CONVERSION CYCLE

The major purpose of the Conversion Cycle is to

transform raw materials into finished goods.
Specifically, the objective is to ensure that:
1. Adequate raw materials and other resources are
available for production, while the investment in
such resources is minimized
2. Production costs are minimized through high labor
productivity, full utilization of production
equipment, low levels of scrap and rework, and
optimal design of production layouts and
procedures
3. WIP inventories are transformed into finished
goods, which are then either warehoused or
shipped on schedule
4. Establish levels of product quality and after-sales service
are attained.
5. Costs for each order or process are accumulated fully and
accurately
PARTIAL ORGANIZATION CHART OF A LOGISTICS FUNCTION
VP
Logistics

Production Sales Order Engineering Inventory

Management Entry Design Management

Production Maintenance Production Quality Shipping Purchasing Receiving Stores

Planning Superintendent Control
& Control

Work Center Work Center Work Center

A B ...n
 FORMS OF DATA INPUT
• Customer order
• Bill of materials
• Operations list/Routing slip
• Production schedule
• Production order
• Materials issue slip/Materials requisition
• Labor job-time ticket
• Move ticket/traveler
• Inspection report(s)
 COMPUTERIZED DATA ENTRY
 Data are captured via terminals or micro-based
work-stations using such techniques as keyed-in
alphanumeric codes, inserted badges or cards,
scanned bar codes, or touched monitor screens.

 Preformatted documents are automatically

generated using application software and on-line
data bases.

 Electronic copies of the documents are maintained

in on-line files, and hard-copy
forms are printed only as needed and
requested.
 DATA PROCESSING
• The conversion cycle encompasses three
major processing steps:
– Production planning
– Production operations
– Accounting for production
costs
 ADVANTAGES OF COMPUTER INTEGRATED
MANUFACTURING SYSTEMS
1. The materials requirements relating to demands for
products are determined beforehand, so that the materials
are transferred to the production areas in time for
production starts
2. Production orders are scheduled to accommodate the
manufacturing capacity.
3. Data are validated upon online entry, so that errors are
detected more quickly and reprocessing delays due to
undetected errors are reduced.
4. Inventory and production order records are updated in a
timely manner from materials requisitions, labor-time
entries, and move tickets.
5. Accounting-related processing is simplified, since
transactions are posted without sorting to online files.
6. Control reports such as cost variance analyses are prepared
for managers.
 A Configuration for CIM, Including Associated
Accounting Modules

Engineering Logistics Accounting

data base data base

Production
Planning
Warehousing

MRP Cost Accounting

Manufacturing

Automated Inventory
JIT Handling Control

FMS –Functional
Movement System Product
CAD –Computer Robotics Costing
CAM
Aided design
 Measures Relating to the Product Conversion Cycle
Category Examples of Measures
Customer satisfaction Quality, Service, Availability
Performance PLC Time, Product Yield, Employee
productivity, Direct labour variance,
% of Scrap cost to dollars of product
shipped
Resource Mgt 1.Manufacturing cost as a % of $
sale
2.$ sales per production employee
3.Raw material inventory turnover
4.Production output per square foot
of factory space
4.Average machine time in days per
month
 Measures Relating to the Product Conversion Cycle
Category Examples of Measures
Flexibility 1.Average cycle time per product
2.No. of days under production
schedule
3. Change over time
Data Management: File Oriented Approach
Master Files Transaction Files
– Raw materials – Production order file
– WIP – Materials issues file
– Finished goods – Operations/Routing file
 Scheduled Managerial Reports in Conversion Cycle
•Employee productivity reports that compare the output
of the operations work center employees against
standard levels of production
•Work center performance reports that reflect the
efficiency of each work center
•Open production order status reports that show which
orders are behind schedule and by how much
•Equipment utilization reports that show the percentage
of downtime for each piece of factory equipment
•Waste reports that show the percentages of scrap,
rework, and rejects for the production orders currently
in process