ERP Functions : Human Resource Management 3

Last time we saw about Organization chart. This time we shall look upon the major part of Human Resource Management i.e. Salary Structure. 

Before going to salary structure we shall look upon the definition of salary. Salary is compensation given to the employee of a company/organization in return to the work he/she has performed. In most cases it will be fixed amount and periodically given to employees. Salary is the earning of the employees. Salary is the value in terms of money for the work done by an employee to the company. This valuation is very much crucial as the satisfaction of the employee is majorly depends on the salary he/she receives. Therefore, structuring the salary is very much essential part of HR Department.

Salary of an employee is derived from various components. There are statutory and organization policies that effects salary of an employee. The components of the salary is divided into three major parts Basic, Allowance, Deduction.

1. Basic Salary :- The constant amount which is defined for an employee. This is the primary amount on which the calculations of Allowances and deductions are made. Usually this is decided based on Employee category and Designation. There are various labor acts that fixes minimum basic amount of a particular type of employee.

2. Allowances :- Additional amount that are given to employee for different benefits. Traveling Allowance (TA), Dearness Allowance(DA), House Rent Allowance (HRA), Medical Allowance (MA) etc are the common allowances provided by the companies. These allowances are based on the basic salary of the employee. It may be in terms of % of basic salary or fixed amount based on basic salary amount slabs. There are some statutory Allowances and usually Govt. fixes the minimum amount to be paid. There can be some specific company defined allowances which are provided based on various parameters. They are usually called as incentives  or perks.

3. Deductions :- Amount that are to be collected from employee's salary for statutory requirements and other future benefits. Professional Tax (PT), Provident Fund (PF), Employee Security Insurance (ESI), Medical Reimbursement, Loans, Insurance Premiums etc are the deductions in the salary structure. Like any other salary component some of these are also governed by Govt. These are to be collected from employee salary very strictly. Like allowance this is also derived from Basic or/and allowances. Other than statutory deductions there be other deductions based on company policies.

Finally the net salary is calculated by following simple firmula

Net Payable Salary = Basic Salary Amount + Total Allowance Amount -  Total Deductions Amount

Total Basic Amount + Allowance Amount is also termed as Gross Salary.

This is about Salary Structure. In the coming blog we shall look on some of statutory allowances and deductions.

Keep watching this space..

ERP Functions: Human Resource Management 2

Last week we have started understanding functions of Human Resource. This week we shall continue the same with exploring more on Organizational Chart.

It is obvious that each company has employees who have to play different roles with defined responsibilities. In order to identify these and to make the process of managing employees simpler these are defined as designation inside the company. Each employee of the company, therefore is been identified by not only by name but also by designation. Even though it is completely left to company's management in deciding the designations to be in the company there are certain commonly used designations. Junior Engineer, Senior Engineer, Project Manager, Team Leader, Operation Head, Head Of the Department etc are the some among vast set of designations.

The defining of designation also helps in setting up hierarchy in an organization. Since each designation is defined with its roles & responsibilities it is obvious that an employee having a particular designation do have same roles & responsibilities. Along with that each employee will be reporting to higher designation person, and will also be delegated about his works from him/her. Having all the hierarchy defined for the designations in the company is called Organizational Chart. Here are some of the examples of the Organizational Chart of various types of organizations.
Link1 Link2 Link3 Link4 Link5 Link6

Pay structure, Bonus, Promotion, facilities given to the employees are largely depends on designation of the employee. Designation also tells about experience of a person in an industry. It is to be noted that designations and category of employees are not the same terms. Former is defined based on roles and responsibilities while later for ease of grouping.

This is about Organization chart. Coming blog we shall discuss on Components of Pay Structure.

Keep watching this space..

ERP Functions - Human Resource Management 1

After long break of festivals lets continue the journey of our understanding of ERP. As stated in previous blog from this week we shall start discussing on Non - Technical or Non - Direct Departments of an Organization.First lets start with Human Resource Management

As the name suggest it deals with information regarding Human Resource of the company. It is eminent that company can neither be run on its own nor by the machines. Human power is needed in order to properly convert resources into saleable products/services. So it is obvious that every company will have human as resources. These human resources are called as Employees of the company.

Even though there will be many employees working in the company, each one will have definite roles and responsibilities with respect to the company's work. So based on this employees will be categorized into different segments under organization. Most of the organization follow hierarchy system, however it is depends on individual organization. General Categories of any typical organization will be Staff, Workers and Trainees. Names are self explanatory. There may be more categories under these basic categories based wage structure, work nature and other internal or statutory requirements.

Human Resource management deals with managing the Employees of the organization. Mainly Recruitment, Salaries, Attendance & Leaves, Statutory or Company provided allowances/deductions, Training, Performance tracking, Bonus, Promotions etc. We shall deal with all these on coming blogs. Keep watching this space.

ERP Functions - Maintenance 3

Last week we studied in detail about three types of maintenance activities. This week we shall see other functions related to maintenance department.

Critical Spares

Warranty, Free Service

We have seen in the last blog that all the types of maintenance activities gets involved with replacement of spares. Some of the times maintenance activity will finish without spares replacement, but in some cases replacement will be necessary. In a industry there will be different kinds of machines, therefore the parts in them will also might not be same. However some spares may also be common across many machines.  Common spares can be purchased and kept in stores as it will be useful for one or other machines. But some of spares will be very much expensive or may also bulk in size, in that case purchasing and storing them will cost more to the company. Some of spares parts will be such that they are not readily available and also if it is not replaced the machine may not run and the machine will be the major machine of production. Such spare parts are categorized as Critical Spares.

Therefore it is necessary to have proper defined spare parts SCM (Supply Chain Management).  Along with that proper stock management of the spares is also required. Especially for critical spares, Min Level, Reorder Level etc are to be defined properly in order to have very less breakdown time of the production. However excessive inventory of expensive item will add to dead money and increases inventory management cost. Therefore maintenance department has to define spares and categorize them also have to define the stock level.

Apart from spare parts management maintenance department also have to maintain the warranty, free service details of machines. This will save the huge amount of expenses to the company.

This completes the functions of Maintenance department. From next week onwards we shall see the Non- Technical functions of Industry. Starting from Human Resource Management.

