ERP Functions: Supply Chain Management 3

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


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


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

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

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

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

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

Keep watching..

ERP Functions: Supply Chain Management 2

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

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

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

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

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

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

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

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

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

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

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

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

Keep Looking this space..

ERP Functions: Supply Chain Management 1

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

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

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

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

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

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

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

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

ERP Functions: Supply Chain Management

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

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

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

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

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

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

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

ERP Functions: Planning 5

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

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

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

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

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

Lets see how this is arrived in following steps

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

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

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

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

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

In formula

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

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

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

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

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

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

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

ERP Functions: Planning 4

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

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

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

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

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

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

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

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

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

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

3. There may be rejection of previous month production.

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

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

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

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

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

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

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

Keep watching this space...

ERP Functions: Planning 3

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

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

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

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

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

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

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

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

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

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

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

2. Lower Production time and earlier Delivery date comes next

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

4. Lastly lower production time and later Delivery date products

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

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