ERP in Business

What is ERP ?

ERP is acronym of ‘Enterprise Resource Planning.’ ERP is a way to

Integrate data and processes of an organization into a single system.

Usually ERP will have many components including Hardware & Software,

in order to achieve integration. Most ERP systems use a unified database

to store data for various functions found throughout the organization.

ERP helps manufacturing companies to do a better job in managing the

key resources

• Manpower

• Material

• Machines

These key resources are needed to manufacture quality products for

customers.

ERP provides software to help us in :

1. Process Sales Order

2. Purchase Material

3. Production Scheduling

4. Manage Accounting

more effectively and efficiently. There are many ERP software packages

available in market today and many of them might do a good job but

it is not a one size that fits in all prepositions. ERP is a companywide

approach that will help employees in many areas of our business to do

our jobs better, such as :

1. Accounting

2. Purchasing

3. Scheduling

4. Manufacturing

5. Shipping & Receiving

When implemented properly, ERP gives us the tools needed to improve

our :

• Delivery Performance

• Reduced Inventory Cost

• Build Bottom Line Profits

The term ERP originally referred to how large organization planned to use

Organizational wide resources.

In the past, ERP systems were used in large more industrial type companies.

However, the use of ERP has changed and is extremely comprehensive, today

the term can refer to any type of company, no matter what type of

Industry it falls in.

Infact, ERP Systems are used nowadays in any scale of organization

Whether large or SME’s (Small and Medium Scale Establishments)

Characteristics of ERP Systems :

• Integrated System that Operates in real time, without relying on periodic

updates.

• A common database that supports all applications

• A consistent look and feel throughout each module.

• Installation of the system without elaborate application / data integration

by Information Technology (IT) Department

Today's ERP System helps in integrating key functional area of

an

Organization. The function areas are as follows:

• Finance / Accounting

• Human Resource

• Sales Forecasting & Demand

• Manufacturing

• Supply Chain Management

• Project Management

• Customer Relationship Management

• Inventory Management

• Access Control

Of all these we will discuss only few basic details of

Manufacturing /

Production, Inventory Management and Sales Forecasting

DEMAND FORECASTING :

One must do something about your demand planning processes before

losing any more sales. Demand planning is often thought of as some

type of voo-doo magic that sometimes works and sometimes doesn't

for the supply chain .  In fact, demand planning is extremely effective when

one understands how best to apply the numerous variables and algorithms

for specific situations.  Major distributors of goods in all industries leverage

demand planning best practices with phenomenal results. Ideally, demand

planning will work as an active part of our enterprise resource planning

(ERP) system  in order to forecast purchase and stock requirements and

Predict customer buying habits so that inventory levels are optimized while

meeting customer demands.  There are several types of inputs required

including:

• Historical Sales Trends - using a two to five year period is ideal for

most systems in order to analyze sales activities.

• Manufacturer forecasts - knowing what our supplier trends have been

and will be help in the analysis.

• Seasonal factors – carefully review all products for seasonal activity. 

Also note if there are other factors besides the season that could be

affecting the trend.

For example could a semi-annual sale trigger a jump in sales?

Constraints or business rules - does our business always purchase at certain

levels to maximize a discount or reduce freight expenses?  Are there limitations

in warehouse space to consider? Once the inputs are available, it is now time

to put our demand planning system to work.  The following are five key

techniques to use in order to maximize our results:

1. Include customers in our analysis - by also receiving customer planning and

forecasting information we can reduce forecast errors and have a more

predicable demand model.  Ideally we would like monthly or weekly inputs

regarding customer stock planning and know in advance about promotional

opportunities.

2. Include suppliers in our analysis - often manufacturers and suppliers  have

additional insights and information about product availability and new products

is valuable data.

3. Apply demand sensing and shaping techniques - this relatively new approach

examines demand from a more holistic viewpoint, grouping items into segments

with common demand requirements.  The shaping process can have influence

on downstream supply chain activities and help to balance our stock for the

best ROI.

4. Frequent measurement and quality reviews - once we have our demand

algorithms in place, it's time to change them.  There is a constant flow of

activities that can influence our results, so it is important to routinely review

and compare our demand predictors against reality and then tune our

processes accordingly.

5. Consider external influences - the economy, raw material availability and

other factors should be utilized to help with the tuning process. Our

demand planning system can be an extremely helpful tool to help us lower

our stock while maximizing item availability.

INVENTORY MANAGEMENT :

Of course, most modern ERP systems process transactions in real time, often

including accounting transactions (where there is no urgent need for real time

processing), so in a purely practical sense we could skip the ‘why’ question

or real time inventory management. In most cases the functionality is already

there!  However, there are practical reasons why achieving accurate real time

inventory data is not quite as simple as that.

To explore this further, let’s concentrate on the relationship between real time

processing and the (sometimes manual) work following the real time transactions.

• Say for instance a client orders an article online. During the confirmation

process by the sales module the inventory module will be consulted about the

availability of the ordered article. There are a number of possible scenarios:

• The ordered item is in stock:  The customer will receive an order

confirmation, stating when the order will be delivered, at what price

and quantity. This can be done in real time via email. The inventory

module will record the sales order for this particular stock item and

Takes it into account when any following availability checks occur.