Keep watching the space.

ERP Functions - Maintenance 2

Last week we have briefly seen about the Plant Maintenance. This week we shall elaborate on each of them and the data collected.

Preventive Maintenance:  It is obvious that, we should do certain tasks and inspection in order to prevent machines from failure. These tasks are to be carried in regular intervals of time, like monthly, weekly, fortnightly etc. The set of tasks or inspection activities are called as check list. the intervals are called as frequency. So preventive maintenance of a machine will have Check List and Frequency defined. Along with that certain spares parts may have to be replaced. Some industries also define the number of man power required and the time required for the completion of activities. With all these the preventive maintenance is carried out and records of carried out preventive maintenance with observation will also be maintained.

Break Down Maintenance: Machines are prone to get failed to perform the desired activity due to various reasons. So when the machine fails or its break down happens the maintenance activities done are called as break down maintenance. Usually the machine operating department will inform to maintenance department about the break down of the machine. Maintenance department will first analysis on immediate cause of nature of breakdown and starts the activities to make the machine running normally. The activities involved will be noted down also any spare part replacements. Once the machine starts running the machine is handed over to the operator. All the timings are noted i.e. Reporting Time, Break Down Activity Time, Handing Over time. If the similar nature of breakdown is repeating then maintenance department will do the root cause analysis. From the root cause analysis certain preventive maintenance activities may be added to prevent the breakdown. 

Predictive Maintenance: This type of maintenance activities are generally carried out in a well established industry with experienced maintenance department staffs. Experienced maintenance engineers can sense the upcoming trouble to the machine by the current performance or noises, vibration etc. Based on these observation they will plan certain maintenance activities to be carried out after certain time or immediately. This is almost similar to preventive maintenance with the difference that it is carried only once and only when sensed. 

Apart from these planned to activities there are many activities which maintenance department will do in their day to day activities. All these are also recorded.

This about the activities of maintenance department. Further we shall see the material procurement for maintenance and types of cost involved with maintenance.

Keep watching

ERP Functions - Maintenance 1

After long break of one month I am back now to continue our journey on ERP. So far we have gone through Sales, Planning, Supply Chain Management, Production, Quality. Now in this blog we shall move to one more supporting department Maintenance Department.

As the name tells us, Maintenance Department is to maintain the equipment of the factory in running conditions with longer durability period. The proper maintenance of equipments will ensure on time production and on time delivery there by increasing company's business.

There are basically three types of maintenance operations.

1. Preventive Maintenance: Performing activities based on predefined check lists on the equipment. The activities are performed on periodic intervals in order to ensure proper running conditions of the machine.

2. Breakdown Maintenance: This maintenance activity is performed when an equipment has stopped from performing. This is done on need basis.

3. Predictive Maintenance: These activities are done based on pre-assumptions. Usually experts of the equipments will able to grasp the problems that may arrive in future for the machine based on machine behaviors. Then in order to prevent the breakdown because of the problem maintenance activities are done.

These are major types of maintenance. In coming blogs we shall look into each type of maintenance in detail.

Keep watching space

ERP Functions: Quality 3

Last week we looked upon the operations involved in quality department and the methods they have adopted in their department. In this week we shall move one more step deeper as how the analysis of the data collected is done and how actually Quality Control is achieved.

Last week we have seen that after inspection one has to decide from 4 types decision about the tested item. Out of them if it is Accepted then the item will move ahead for further operations. But if it is not accepted then it should have particular reason for not being accepted. Dimensional variations, Physical Property variations, Mechanical Property variations etc may have caused the item to be not acceptable. The quality inspector has to identify the reason for the non acceptance. This is first level of analysis of the quality of the item produced.

Once the reason is identified the next step is to understand the cause behind the reason. There will be some common reasons of which the cause may be already known. But when the new reason is found then the cause is needs to analyzed. Secondly if a particular reason for the non-acceptance is repeating then also analysis is to be done. This is initial step of Rejction Cause Analysis (RCA)

Once the cause is found the immediate next step is to make the produced item correct. This is called as corrective actions. Items may be reworked to make it further usable or it may be converted to some other item. Immediate actions to remove the cause from doing damage to the produced item and making it acceptable is corrective actions. This is done to ensure production is continuously running and producing acceptable items.

We must understand that corrective actions are only temporary measurements to remove the defect cause. Further steps has to be taken in order not to have same cause in the production. This is called as preventive actions. This is done with complete understanding of whole production process and operating standards of items. This is involves deep study of overall factory operations. Storage of items, handling of items, conveying of items, operator skill level etc will all be be studied and suitable actions will be taken in order to prevent the same cause from occurring again.

In summary Route Cause Analysis Involves 3 steps

1. Finding the Cause of rejection

2. Corrective Actions

3. Preventive Actions

Efficient QC department will actively do RCA in order to ensure quality output of the factory. This is analysis part of non acceptance of inspected items. Here we have considered that the inspecting instruments/gauges and the inspector are able to perfectly compare required measurement and the produced item's measurement. But practically it is not the case. We shall deal with them in next week.

Keep watching space

ERP Functions: Quality 2

Last week we briefly looked upon the Check point department of the industry i.e. QA & QC.  Now in this week we shall go one step deeper in understanding the various functions of the department.

As defined in last week there are mainly two areas of Inspections. 1. Incoming Inspection 2. In house Inspection. Now we shall understand what is actually meaning of inspection?

Inspection is general term can be defined as verifying the internal and external (visual or measured) attributes of the item pertaining to its further usage with standard or required attributes and authorizing item for further usage.

So in order to do inspection one has to have the standard attributes that makes the item suitable for further usage. We must note that this standard attribute will different for different type of industries. And it is very much necessary that these standards are properly defined. However no machine can produce 100% exact match of standard ideal item matching all the attributes exactly the same all the time. So a tolerance for deviation from the ideal standard attributes will be defined, again based on further usage of the item. If the produced item attributes does not fall under the tolerance of ideal item, then it is "Not Ok" for further usage. This concept is used in both inhouse and incoming inspections.

In the last paragraph we saw that a decision is to be made based on inspection. There are mainly 4 types of decisions.

