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By Danny Howard,2014-04-29 02:52
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pdm

Shanghai Roche Pharmaceutical Co., Ltd.

    Project Definition Memorandum

One. Background

    Shanghai Roche Pharmaceutical Co., Ltd. ( “SRP”) has already used BPCS Distribution module, Finance module and Materials Planning products. Now SRP plans to implement BPCS Manufacturing Data Maintenance, Shop Floor Control and Cost Accounting modules.

Two. Current Status

    After 2 days of investigation, we summarized the following current status:

? Standard Cost of Purchased Items

    Standard cost of purchased items are maintained manually by Cost Accountant , based on the information submitted by Material Management Dept. . Due to the changing purchasing price of RM, standard cost set of the system is maintained frequently. However, no inventory revaluation is carried out after the adjustment of standard cost set of purchased items, neither FG standard cost set roll-up is carried out after the above-mentioned adjustment.

? Actual Cost of Purchased Items

    Actual cost of purchased items are maintained automatically by system in the actual cost set. Purchase Price Variance (PPV) is automatically generated by the system and PPV report is used by the Fin. Dept. to monitor the purchasing performance.

? Standard Cost of Manufactured Items

    Standard cost of manufactured items is maintained manually by cost accountant, based on information submitted by Technical Division. Technical Division will prepare the data for material, labor and overhead cost buckets. The data are maintained in the standard cost set of manufactured items directly. Routings and work centers have not been set up and standard cost roll-up function is not used.

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    BusinessConsulting

Shanghai Roche Pharmaceutical Co., Ltd.

    ? Actual Cost of Manufactured Items

Actual cost of manufactured items is not maintained by system. Instead, actual cost and

    expenses are collected and allocated in General Ledger into pre-defined cost centers.

Three. Future Requirements of the New System

Following are the major requirements of the SRP’s management on the new system:

? Establish routing, work center and relating standard rates

    ? Compare actual to standard cost of Material, Labor and Overhead

    ? Analyze gross profit margins of products to assist marketing in developing pricing

    strategies

    ? Perform what-if-analysis to determine the cost impact of manufacturing changes

    ? Link cost center in General Ledger with work center in Shop Floor Control

    ? Assist data preparation for management reports, e.g. costing reports and Basel reports

    ? Reduce manual routing work

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    BusinessConsulting

Shanghai Roche Pharmaceutical Co., Ltd.

    Four. Our Suggestions

A. Data Flow Diagram of the New System

    With the currently existing BPCS modules and after the implementation of MDM, SFC and CST modules, there will be a new system presented below.

B. Description of the New System

? Standard Cost of Purchased Items

    Standard cost of purchased items will be maintained annually by Cost Accountant. The standard cost set may be manually maintained based on the information submitted by Material Management Dept or copied and adjusted based on the actual cost set.

    If during the year, the actual purchasing price of RM is changing, standard cost set of the system should not be affected, except for significant and permanent changes. Any changes to the standard cost set of the purchased items should be formally applied for and be approved by relevant officers. Changes to the standard cost will be carried out by cost accountant and supporting documents should be properly filed. The aim of this is to comply with the cost accounting principle of SRP.

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    BusinessConsulting

Shanghai Roche Pharmaceutical Co., Ltd.

    After the adjustment of standard cost, inventory revaluation of RM, WIP and FG should be carried out timely. Difference will be posted to stock revaluation account and disposed of according to the accountant standard of SRP.

? Actual Cost of Purchased Items

    Actual cost of purchased items will be maintained automatically by system in the actual cost set, either based on average method or last purchase method. Purchase Price Variance (PPV) between actual cost set and standard cost set will be automatically generated by the system and PPV report will be used by the Fin. Dept. to monitor the purchasing performance. Actual cost set will also lay a good foundation for setting up the standard cost of purchased items in the future.

? Standard Cost of Manufactured Items

    After the implementation of Manufacturing Data Management (MDM), standard cost of manufactured items will be calculated based on the information maintained in BOM, Work Center and Routing. Following is a simple diagram showing how the standard cost of manufactured items will be calculated:

     Rate Bill of Material Routing Work Center (BOM)

    Material Labor, Machine, Overhead

     Standard Cost

    While setting up standard cost of manufactured items, cost accountant of the Fin. Dept. will work closely with Technical Division and other relevant departments to work out the labor rate, machine rate and overhead allocation method, as well as standard labor hour and standard machine hour. Any adjustment to the above mentioned standard rates and hours should be discussed by relevant departments and approved by authorized officer.

    Care should be especially taken when a new product is launched or the BOM and routing of an existing product has changed. Relevant departments should timely inform cost accountant and cost accountant should set up or adjust the standard cost, rates and hours immediately, in order that correct standard cost of manufactured items is calculated.

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    BusinessConsulting

Shanghai Roche Pharmaceutical Co., Ltd.

     ? Actual Cost of Manufactured Items

Actual cost of manufactured items will be tracked through Inventory Management, Shop

    Floor Control and Actual Overhead Allocation. Following is a simple diagram showing how

    actual cost of manufactured items is calculated:

    Rate Bill of Material Routing Work Center

     (BOM)

     Material Labor, Machine, Overhead

    Shop Order

     Shop Order Issue Labor Ticket

     Shop Order Receipt

     Actual Overhead Actual Material Actual Labor Allocation

    Actual Cost Actual Cost

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    BusinessConsulting

Shanghai Roche Pharmaceutical Co., Ltd.

    C. Constraints of the New System

As management is aware, packaged software typically meets 60-90% of an organization’s

    key business requirement. With the package software approach, some functions will remain

    manual.

Due to the complex overhead allocation requirements of SRP, the current BPCS modules

    can not fulfill all the requirements. Some customization and some manual work will still be

    needed to meet the management’s requirements. This may affect the project schedule.

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