-keeping systems.

Just-in-time (JIT) production systems are concerned with minimizing or eliminating inventory levels and the related costs of maintaining those inventories. This is accomplished by carefully controlling each stage of the production process so that products are completed just in time to sell them. These systems are feasible only when the company has good relationships with reliable vendors (in order to eliminate the need to maintain stock of raw materials) and there are few quality control problems. JIT also requires extensive computer systems to monitor and record the many transactions and data in a JIT system.

The use of radio-frequency identification (RFID) systems within conversion processes are on the rise. RFID uses pin-head-sized tags to monitor and account for inventories through the receiving, stores, production, warehousing, and shipping functions. It can do so without the line-of-sight closeness that is required by bar coding systems. The tags have a silicon chip and tiny antenna that hold and transport identifying data about the inventory item. A tag reader serves as the input device for the computer system that accounts for the inventory. This technology makes it possible to specifically distinguish individual items comprising a company's inventory, thus eliminating the need for cost flow assumptions such as LIFO and FIFO and their related computations. In a manufacturing company, the RFID system can automatically trigger routing slips, update inventory status reports, allocate labor and overhead to inventory units, and monitor the exact location of the related products. With an RFID system, counting inventory and tracking the movement of inventory is much faster, efficient, and accurate. Retail companies are also using RFID to track inventory within their stores. Some stores are taking nightly inventory counts to compare inventory levels to the accounting records.

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