1. Accepted: The inspected item attributes fall well inside the tolerance limit of ideal standard attributes.

2. Rejected: The inspected item attributes does not fall well inside the tolerance limit of ideal standard attributes, item produced is not usable further.

3. Rework: The inspected item attributes does not fall well inside the tolerance limit of ideal standard attributes, but with some extra operations/treatment the item can be made further usable.

4. Hold: The inspected item attributes does not fall well inside the tolerance limit of ideal standard attributes, but one is not sure of declaring it as Rejection/Rework at the moment.

Next is how many items are to be inspected while doing inspection? There are 4 standard ways for doing inspection.

1. 100% - Each of the item produced/inwarded is inspected for all the attributes.

2. Quantity/batch - Total produced/inwarded items will be segregated in different batches of equal quantity. In the individual batches a fixed number of items will be inspected and the attributes and the decision for those selected items is considered those of whole batch.

3 Quantity/lot -  In the Total produced/inwarded items a fixed number of items will be inspected and the attributes and the decision for those selected items is considered those of whole lot.

4. Random - This is kind of inspection which is done in Random selection of items from the lot. One may also can choose 0 items!!

So now we are clear on the inspection definition and the methods of doing it. Further we shall see the analysis part of inspection.

Keep watching space.

ERP Functions: Quality 1

We have looked into Material Inward Production and Despatch sections.This week, We shall look into major functions of Quality Department.

Quality Department is usually termed as QA & QC. i.e. Quality Assurance and Quality Control. As the name suggests the department is the one which provides assurance of quality of the product. Secondly it also regularly verifies the quality of products and production processes there by controlling the Quality of overall factory.

There are majorly two sections under Quality Department.

1. Incoming Inspection :- Inspecting quality and standard of the materials coming into the factory from various suppliers. Also inspection of customer rejected products sent back to the factory.

2. In House Inspection :- This deals with quality inspection at various stages of production. Also majorly at final stage of production to assure the quality of finished product is matching with customer required standard.

We shall look into these in detail in coming weeks. Along with that we shall also look into the analysis part for quality deviations in material or in production processes and how the data is maintained.

Keep watching space

ERP Functions: Production 3

Last week we discussed about the Overall Equipment Efficiency of the production. In this week we shall see the constraints involved in achieving good OEE and how to measure them. Along with that we shall also see the implications of these parameters in production operations.

The first parameter is Performance. The performance is mainly depends on the machine and the operator. Machines needs to be properly maintained with periodical verification and other activities in order to make it perform to its designed capacity. We shall discuss the machine maintenance further. Second major effecting factor is the operator who is operating the machine. He/she must be skilled enough to utilize the machine to its maximum capacity and also for longer performance of the machine. In-fact the performance of the machine is actually the performance of the operator.

Next is Quality. Again this parameter is depending upon the machine, operator and material of the product. As explained before properly maintained machine with skilled and efficient operator are the major factors to produce defect free products. Along with this the quality of material is also effects the quality of finished product. Quality is in terms of dimensions, chemical composition, micro structure, free from unwanted or destructive materials. Usually every industry verifies the quality of the raw-material while inwarding inside the factory. Then in production after the operations that effects the quality parameters, quality checking is done before the product is moved for next operation. QA (Quality Assurance) & QC (Quality Control) department must ensure the quality of all the materials of overall plant. Also in case of deviations of quality the root cause is also to be analyzed. We shall discuss these further.

Lastly Utilization. This parameter is effected by various factors. Major factors are power break down, machine break down, non availability of input materials, non availability of operators etc. Each of these factors have caused by external and internal sources. Some are avoidable some are not. So since several sources are involved it is efforts of factory as a whole that can bring good utilization. Periodic review of the factors effecting poor utilization is must. Even though factory has high capacity machines and efficient operators and quality materials if all those cant be utilized i.e. cant be run means factory can't meet the production requirement.

So we now have looked into the factors effecting the production. Next week we shall discuss on another major function of the industry i.e. QA & QC.

Keep watching this space

ERP Functions: Production 2

Last week we moved to execution part of the industry, i.e. Production. We discussed about the definition of Production and then the information that the production departments are getting from Planning and Design departments.

This week we shall look into how the production is measured? What are the parameters involved in measuring productivity? What are the issues involved in production and how to record them in a system and track down for analysis and prevention?

Planning department provides the Production plan for execution. Based on that plan, Stores will issue materials (raw materials) to the production department. The production processes on the raw materials get started. The subsequent production processes follows one after another as per the routing card. Now we already know that in routing card the descriptions of process are mentioned. It also contains the machines that can perform the process and time required for the machine to complete the processes. This is called as Cycle Time In actual production due to various reasons machine may not produce as per the cycle time defined for it. The comparison of Theoretical Cycle time and Actual Cycle is called as Performance of Production.

The products produced may not be 100% matching with specification of the standard required product. In such cases the product is said to be "Not Ok" and considered as rejection. This verification is primarily done by production process owners, but finally approved by Quality department. This rejected product can be reworked in order to make it OK product, otherwise it is scrapped. The comparison of OK Qty produced with Total Quantity produced is called as Quality of Production.

Thirdly there is one more parameter which effects the production is the available time for production. Many industries run continuously 24 hrs a day in 3 shifts. So the maximum available time for production in any industry for a day is 24 hrs. But the workers are to be given minimum of 30 mins break in each shift for having food as per labor law and also humanity. So in 24 hrs 1.5 hrs is to be deducted to get the total available time for production.i.e. 22.5 hrs. Running the production for 22.5 Hrs is ideal for any production department. But there are various disturbances which can cause stoppage of production. Major among them are
1. Lack of Materials, Tools & Fixtures
2. Machine Break down. (Due to power, repair etc)
3. Lack of Manpower
4. Quality Inspection of sample productions
Many other small reasons will consume the time from 22.5 hours. So actual available time will be less than ideal. The comparison between Actual Available tile and Total Available time is called Availability of Production.

Combining all these we will get overall efficiency of the production. There is one term for this measurement called as
O.E.E = Overall Equipment Efficiency = Performance X Quality X Availability.
The O.E.E provides the measure of production performance of the industry.

