44 ISE Magazine | www.iise.org/ISEmagazine
Phantom assembly tool cuts manufacturing
lead times, increases cost efficiency
Enterprise resource planning option saves inventory space, expense
By Ilyani Sanchez
March 2021 | ISE Magazine 45
In the challenging oil and gas industry, small process im-
provements can have a big impact on profitability. Any
efficiency that saves time and money contributes to the
economics of a project for manufacturers, suppliers, con-
tractors and clients, encouraging personnel to continuously
seek ways to streamline operations.
Since the 1960s, companies in diverse industries have relied
on enterprise resource planning (ERP) software from globally
recognized providers such as SAP, Oracle, SYSPRO, NetSuite,
Cetec and others to make their business processes run smoothly.
But as the technology has developed, so has the array of avail-
able programs. With innovation, some excellent systems that in-
corporate APICS inventory and production management prin-
ciples may fall out of use as warehouse managers seek to keep up
with the newest tools.
One program that should be in every manufacturing supervi-
sors virtual toolbox is the phantom assembly or phantom bill of
material (BOM), dened as representing an item that is physi-
cally built but rarely stocked before being used in the next step
or level of manufacturing. The lead time is set to zero and the
order quantity to lot-for-lot.
Identifying the problem
How does a phantom assembly fit into the inventory workflow?
As illustrated in Figure 1, imagine we have a bill of material for
part A, which is a part made from parts B and C, but C needs a
subassembly made of parts D and E. In theory, to manufacture
material A, you will need to have parts B and C already built
and in-stock, but this raises these issues:
• You will require more warehouse storage space to accom-
modate bin locations for the assembled parts C, D and E.
You will be adding another part number/material to your
inventory, and this will have to be counted either through
cycle counts or in the yearly physical inventory depending on
how your company has set up their inventory policy.
The consumption of part C will in most cases depend on
demand for A, which could lead to excess stock if you build
a quantity of C to meet orders that may subsequently be can-
celed.
Compounding these problems, the administrative work and
the subsequence processes that the subassembly will have to pass
through to make it to produced stock lengthens the cumulative
lead time for building part A.
The solution for these issues is the phantom assembly tool,
which enables you to simultaneously build material A and sub-
assembly C.
Configuring the tool
For this example, the following figures depict the SAP tool for
illustrative purposes. While specic codes and steps may vary
with different software providers, conceptually the tools are
aligned around APICS principles and the efficiencies gained
with the phantom assembly.
In Step 1, first, we must congure the material master. Us-
ing our bill of material from Figure 1, we identify material C
as the subassembly so the system will recognize it as a phantom
assembly.
As depicted in Figure 2, we use transaction code MM02, set
up the procurement type as E and designate the special procure-
I
FIGURE 1
Bill of material
The subassembly matrix leading to creating material A.
How IISE defines phantom assembly
The Terminology page on the IISE website includes more than
12,000 entries of industrial engineering terms and phrases
common in ISE fields and grouped by general topics.
The definition of phantom assembly, also known as a
transient bill of material, appears under the section Operations
& Inventory Planning & Control. The description reads: “A bill
of material coding and structuring technique used primarily
for transient (non-stocked) sub-assemblies. For the transient
sub-assembly item, lead time is set to zero and lot-sizing
is lot-for-lot. This permits MRP logic to drive requirements
straight through the transient item to its components but
retains its ability to net against any occasional inventories of
the sub-assembly. This technique also facilitates the use of
common bills of material for engineering and manufacturing.
Syns: phantom bill of material, blow through.”
To find more, visit the Terminology page at iise.org/
terminology.
46 ISE Magazine | www.iise.org/ISEmagazine
Phantom assembly tool cuts manufacturing lead times, increases cost efficiency
ment as phantom assembly “50.” The lead time is zero, so in the
field for “In-house production” we indicate “0 days.” The rest
of the parameters on this screen can remain as dened by your
organization.
On the same transaction, select the “Costing 1” tab (Figure
3) to tell the system how to structure the cost; on the field for
SpecProcurem Costing,” set the key to “50.” Following the
example in Figure 1, once this is set up, the system will skip the
subassembly cost and pull the individual cost of D and E into the
cost of material A.