• The ordered item is not in stock:  The customer must be notified

of this and asked if he or she accepts a backorder. If so the inventory

module sends a purchase advice to the purchase module. So far it

is all done rea l time . The purchase department then processes the

purchase advice – and from the perspective of the original sales

order, this process does not occur in real time.

In ERP based System

The purchase department issues purchase orders.

The inventory module will record (real time) the individual purchase items

and relate them to the particular stock items involved. Data such as the

expected date of delivery and quantity are important for availability checks

as mentioned above.

The supplier confirms the purchase order. For the inventory module this is

relevant as far as the confirmed date of delivery and the quantity and price

Are concerned. This data is stored on inventory at article level.

Individual purchased articles are received. When this event is recorded, the

relevant article records in the inventory are updated, real time.

Sales orders are delivered. When the sold articles are being picked for

Delivery (automatically or manually) the corresponding inventory records are

updated,  at the same time or shortly afterwards.

The inventory management module produces a purchase advice list, based

On minimum stock levels and/or purchase alerts caused by availability checks

in the sales process. When the purchase advice list is accepted (entirely or

partially) this fact can be recorded and the relevant inventory records will be

updated accordingly.

The full purchase orders are received. The inventory clerk, who receives the

goods and puts them in stock, can record this fact by merely accessing the

purchase order and log it as received. The relevant inventory records will be

updated real time.

Stock Movements – We can track all inventory transactions made

in

The past or planned in the future. Every transaction goes from

one

location to another, one due to the double entry inventory

management of

ERP. From the product form, we can also obtain the future stock

forecast.

Tracking Lots are used to track logistical units which can be

containers for

a set of products, for example. Every transaction line can belong

to one

tracking lot that refers to the related box, the pallet or the

container. We

can get the complete upstream or downstream traceability for

each

tracking lot.

With Production Lots (usually identified by bar codes stuck on

the

products) you can efficiently track a single product (in this case,

it's often

called Serial number) or a set of similar products. We can

specify the

production lot on every product used in the inventory

transactions. We

can get the complete upstream or downstream traceability for

each

production lot.

PLANING / SCHEDULING:

Manufacturing in ERP allows us to manage our supply chain in a

complete

and accurate way.

We can manage resources like human resources or machines

We will be able to create multi-level bills of materials and their

corresponding routing for assembling or manufacturing finished

products.

A scheduler tool will then deliver the planning and will launch all

manufacturing orders and purchase orders when necessary.

A control system will inform you in case of problems during the

supply

process.

Finally, we can analyze our supply chain efficiency thanks to a

list of useful

Reports.

They includes:

• Resources

• Master Data

• Planning

• Manufacturing

• Control

Resources: ERP allows us to manage two types of resources;

materials and

human resources. Resources are defined by their working time

and/or their

capacity (number of operations done in parallel in a work center,

time to

complete a production cycle).

Working period allows us to define the period of activity by day.

With Resources Leaves we can specify the days or periods of

inactivity

for any resource.

Master Bills of Materials describe the list of raw materials or

sub-

products used to make a finished product.

The hierarchical structure allows us to manage multi-level bill of

materials.

Bills of materials components are components and sub-products

used in

Master bills of materials.

Routings define the list of operations to be done in a work

center to

Manufacture or assemble a given product.

One bill of material can be linked to one routing, which

describes how to

Manufacture or assemble the product

Work Centers are independent units within the manufacturing

facility,

consisting of one or several people and/or machines. Work centers

are used

For the purpose of forecasting and capacity planning.

Compute schedulers: the scheduler is the heart of the ERP

system in

terms of planning. It organizes manufacturing orders based on

priorities (sub

products manufacturing, dates required, etc.), launches purchase

orders for

missing components and assigns products in stock.

The scheduler tool is usually planned to be launched

automatically once a

Day. This frequency can be adjusted depending on your company's

sector and

Needs. You can also run it manually should you need to

Manufacturing Orders describe the list of raw material that will

be used

for each stage of production. Raw material can be consumed all

at once or

progressively during the production process. In addition ERP

provides scrap

management. Partial production is also possible.

The procurement order will schedule a proposal for automatic

procurement

for the product which needs replenishment.

This procurement will start a task, either a purchase order form

for the

supplier, or a production order depending on the product's

configuration

Work Orders are manufacturing operations required to produce

or

assemble products.

The different work orders will have different impacts on the costs

of

manufacturing and planning, depending on the available workload.

Procurement Exceptions: in the MRP process, procurements

orders are

created to launch manufacturing orders, purchase orders, stock

allocations,

etc. Procurement orders are generated automatically by the system

and unless

there is a problem, the user will not be notified

In case of problems, the system will raise some procurement

exceptions to

inform the user about blocking problems that need to be resolved

manually

(like, missing BOM structure or missing supplier)

Work Center Load is a projection of loads in a work center for

a given a

period.

The load is expressed in hours (for human resources) or cycles

(for

machines)

Weekly Stock Value Variation enables you to track the evolution

of the stock

value, according to the level of manufacturing activities

(consumption of raw

materials, production of finished goods, added accounting value

of stock) as

they progress in the transformation process.

THANK YOU

As per instruction from

Prof. S Kumar GuptaBy Amitava Sen GuptaIIIrd Semester, 2012-15,IISWBM, Kolkata