Next week we shall see go in detail about issues involved in these parameters and how the data collection will help managers to reduce issues and increase efficiency of production.

Keep watching space.

ERP Functions: Production

So far we have discussed on Getting Order from Customers, Planning the production, procurement of materials. Now we shall move ahead on execution of production.

Production is sequence of processes carried out on raw materials to get final sale-able product. The sequence of processes varies from industry to industry. However certain parameters involved in them remains almost same. We first shall discuss on how production department gets information and later we shall see the execution of it.

As discussed earlier each product has its own defined Sequence of process with Bill of Material. Clubbing these two we call it as Routing Card. When a new product is taken in for to start production routing card has to be made. This is done by Product Design or Engineering Department. Usually roughly they do at the time of feasibility study of the new product. Finally when the order gets confirmed proper executable Routing Card is made by them. This also contains the parameters of processes like speed, feed along with major instructions of processes.This Routing Serves as master copy to all the production departments. Routing Card is to be strictly followed by production departments.

Then comes the execution process. We also discussed that Planning department does the Capacity Planning stating sequence of production processes for the products for the month. This Monthly Production plan is given to production department. Production department already have the Routing card for the production of the products. Now with the monthly production plan they are ready to execute the Monthly Production Plan. Only thing is proper supply of Raw Materials and other materials from Purchase and Stores from MRP and Min-Max Material Planning.

This is about information flowing into production department for the execution of production. In coming week we shall see the parameters involved in production execution and how they will keep track on their performance and improve it.

Keep Watch this space

Vacation and Review

Sorry for those who have waited for my blog this week. I had tight schedules and my internet connection had some problems. So could not post this week's blog. However Next week we shall resume the journey of SO ERP

ERP Functions: Journey So Far

We have started ERP journey with understanding it as an important tool for business process improvement in any organization. This tool aids top management of industries to get better and overall top view of business for decision making. Along with that it makes departments (functions) of organisation to adhere to business standard procedures that will help them perform more efficiently and effectively.

Then we started our journey of ERP functionality understanding with the root department of the organisation i.e. Sales/Marketing. We discussed on the flow of information and decisions. In brief

 

Once the Customer PO is accepted execution Production Planning is done. There are two Stages of planning.

1. Capacity Planning : For the Production Requirement for next month, Considering Previous month's back log productions and Work in Progress Production  Process and Production Qty  is arrived. Based on the Arrived Processes and Production Qty of product the Date and Time and Qty to be produced are arrived.

2. Material Requirement Planning: For the arrived Capacity planning Process and Production qty, based on Bill of Material of the product the Material wise qty requirement is to be arrived

With these background work we then moved onto execution of MRP. And this done by the Supply Chain Management) SCM.

Purchase Functions are briefly to procure the required material for various functions of organisation. It also got a procedure which is in below Image. We also see that this is just reverse process of Sales/Marketing Functions.

Stores: Once the Material is procured and arrives inside the factory the storing of material and distribution to the required department comes under stores. Along with that Subcontracting works managing and maintaining stocks of some of critical items are also responsibility of stores.

Logistics: There are two basic functions

1. Receiving of Materials/Items inside factory and maintaining documents.

2. Sending of Materials/Items outside factory and maintaining documents.

This is the journey so far. I hope I am able to provide some knowledge light on ERP to whoever is following the blog and viewers of blog. I am thankful to all of you. 

Further we will go in deep of Production, Quality, Human Resource, Finance, Plant Maintenance functions.

Keep Watching the space... 

ERP Functions: Supply Chain Management 7

Till now we discussed functions of Purchase, Stores in detail. Continuing the long chain of Supply Chain in this blog let us discuss functions of Logistics in an industry.

Logistics, some times called as Shipping Department is the crucial department which is actually connecting suppliers, customers to the industry. It is gateway between outside and inside of factory. 

There are two basic functions

1. Receiving of Materials/Items inside factory

2. Sending of Materials/Items outside factory

1. Receiving of Materials/Items inside factory: The materials from suppliers and subcontractors are received by the logistics department. Once the required documents are received then the material is routed to Stores Department. Important documents are LR Copy, Invoice/Delivery Challan and import related documents. Some times in emergency need cases logistics department also arranges vehicles for receiving Items from the supplier.

2. Sending of Materials/Items outside factory: Sales/Marketing Department provides the despatch plan to the logistic department. Once the Product is manufactured completely then the logistic department will arrange the vehicles, load the items. It will also prepare a document for sending the Product i.e. invoice. In case the Item sending is for subcontractor separate type document is prepared which is called as Delivery Challan.In case of export, related documents are also to be prepared to be sent with the Item.

So logistics department closely works with Stores and Sales department. In other way it is the joining point of receiving and sending points of the industry. Efficient logistic department is key for better relationship with suppliers and customers.

By this we complete the Supply Chain Management (SCM). Further we will have a brief about the progress so far in coming week then we will move ahead.

Keep watching this space

ERP Functions: Supply Chain Management 6

Mansoon had arrived and we all hope this year to get good and proper timed rains leading to good production of agriculture items. Till last week in the journey of Supply Chain Management (SCM) we studied the material movement in Stores. In this blog we shall study how the stores also manages to provide services to the company.

There are mainly two type of services.

1. Service with Material Going out of factory and returning back.

2. Service inside the factory with Material and Man.

The business term for the entity which provides services is called as Subcontractor or simply Contractors.
We shall look into them one by one.

1. Service with Material Going out of factory and returning back: In this the items/materials are provided to the Subcontractor to carry out work. After finishing of the work the Items are returned back to the company. In this also there are two types depending the Item which is sent outside.

i. Products:  Many industries subcontract (Outsource) some of their production processes. In this case the Item is the intermediate stage product which is sent outside and the process is done in the subcontractor factory and returned back after the process. There are certain legal documents required to send outside and get it back related to excise. Since this is continuous and predefined process there will be agreement with Subcontractors mostly yearly contracts and as soon as production department provides the intermediate stage products the stores will send them to the Subcontractor decided by the PPC department.

ii. Materials: One of the typical examples to this type is motor winding, printing cartage filling etc. In this case the items are usually used by various departments, hence it is obvious that stores will not be knowing when to send the Item for service. So the owning department has to request for service for the item to the stores same as Store Requisition. Here also in some of the cases yearly contract will be present between subcontractor and the company. However in special cases purchase requisition is to be raised to the purchase department to create purchase order for the subcontractor. The material is sent to the subcontractor decided mutually by the user department and purchase.

