Review of Manufacturing Operations - Review of Internal Control, Auditing & Secretarial Practice | Auditing and Secretarial Practice - B Com PDF Download

Review of Manufacturing Operations

In general parlance, Manufacturing means converting an input (Raw material) into output (finished product) with the use of man, machines, material, power etc. Such finished goods may be used for manufacturing other, more complex products, such as aircraft, household appliances or automobiles, or sold to wholesalers, who in turn sell them to retailers, who then sell them to end users – the “consumers”.

Manufacturing operations is a prime source of money outflow i.e. a large amount of money is spent on manufacturing process e.g. in buying machinery, raw material, consumables, paying salary to workers etc. It is very important to review the manufacturing operations in timely manner so that the identified in-efficiency may be eliminated controlled on immediate basis.

Objectives of Review of Manufacturing Operations

1. Whether the organization have any manufacturing process management system.
2. Whether the policies and procedures for production planning well defined & well documented.
3. Whether the organisation have a quality management system in place. If so, whether the organisation have a written quality policy and whether it is adhered or not.
4. Whether the organization is following six sigma. Whether the organisation have a written maintenance policy.
5. Whether the organization have a written scrap policy.
6. Whether security policies are documented or not.

Review of Production/Modification Planning 

1. Whether a standard documentation is used to communicate sales orders and production/modification requirements to production personnel.
2. Whether production/modification schedules are compared to sales orders to ensure that production timing and quantities are appropriate.
3. Whether Production/modification schedules is reviewed and approved by an appropriate officer.
4. Whether standard documentation is used to communicate material requirement plans (including quantities and dates) to the purchasing department.
5. Whether Material requirement plans (MRPs) is compared to production/modification schedules weekly to ensure that quantities and timing (including the effect of lead times) are appropriate.
6. Whether instances of insufficient or excessive raw material inventory are monitored weekly/monthly.
7. Whether MRP is based on accurate and up-to-date bill of materials (BOM). Whether production/ Modification Process Employees are trained in the use of the equipment.
8. Whether employees are trained to perform a number of tasks to provide cover for other skilled employees.
9. Whether continuous improvement initiatives such as Kaizen, Poke-yoke are pursued.
10. Whether management reviews and follow-up following on daily/weekly basis

• Order book status and order intake trends
• Production volumes and variances by product and location
• Machine utilisation rates 
• Production efficiency data (e.g. usage, scrap, rework etc.)
• Scheduled and unscheduled downtime
• Inspection and testing results
• Product quality data (defects, failures, customer complaints, warranty costs etc.)
• Output per employee and per productive hour

11. Whether production performance measures are benchmarked internally and against other organizations, including:

• Machine utilisation rates
• Materials usage costs as a percentage of total production costs
• Scrap and rework levels
• Scheduled and unscheduled downtime as a percentage of total production time
• Inspection and testing costs as a percentage of total production costs defect and failure rates
• Warranty and product liability costs as a percentage of total production costs
• Customer complaint and return rates
• Material stock levels divided by average daily usage employee productivity levels

12. The costing of the modification job should be approved by an appropriate officer.

Review of Quality Management system

1. Whether formal documented instructions / procedures are available on:
   • Quality tests to be performed at each stage of the production process
   • Steps to be taken in the case of negative results
   • Documentation required to evidence completion and results of quality checks
2. Whether sufficient quantities of each production run are tested to enable compliance with quality control standards
3. Whether Quality assurance procedures are integrated into the production process.
4. Whether defect rates, customer returns and complaints due to poor quality are monitored.
5. Whether measuring equipment and devices are calibrated on a periodic basis i.e. quarterly, half yearly.

Review of Maintenance Management System

1. Whether responsibility for all aspects of equipment maintenance and management are clearly defined.
2. Whether a planned program for scheduled preventative maintenance is prepared or not.
3. Whether production equipment are maintained in accordance with

a. Manufacturers specifications

b. Contractual agreements

c. Legal requirements or not

Review of working environment, safety and security

1. Whether separate areas are identified for inventory storage and handling, high value part storage, shipping and receiving, vaults, toxic materials
2. Whether entry and exit points for sensitive areas have appropriate security controls such as security personnel, gate passes, restricted access mechanisms, card keys, cameras and lighting, perimeter fencing
3. Whether smoke detection and fire-fighting equipment are functional and provide adequate protection.
4. Whether the workers use self protective devices at the work place.
5. Whether equipment and evacuation procedures are tested on a regular basis and documented.
6. Whether security incidents i.e. accidents/theft etc are formally reported and tracked.