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