2. Service inside the factory with Material and Man: For some of the big machines or buildings and other establishment the services needed for them is to be done inside factory premises. The procedure of requisition and further contracts are similar to one explained above. The workmen from Subcontractor will come inside the factory and does the work. Same conditions also works for software implementations or training programs etc and getting manpower on contract basis from a Subcontractor. Even though these are taken care by IT and Administration department involvement of stores is also present.

These are the typical functions of Stores department. Further we shall move onto Logistic department in coming week's blog. Keep watching this space..

ERP Functions: Supply Chain Management 5

With the preparation for the  blossom Mansoon we will continue the Chain i.e Supply Chain Management (SCM) . Last week we have seen how the Materials are received and stored in Stores. This week we shall see how the items are issued to the required departments and returned back.

We have seen in the material requirement section that the materials in the stores of three kind, 

1. Production Based

2. Min-Reorder-Max Level Based

3. Requirement Based

Production Based direct materials are in most of the companies is directly issued to Production department. And from the production department daily consumption of the materials in production is recorded as consumption of the material. In some of the industries these materials are issued on the basis of daily production plan.

The other two types of materials in the stores i.e. Min-Reorder-Max Level and Requirement Based materials are issued to the requirement department based on the requisition from the user department. In some industries Min-Max level materials are issued based on production plan or in bulk and then tracking day wise consumption like Direct Raw Materials. 

The department which requires the material will submit a Store Requisition generally called as Store Indent to the stores. Stores department person look for the stock of the material in the store, if the stock is available and is not assigned to anyone else then the material is issued against the Store Indent. If the available stock of the material is less than the Indent required quantity then Store will raise Purchase Requisition to Purchase department to procure the material.

An Issue Slip or Material Issue Note is generated for all the issues of the materials from the stores. This is the Business document for consumption of the materials in the industry.

All the materials issued to the department meant for complete consumption of the material. However there will be cases where due to production reduction, break down material issued may not be used completely in the department. In some cases the defect in the material will be known after consumption. So in these cases materials which are not required for usage in the department is to return back to the Stores. This is done with the business document called Material Return Note.

This is how the materials are issued to the required departments and returned from them. Further we will see other functions of stores like Subcontracting in the coming week. Keep watch this space....

ERP Functions: Supply Chain Management 4

Lets continue the journey of Supply Chain Management (SCM). Last week we have seen how the materials are stored in different storage locations and with different methods of storing them. Here we shall see the procedure for material entering into and exiting from the stores.

We know that for any material to come in Purchase department will raise the purchase order to the supplier. Supplier send the material to the factory. Material is received in the stores department of the factory. Material comes along with a document from supplier namely Invoice (Bill) or Delivery Challan which has details of the Material supplied. Details are like Company Purchase Order Number, Material name, Qty, Price, Additional Charges, Taxes. 

Stores will be receiving a copy of purchase order from the purchase department when a purchase order is raised by the Purchase department. So when the material is received for the purchase order the stores has to verify the details of the supplier invoice and the material with the purchase order copy they are having. Once the verification is done and details are proper stores will prepare a document of receiving the material. This document is called Goods Received Notes (GRN). This GRN will be kind of replica of the supplier invoice.

Since GRN is confirmation document of the receiving of material from the supplier inside the factory. This document holds value in payment to the supplier. Hence the copy of GRN is send to Finance department. There are some materials which requires Quality Inspection before making it available for using in user department. Hence quality inspection needs to be done. So copy of GRN is also sent to Quality Department.

For those materials which are not having any incoming inspection the material received will be directly available in stock for issue to departments. For those requiring inspection will not be available in stock till the inspection is done and OK qty and Rejections are bifurcated. Only OK qty is treated as accepted qty and will be available in stock for the issue to the departments.

This is brief about how the material is received and documented and become available in stock. Coming further is how the material is issued to various departments and how the stores manages different kind of other transactions within the stores.

Keep watching this space..

ERP Functions: Supply Chain Management 3

On the Journey of Supply Chain Management (SCM) we have went through Purchase functions and entered into Stores. In the last blog have seen types of materials requirement in Industries and how the stores manages to receives those material.


In this blog we shall see how store maintains the received material and manages to provide the material resources to all the departments across the industries.


First lets see how the materials are kept in the Stores:

It must be understood that there will be more than 100 types of different materials present in an Industry. Identification, Classification and counting of material are main criterion in storing materials.  There will be some materials requires special type storage. Some bulk materials can not be stored in confined spaces. Some items are regularly required which are to kept in easy approaching locations. Some of the chemically sensitive materials can not be stored together. 

Taking all the above points Materials are suitably placed in Racks, Shelves, Godowns, Tanks, Open Yard and many advanced storing systems. Some of the materials which are continuously consumed like Fuel Oils, Sand, Water, Coolants etc are kept such that it is directly consumed to the departments. Consumption of these kind of materials is noted down through some meters etc.

Proper storage of material is most important in order to manage the material stock, procurement and supply of the material to respective departments. Hence it must be properly planned.

Next week we shall see the procedures involved in material receive from suppliers, documents involved and other stuffs.

Keep watching..

ERP Functions: Supply Chain Management 2

Last week we initiated the Supply Chain Management (SCM) with Purchase Department. We understood that Purchase department functions are exactly same as Sales/Marketing functions in reverse way. 

In this blog lets move on to Functions of Stores. Stores by simple meaning is the place in which all the materials supplied to the industry is stored and maintained. By stores only the user departments have to do the material transactions i.e. getting the materials, returning back the materials.

Stores is heart of any industry as it provides the required materials to various departments for their functions. Lets see the flow and functions of Stores.

