ERP Functions: Human Resource Management 4

I am really sorry for making all my readers waiting this long. It has been busy days.

Now getting on the track, we were discussing on the pay structure part. We have seen in the last blog the basic pay structure and related terms. Today we shall look into some of the statutory allowances and deductions designed by the Govt. India.

Provident Fund: In short its called as P.F. It is a fixed percentage of amount which is deducted from Gross salary and kept in PF account maintained by Central Government. Currently the fixed percentage is 12% from Employee Gross Salary. Here in addition to this 12% deducted from Employee Gross salary, an equal amount is also has to be paid by the Employer (Company) to the PF account of the employee. So totally it will be 24% of the Gross Salary which is deposited in PF account of the employee. Each company has PF registration number and also each Employee who is eligible for PF will have PF Account number.  Major advantages of PF deduction is it has got 8.5% interest rate calculated monthly. The PF account holder can get loans from their PF accounts after certain period which has to paid in lesser interest rate compare to banks. This will also paid back as pension when a person retires. For more info visit http://en.wikipedia.org/wiki/Employees_Provident_Fund_Organisation_of_India and http://www.indiapost.gov.in/POSBActs/PPFRules1968.pdf It is mandatory for organization having more than certain number of employees.

Professional Tax: In short it is called as P.T. This is a fixed amount deducted from Gross salary based on slab defined by the government. However this is not imposed in all the states of India.Business owners, working individuals, merchants and people carrying out various occupations comes under the purview of this tax.  Total tax deducted under this for an employee per year must not be more than 2,400/-. More info http://tax-india.com/professional-tax/professional-tax-in-india/ and http://pt.kar.nic.in/(S(bf35bjbpyebxv545hsrvweuf))/Main.aspx

In further weeks we shall look into Income Tax (TDS), ESI, DA, Minimum Wage act.So that we shall have thorough knowledge of statutory requirements in India. It is obvious that ERP softwares must be adhered to these requirements. So the basic knowledge about these is very much essential.

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..