Monday, March 28, 2011

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...

Monday, March 21, 2011

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

Monday, March 14, 2011

ERP Functions: Marketing 2

In the last blog Here we have got know that driving force for any company starts with Sales/Marketing along with we also came to know two major steps of process flow in Sales/Marketing. Enquiry and Feasibility Study.

In the currently blog I continue discussing the next steps of Marketing  i.e. sending Quotation to the customer. It is not mandatory to send quotations to all the enquiries. The decision of regretting Quotation or accepting is taken after feasibility study. Some of the customers also mentions Validity Period for an Enquiry in which case quotation has to be reached before the Validity Period is over, otherwise the quotation will not be accepted by the customer as they might have accepted other quotations from different supplier by that time. All these factors are taken into consideration before sending quotation.

Major components of quotation are
    Quantity : Of Product.
    Rate: Per unit of product.
    Discount: On rate, described either in percentage or flat value.
    Packaging Charges: Per unit of product, described either in percentage or flat value.
    Terms and Conditions: Includes Payment Terms, Delivery Terms, Conditions on document to be submitted like test certificate, Purchase Order etc. Conditions on sampling approval before actual production etc.
         Taxes: Pertaining to the product and region of the customer. 

Along with these information acceptance of delivery schedule mentioned in the enquiry will also be part of quotation. In many industries to increase the credibility and transparency break up of cost calculation of the product/service is also present in the quotation. 

The quotation, thus, is the document which the customer refers to decide his purchase from the company. So, the data collected from feasibility study must be presented with utmost care and professionalism

However customer may not be satisfied with the quotation so there may be negotiations. This negotiations usually starts from company Marketing team's end.This leads to revisions and amendments in the quotation based on the negotiations. In certain cases customer may send revised enquiry also. In such cases, the process would restart. Once the negotiating parties reach an agreement, the final quotation is sent to the customer.

Quotation, then will be accepted by the customer. The purchase department of the customer sends Purchase Order to the company. The Purchase Order will have same details as in the final accepted quotation. There may be some minor changes and minor additional terms added by the customer. However major components like quantity, rate, payment and delivery terms will remain same. The Purchase Order from customer is usually received by marketing team of the company. This Customer Purchase Order(PO) is registered as Sales Order. Marketing department then verifies details of Customer PO and the delivery schedules accepts the same. Acceptance is intimated to the customer. Both these documents' copies are sent to mainly 3 departments. In some industries all the orders are consolidated and monthly despatch plan is circulated to the corresponding departments.

1. Planning :- To plan the material and production in accordance with delivery schedule in the PO (Despatch Plan).
2. Sales/Despatch :- To verify the correctness of delivery terms and to Despatch as per delivery schedule in the PO (Despatch Plan)
3. Finance :- To verify the correctness of payment terms and to receive the payment as per those terms.

In some cases customer may also request despatch plan and production plan. All negotiations on production, despatch, payments with customer is mainly done through marketing department. Therefore marketing department plays a very major role in any industry.

If Customer is God then Marketing is Priest. So, every company has to maintain a happy and satisfied marketing team to have continuous growth

This completes brief about Marketing operations. Further we will go into planning and production in coming weeks... Keep looking this space...

Tuesday, March 8, 2011

ERP Functions: Marketing 1

In the last post we understood that ERP is a management tool which aids to manage the firm professionally by achieving business standard in all the functions of the organization.

There are common business functions by which an organization is run. Here is the link on brief about each one of them and flow of functionality. In this blog I will try to explain functionality of each of them.

All the business are driven by Sales of the company. Its the point where revenue is generated. So how does Sales Department function?

For any sale to happen a customer is required. With the high competition in the current Global environment just producing best products or providing best services will not always grows the sales of the company. So there is sub function called Marketing which does the work of reaching the potential buyer and converting them as customer or client.

There is a procedure of Marketing which will be explained here. Briefly it starts with Campaign, through this Leads are identified. Then Leads are followed up to get the deal/Enquiry. Now I will be explaining the flow of information and decisions in the marketing department.

Potential Customer may either search for a supplier for a requirement of him or Marketing team may get through such customers. Then the first document received from customer is Enquiry. Some of the organizations also calls it as RFQ (Request for Quotation) This document usually contains product specifications, drawings and other details about the product. Along with these it also contains delivery requirement of the customer. Customer will also specify terms and conditions on payment, delivery etc. Overall this document will provide detail information on the needs of the customer.

After receiving of Enquiry from a customer a Feasibility Study is done within the organization.  Design & Engineering, Quality, Production,Purchase, Marketing, Finance departments are have to play the key role in the study. Design & Engineering department will provide the raw material specification, a projection of production flow with machine and man power requirements. This is done with coordination of Production and Quality departments. Purchase department will provide the estimated price of the raw material and any other consumable and machinaries required for the production. Along with this Purchase department also ensures the avaialbility of materials and machinaries (if any) for production to achieve the delivery of products as per customer required date.  Marketing department will collect all these data. Then finally Finance department estimates the cost of raw material, cost of the production, cost of transportation and other miscellaneous costs. This estimation of cost is very much essential. Then additional profit margin is added and price of the product is decided. This price is the deciding factor of getting profit to the company. If any component of cost is missed or miss calculated then company may produce and sell high number of products but profit will not be increased.Then the terms and conditions of customer is reviewed by Marketing, Sales, Finance department. With these information Marketing department starts preparing quotation to send to customer.

I will explain the components of Quotation and further flow of information in next blog. Keep watching...