Before to get into the flow we will look into the methods of procurement of materials to an industry. Basically we can divide the procurement into three categories

1. Based on Production Requirement (Raw Materials, Important Consumables for direct production)

2. Based on Min-Re Order-Max level of the Materials (Consumables, Tools)

3. Based on Requirement (Special Consumables, Spares, Capital Machinery Parts)

We know already that Production Requirement is handled by Planning department which gives the requirements for the production directly to purchase department for purchasing the required material.

The other two types of materials are to be made available to the user departments from stores itself. So the requisition for the material are to be generated from Stores to the Purchase Department for the purchase of the materials. This document is called as Purchase Indent (Purchase Requisition).

For the 2nd category items once the stock of the item reaches the Re-Order Level, Stores has to raise the Purchase Indent for the material. The Qty in the Purchase requisition for the material is Max. Level - Current Stock. 

For the 3rd category items user departments has to request for the material they needed to the Stores Department. This business document is called as Store Indent (Store Requisition). Based on the Store Indent, if the material required is already in the stock of stores then that material will be issued to the user department, Else Purchase Indent is raised to the Purchase department. However in some companies user department themselves has to raise the Purchase Indent for their requirement if the stock is not there in the stores. This is mainly done to track the department-wise requirement and consumption of materials.

These are the business standard methods of material coming into the stores. Next week we shall study how the material is issued to the departments, return of materials from the departments and other concepts of Stores. 

Keep Looking this space..

ERP Functions: Supply Chain Management 1

With hot summer sweating us more I will continue with the ERP functions. Last week we have gone through the basics of SCM and brief about the functions involved in SCM. From this week we shall go in deep of each of them and try to understand their role in the business.

First is Purchase. As the name suggests this departments deals with any purchase for the industry. Material, Machines, Manpower, Service that all comes in or works in the Industry only by the initiation of the Purchase Department. Purchase department is responsible for all the proper delivery of the resources required by the industry at proper time. The resources are provided by suppliers(vendors). Hence proper business relationship is also to be maintained with the supplier from the purchase department in order to have uninterrupted and quality supply of resources

However for a single item there are too many suppliers available in the market, each  one offering different price, discounts and various offers. So to decide the best supplier among them is involves negotiations and study of business history of the suppliers. These are business negotiations so there is a business standard procedures to be followed.  Lets see them in the flow diagram below

Enquiry :- The document sent to the Supplier for requesting the price and other details of the resource required. Purchase Department will send the requirement of the resource (Material, Service) with specifications, quantity and delivery date and other basic terms and conditions. This document is also called as RFQ = Request For Quotation. Enquiry is sent to many potential suppliers so as to have maximum possible various offers to choose best among them.

Quotation :- The Document sent by suppliers with the listing of price, terms and conditions and acceptance of delivery dates provided by the company. This document serves as the deciding document for selecting the proper supplier. There will maximum time period for the acceptance of quotations from the supplier to whom enquiries were sent. After that from the quotation received a comparative statement is made. A typical Comparative Statement includes columns like price, discounts, Freight and Forwarding Charges, Terms and Conditions, Taxes. This is listed supplier wise and compared to choose the best among the quotations. However there will be negotiations with suppliers to reduce the price or to get discounts etc.

Purchase Order :- The Document sent to the supplier as the confirmation of buying the resources with price, qty, delivery dates and other terms and conditions. It is obvious that the best quoted supplier will get the purchase order based on his quot and negotiations(if any). This document serves as legal document for the purchase of resource, hence proper care must be taken in order to ensure good business with supplier.

Now I think you might be feeling that all of the above were just repeatation of Sales/Marketing Functions (Link) in reverse way. There the company is in receiving end from the customer, in Purchase the company is giving the business opportunity to the supplier. 

Next week we shall see the next department in SCM i.e. Stores. Keep looking this space for ERP

ERP Functions: Supply Chain Management

After completing the functionalities of Planning department we shall now move on to the main nerve of the business i.e. Supply Chain Management simply SCM.

Here I am not going in very specific and theoretical definition of SCM. I am just explaining the general meaning of SCM in industries. 

SCM as the name suggests is managing of the Material flow in and out of the industry. 
In general sense, broadly SCM flow can be shown as below

Purchase:- Material required for the production of the Products and smooth running of industry is procured by the Purchase department. Managing suppliers to get least negotiable purchase price and at the same time ensuring the delivery date of the supply as per the requirement of the user department is the key role of purchase department.

Stores:- Storing the various type of materials, spare parts, machines etc in a proper common place and maintaining the stock of the materials is the role of the Stores. Every Material that comes in or goes out must be under control of Stores, and stores have to maintain proper records of each of the materials. Ensuring the stock of critical items to be always present in the stores is one of the major task of the stores.

Logistics:- Managing the transportation of goods which are coming in and also going out is the key role of logistic department. Apart from arranging of vehicles for in coming and out going materials, maintaining documents related to same comes under responsibility of this department. This department is linked with Purchase and Stores for ensuring proper delivery of the materials inside the industry, then with Sales and Marketing for the despatch of Products to the Customers as per the Delivery schedule in the Sales Order.

We shall look in depth with each of the departments and its roles and responsibilities in an industry. SCM plays a major role in maintaining the proper functioning of the overall functions of the all the departments. Hence effective and also powerful SCM is must for any successful Industry.

ERP Functions: Planning 5

With the hot summer starting in India we continue with our journey on ERP Functions. Last week we have started understanding synchronization of all the planning processes. We have arrived the capacity planning for the Production Qty from adding back log, rejections etc.

Capacity planning gave the process sequences for the production and the date and time of the operations. Now we need to do the MRP for this capacity planning. We need the To Be Produced Qty for the MRP. This is arrived by following steps.

1. We have the Capacity planning of Products To Be Produced with details of processes for each products and the date and time and the Production Qty.
2. From BOM of the Products To be Produced, the Material, Qty and the Processes which requires materials is listed.

3. By Combining both these we get the To be Produced Qty for BOM along with the date of its requirement. From which we can arrive the material wise Qty required and also delivery schedule for the material.

Now we got the Material wise Qty and Date requirement. Any continuously production running industry will have some material in their inventory as stock. Also there will be purchase orders placed for the Material and the material may not have received yet. Thirdly Planning department might already have requested for the material but Purchase department might not have released the Purchase order for the material. So in order to arrive the Material wise Qty requirement which is to be given to purchase department all these have to be considered. 