Be aware that the routing of material A must be changed to
factor in the time and operations that you will need to build
subassembly C at the same time you are building A. If the rout-
ing used to be set as “assemble B and C,” the routing must be
adjusted to add “build C first.” Although the standard param-
eters in the routing will not change, you must add the opera-
tions for the subassembly, so the system can properly calculate
the total cost of A (see Figure 4).
After conguring the tool, you can double-check that it is
correct. Note that at transaction code MD04 (Figure 5), the
FIGURE 2
Step 1: Setup
Use transaction code MM02, set up the procurement type as E and designate the special procurement as phantom assembly “50.”
FIGURE 3
Step 2: Tab costing
Select the “Costing 1” tab to tell the system how to structure the cost and set SpecProcurem Costing to “50.”
March 2021 | ISE Magazine 47
system will replace the planned orders required to build subas-
sembly C with what I call a bridge that indicates “Planning w/o
Assembly.” This means the system is creating the requirements
for the components that build C, but it knows that C will be
built at the same time as A.
In addition, when creating the work order to get material A
assembled, the components overview will identify part C with
parts B, D and E, but a check mark in the “phantom indicator
field will signal that it is there to reference what components
belong to C (Figure 6 on page 48).
In implementing the phantom assembly, remember that these
two steps are critical: First, update the material master to let
the system know how you want to manage the materials; then
update the routing associate to the final assembly to show the
operations related to the subassemblies.
Saving time and money
How does the phantom assembly reduce lead time and manu-
facturing cost? As we revisit Figure 1, we can analyze the cu-
mulative lead time for material A before using the Phantom
FIGURE 4
Step 3: Create routing
Add the operations for the subassembly so the system can properly calculate the total cost of material A.
FIGURE 5
Step 4: Double-check
The system creates the requirements for the components that build part C.
48 ISE Magazine | www.iise.org/ISEmagazine
Phantom assembly tool cuts manufacturing lead times, increases cost efficiency
Assembly tool. The chart below shows a lead time total of 50
days, because material D will take 30 days before it is available
to make subassembly C, which then requires 15 days of lead
time before it is in stock; then you need five more days to put B
and C together. In the lead time to build C, imagine that three
of the 15 days are related to administrative work such as pulling
materials out of the warehouse, filling up a checklist, giving a
pass to stock, etc. For As lead time, two out of the five days are
related to setting up so it can be assembled with B.
In this example, we took one material (A) with just one sub-
assembly, but consider parts with multiple subassemblies. They
will certainly have many operations that do not add value and
can therefore be consolidated to increase savings even further.
With the phantom assembly tool, these extra administrative
operations related to part C’s subassembly, plus setup time, are
reduced automatically, since the routing for material A will be
designed around those reductions and will eliminate the repeat-
ed operations mentioned above. Since “time is money,” reduc-
ing the lead time reduces labor hours and other direct costs, as
well as some indirect costs associated with setup times and other
process factors such as wait times.
The phantom assembly is a versatile tool designed to re-
duce the total lead time of a product that incorporates one or
more subassemblies by reducing extra administrative steps and
consolidating operations and costs. I have found that in manu-
facturing environments, where lead time and cost are the key-
stones to success and every dollar saved is a “win,” the phantom
assembly tool is a cost-effective way to improve operations by
streamlining manufacturing and warehouse processes.
Ilyani Sanchez supervises warehouse inventory and production processes
for a leading global manufacturer of wellhead, surface and flow control
products. By employing groundbreaking technology and organizational
techniques, her expertise in logistics and warehouse management is val-
ued by purchase, quality, production and sales departments to manage
and improve the efciency, safety and accuracy of inventory practices in
the oil and gas industry. Contact her at ilyanisanchez42@gmail.com.
FIGURE 6
Step 5: Work order creation
A check mark in the “phantom indicator” field will signal what components belong to C.
Material Lead Time
A 5 days
B 5 days
C 15 days
D 30 days
E 15 days
Total Lead Time 50 days
With the phantom assembly tool,
these extra administrative operations
related to part C’s subassembly, plus
setup time, are reduced automatically
... Since “time is money, reduc ing
the lead time reduces labor hours
and other direct costs, as well as
some indirect costs associated with
setup times and other process factors
such as wait times.