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