Lets see how this is arrived in following steps

1. From the Total Required Qty minus the Stock in the inventory.

2. Divide this result material wise and delivery date wise qty.

3. From the result of above step minus the pending delivery Purchase Order qty that are having delivery date before the delivery requirement date of the material.

4. From the above result minus the pending Purchase Requisition qty that are having requisition date before the delivery requirement date of the material.

5. This final arrived material wise date wise qty requirement is the New Material Requirement for the production plan.

In formula

Final Required Qty = Total Requirement - Stock Qty - Pending Purchase Delivery Qty before Delivery schedule - Pending Purchase Requisition Qty before schedule

There will be some material which requires Minimum stock to be maintained. In that case Final Required Qty will be the Final Required Qty arrived from above formula + Minimum Stock of the material.

So Finally we get the Material Requirement Qty with delivery dates. We already have the Capacity Planning which gives the schedule for each processes for the production of products. This is the synchronization of the planning processes by which the Final Production Plan is prepared and circulated to respective departments.

1. Capacity Planning is broken to department wise and process wise and circulated to production department and the process owners.

2. Material Requirement Planning for the Capacity Planning is issued to Stores Department to keep the material ready on the requirement dates. 

3. Material Requirement Planning with the Final required Qty and Delivery Dates is circulated to Purchase Department for placing Purchase Order.

With this we complete the long journey of Planning Department functions. In the coming week you shall get the knowledge about the Main Course of Supply Chain Management (SCM). Keep watching this space..

ERP Functions: Planning 4

With the victory of Anti Corruption movement of Anna Hazare we ended the last week along with IPL Season 4 inauguration. In previous 3 weeks of our ERP journey we understood the various functionalities of Planning department. Lets review them briefly.

Initially Planning Department will have delivery plan from the marketing team. 

The Planning Department will further break the delivery plan into monthly, weekly and daily production plans.

According to the Production plan MRP is arrived. MRP = To be Produced Qty X BOM (Bill of Material)

Along with MRP, Capacity Planning is arrived from the Production Plan to frame the timing schedule for production.

In the last blog we have learnt that the synchronization of all these will be the Executable Production Plan for the company. Now in this Blog we will see how Synchronization is carried out.

Production process is continuous. Stoppages in production process is a huge loss to the company as all the 3Ms will be idle even though company has invested in them. So in order to make production continuous planning department has to plan accordingly. That is why Planning Department is crucial in the operation of whole company.  To have the production continuous, Planning department has to plan the production before to start of the month. Hence Delivery Plan from the Marketing is received well before the start of the month.

Now when the planning department starts the process of Production Planning for the Delivery plan there are certain aspects to be considered.  

1. Production will be running for the previous month plan and there will be products which are in different stage of production.

2. There may be backlog of previous month production plan due to various issues of production.

3. There may be rejection of previous month production.

4. Delivery plan might have been changed during the course of the month because of customer requirement variations.

5. There may be rework of customer rejection, internal rejections due to which other production might have been affected.

So simply Production planning for next month can not be done by Delivery plan alone. Now lets see how the planning department will consolidate all these and then arrives MRP, Capacity and finally the synchronization of all these to arrive Executable Production Plan.

First Step is to arrive the net production to be done. This is arrived from

Production Qty = Delivery Plan Qty + Back Log Production Qty + Rejection to be Re-produced Qty + Rework Qty + Developmental Qty

This Production Qty is the quantity which is to be produced in the next month. Now the primary task is to find out the time required for the production of each of the products in this Production Qty. With this time according to delivery plan the first level of production of products and quantity priority is arrived. We have discussed this in Previous Blog of Capacity Planning. The Capacity Planning gives the Date of each process of the production of each product.

Next step is to arrive the MRP to meet the production requirement according to the above arrive Capacity Planning. For this we need to consider only those production processes of the product which requires materials (Raw Material, Consumption).This planning itself is little lengthy process, so we will understand it in next week. Along with that we shall also look into Planning of other requirements of the production like Machine Tools, Gauges. 

Keep watching this space...

ERP Functions: Planning 3

It was a great welcome to the New Year with our Cricket team winning World Cup and our Tennis doubles player retaining the number one position. Here I am continuing my sharing of knowledge of ERP. In the last blog we talked about Material Requirement Planning. In this Blog lets discuss on Capacity Planning.

Capacity planning is nothing but planning of left out 2Ms i.e. Machine and Manpower. Again for the planning of these two resources to execute the production and give out the output, base is The Delivery Plan or the Monthly Production Plan.

We have understood from MRP execution is that each product will have BOM (Bill Of Material) which provides the data for calculation of material requirement as per production qty of the product. Now in the same for each product there must be some master which will define the utilization of manpower and machine. This master is called Routing Card.

Routing Card will define the process sequences for the production of the product, the machines required for each process. Usually machines in an industry are capable of doing multiple processes and multiple products. So each machine will have process wise and product wise timings required for completion. This time is called as cycle time. In simple words if a Machine produces N number of a product in t time then cycle time is N/t. This cycle time is the measure of Machine resource required.

Each machine requires an operator or more to operate the machine for completion of process. In most of the cases this manpower requirement for the machine is independent of processes or the products. So the manpower requirement for the machine is constant all the time. Hence based on the machines and production forecast manpower is already recruited. So that manpower planning for each monthly production plan is nothing but Machine utilization planning.

Now we have routing card for the products in which sequence of processes required for producing the product is defined. Each process will have machine to do the processing. Each machine will have manpower defined for operating the machine. With these data in background capacity planning is to be done for the Monthly Production Plan.

With these data of we will get the Production-Hour requirement for the Monthly Production plan by the following formula

Total Production Time= Sum (Quantity of the product as in Planning X Cycle Time)

In words each product will have routing card with process sequence defined, each process in the routing card will have machine cycle time defined. Total of Cycle Time X Production Qty of all the processes is Production Time required for a product. By summing up the production hour for all the products Total Production Time required is obtained. 

In the Monthly Production Plan delivery dates of product are the target time dead lines which are to be achieved based of Total Production Time calculated. Following are the thumb rule steps for this planning

1. Higher Production time and earlier Delivery date products are started first

2. Lower Production time and earlier Delivery date comes next

3. Next is Higher production time and later delivery date products 

4. Lastly lower production time and later Delivery date products

This is brief of capacity planning. If this looks complex, there are more complex things to be considered in planning. You must have understood that synchronized MRP and Capacity Planning is the one which will meet the Monthly Production Plan Target Dates and produces the products ready of delivery. Also in an continuously running industries there will be already products may be in finished status or in between some processes. So these are also to be considered.

Relax, I will not be confusing you more in this blog. We will see these complex synchronization and Final Planning which is ready for execution in the upcoming blog on next Monday. Keep watching..

ERP Functions: Planning 2

As promised, I am back on Monday with further sharing of my ERP knowledge. Last week we have learn basic functionalities of Planning department in an organization. We have got detail delivery plan for a month which is divided into weeks and days. With this document Planning department will start working on meeting the requirement of production completion according to the document.

As we discussed in last blog 3M's are inputs to the production. Out of them the most critical is Material. Since Manpower and Machines are already available in the organization the only one M to be procured from outside is Material. There are few aspects which are important in planning the procurement of material.

The Material has to be reached well before the planned production. Also the material should be of good quality. There will be several constraints to meet the Delivery and Quality requirement of the material required. 
1. A good quality material supplier may be located very far from factory which will increase lead time.

2. Customer may specify the material quality/supplier of the Material.
3. The Supplier may not accept the delivery schedule as per production planning dates.

Several other reasons like price, discounts,duties, taxes of the material, relationship with the supplier, legal requirements etc will also be considered. But these are more pertaining to Purchase Department functionalities which you will get to know in near future.

So considering these constraints the Material Requirement Planning (MRP) is done. MRP is done based on two major documents.
1. Production Planning Sheet  (Delivery Plan)
2. BOM (Bill of Material)
Lets understand the MRP in detail.

As Explained before Production Planning Sheet contains the production to be done during a period. It provides data on Product Quantity, Date, Customer.
Coming to BOM, every product will have the material requirement for its production. This is defined in Engineering and Design department. As we had learn earlier in feasibility study the draft material requirement and process flow will be defined. Further once the order is confirmed from the Customer the exact material requirement and process flow is defined for a product. This material requirement for a product is called Bill of Material of the Product simply BOM.

Now you must have got the calculation of MRP.i.e.

MRP = Quantity of the product as in Planning X Quantity of Material in BOM for the Product

However there is one more constraint of Lead Time. Lead Time is defined as the time between the Purchase order date and delivery date of the material. So in order to meet the production planning dates materials with lead time has to be procured well before the time. By taking into consideration of all these the MRP is done.  This is also called as Production Planning Based MRP.

There are some materials, usually consumables which are consumed in bulk and may not be defined in the BOM of the product. These materials are required for most of the types of products and hence are also critical. So for these materials there will level of stock defined which is to be maintained in order to have smooth production running.
1. Minimum Level: Minimum stock to be required for smooth functioning of factory
2. Maximum Level: Maximum stock capacity of the material. (Due to Inventory Management Constraints)
3. Reorder Level: The Stock at which the Purchase order has to be given to the supplier to ensure the stock will not reduce below minimum before delivery of the material. This is calculated based on consumption rate and lead time.

Based on above criteria another type of MRP is made. That is called as Min-Max Level based MRP

These MRP will be the out put document for the planning department to the Purchase Department to procure the material for the production.

With this I will end the long Blog on MRP. Further we will look into other Ms. Machine and Man Power Planning, termed as Capacity Planning. I hope my blog will clear the idea of Business functionalities in terms of ERP. Do comment your doubts and views. Will be back on next Monday. Keep looking this place...

ERP Functions: Planning 1

After ending week with colors of holi lets begin with next Part of our journey in ERP functions. We started with Sales/Marketing and received Purchase Order from the Customer. The next step is Planning the production to to meet the Delivery date of the customer. 

Functionality of Planning is to plan the resources for the production based on the requirement of sales. Before continuing on details about Planning lets now look into the requirement of Production. Basically 3 M's contributes to production of a company

1. Man: From low level laborers to high level executives all are required for a company to run. Some man power directly involved in manufacturing in shop floor, some in managing them. Over all Manpower is main strength of any industry.

 
2. Machine: Machines are those which can do the work in more faster, simpler and accurate way which man is intended to do. Each machine is designed for certain type of works. Utilization of Machines  for getting efficient out out is depends on the skill of Man Power.

 
3. Material: Materials are those which are converted to form products using machines by man power. The main material which is getting converted is called raw material. There will be materials which are consumed in to order form the product from the raw material and those are called as consumables.

In all industries these are the inputs which can generate out puts in terms of Products or Services. Planning means planning all these 3M's efficiently and effectively to meet the goals of despatch schedule.

Secondly there are two types of production scenarios.

1. Make to Order: The production quantity will be purely based on the quantity in the orders received from the customer. Customer has specific requirement regarding design and specification of the product, hence based on the customer requirement only production will be made. Extra quantity is not produced.

2. Make to Stock: The production quantity may not be dependent on the customer orders. The company will be having standard products which are required by many customers. Based on certain assumptions and forecast, production of products is made and kept in stock. Whenever orders are received from the customers the finished products in the stock is despatched.

Depending on type of industries different systems are allowed. Generally combined scenarios is also followed if the company has large range of standard and customer specific products.

Now coming back to the flow of ERP. Last blog ended in accepting Purchase order from the customer along with committing delivery of products as per delivery schedule mentioned. The information about customer requirement and delivery schedule will be received by Planning department.

There will be various customer orders hence multiple type of products and different delivery schedules. The delivery schedules are the deadlines for a company to be achieved. These delivery schedules are then listed in the order of dates and divided month wise. Before to beginning of the month the delivery schedule for the month is divided week wise then day wise. This serves as master document for planning the production for the month. 

Further we shall look into details of planning using the master document. Will be back on next Monday with explanation on MRP (Material Requirement Planning) and Capacity Planning. Keep watching the space