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M.C.A. SEM. I

Enterprise Resource Planning (ERP) – 2610002

Unit-3

Chapter-26

Prepared By : Ekta Bhatt

Sales and service of products is one of the most critical processes of any organization and in some cases that is the basic reason for the existence of the organization.

ERP automates all the routine sales and order management related transactions, if used effectively then it can achieve the company’s vision of perfect order.

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Effective processing of customer orders (or sales order) is need of every organization.

ERP software helps in bringing efficiency and effectiveness in this process.

Sales order cycle starts with a customer enquiry and ends with invoicing for delivery of goods or service provided to the customer.

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Process Description

Enquiry by Customer Verbal, phone, mail or order form

Availability checks in warehouse

Availability checks of material and inform the customer about availability (or non-availability). In a case of non-availability of ready stock, inform customer the date by when the material can be delivered.

Order confirmation After doing the credit check of the customer. If applicable at this stage, sales person’s incentive also can get updated.

Inventory sourcing This process defines where the material need to be sourced, externally from vendors or internally need to be produced.

Order picking at warehouse

Locate the nearest warehouse from where order can be served. This process is called shipping.

Transport arrangement Transportation department arranges for shipment. This process is also part of shipping process.

Billing Billing and invoicing

Dispatch Dispatch of goods

Payment collection Receipt of goods by customers and signing proof of delivery. Collection of payment.

Order status information Customers need to be kept informed about order status during this entire life cycle. 4

Order receiving capability through multiple customer touch points like internet, e-mail, phone, sms, etc.

Capability of handling rush orders.

Order communication: Ability to communicate order status to customers on a regular basis.

Order promising capability:

◦ Profitable to promise: should I take the customer order at this time? ERP systems are expected to guide the sales clerk, what is the best decision at that point?

◦ Available to promise: is inventory available anywhere in the supply chain to fulfill the order?

◦ Capable to promise: Does my manufacturing capacity allow committing this order?

some of this capabilities are not part of solutions provided by SAP and Oracle and addressed in other solutions like CRM and APS (advanced planning and scheduling).

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Tracking customer contacts and mailing campaigns (direct mail campaign, internet campaign or telephonic campaign).

Some of the customers may also request for quotation (where price of item, date of delivery and other commercial terms are mentioned.), ERP systems helps in generating such quotations and these can be saved as documents.

Better pricing – service for the customer to win his business

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◦ After enquiry, customer wants to place order than check availability of Goods

◦ There can be two situations i.e. the material is available or it is not available. In a case material is available the next step is simple , to go ahead and book an order.

◦ If not available then need to be manufactured, customer need to be informed expected delivery date, if OK then order is placed.

◦ ERP helps to calculate material availability on date.◦ Sometimes customers allow partial deliveries, this also can be

configured into ERP systems.

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Sales order is an electronic document that records customer’s request for goods or services and contains all information to process the customer’s request as follows:

◦ Customer & material information

◦ Pricing condition for each item

◦ Delivery dates &quantities

◦ Shipping information

◦ Billing information

The ERP system helps in creating sales order from reference document (copy quotation).

Along with order entry, ERP system help in checking credit worthiness of customer based on previous transaction history.

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Once order is taken, the material for it needs to be sourced.

There can be different possibilities like:

◦ Material need to be produced at company’s factory,

◦ Material need to be sourced from suppliers,

◦ Material is available in company’s another warehouse or factory, this need to be transferred.

Depending on situation, ERP can trigger different set of actions like:

◦ Trigger make-to-order (production)

◦ Create purchase requisition from external suppliers (purchase)

◦ Organize the outbound delivery from another warehouse (stock transfer)

This part is part of material planning module of ERP systems.

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This includes all the processes needed to make delivery of items and may involve activities like:

◦ Creating outbound deliveries

◦ Picking & Packing in the warehouse

◦ Planning and monitoring of transport

◦ Posting the Goods issue

Effective transportation processing is required so that deliveries are shipped on time and are received on schedule at the customer’s site.

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ERP transportation order, can have varieties of information like:

◦ Means of transport (vehicle type like truck, bulk container)

◦ Shipping type (mode of transport like road, rail or sea)

◦ Special processing indicator (indicates whether there are any special requirements met during shipping like express delivery)

ERP system help in shipment cost calculation then that are transferred to financial accounting.

When finally goods issued are processed, the system automatically:

◦ Updates the quantities in inventory management

◦ Updates the balance sheet accounts

◦ Generates billing

◦ Update the status in all relevant sales documents.

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Once the material is ready for dispatch, a billing document needs to be created for the customer.

ERP system help in this by copying data from the sales order and the delivery document to the billing document.

Billing supports:

◦ Creating invoices for products and services

◦ Creating credit & debit memos

◦ Automatically transferring the billing documents

ERP billing process supports complex pricing rules for the customer, different incentive like deductions, documents, etc.

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Payment is a process that is part of financial accounting module (accounts receivables module) of ERP systems.

Payment process supports:

◦ Receiving payments from customer

◦ Making entry in the system

◦ Reviewing difference

When a payment posting is done, the relevant general ledger accounts gets updated automatically.

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Sales and distribution process creates several documents in ERP system as shown in figure:

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ERP systems need few master data related to sales and distribution functions and these are:◦ Customer master data

◦ Material master data

◦ Condition master data

◦ Route master for transportation

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Customer master includes all data necessary for processing orders, deliveries, invoices and customer payments.

Figure shows different fields of customer master data of a leading ERP.

These fields are grouped in three major categories:

◦ General data,

◦ Sales area data, and

◦ Company code data.

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General: entire sales organization◦ Address: name, add, language◦ Control data: tax info◦ Payment transactions: customer bank details◦ Marketing: industry, customer classification◦ Unloading points: goods receiving hours for customer◦ Export data: data for export control◦ Contact Persons: address & contact person’s info◦ Orders, billing document, transaction, insurance.

Sales Area data: relevant for sales and distribution◦ Orders: fields for sales office, currency, price ◦ Shipping: shipping condition, transportation point◦ Billing document: customer tax classification, terms of payment◦ Partner functions: ship to party, bill to party

Company code data : accounting◦ Account management◦ Payment transactions◦ insurance

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Partner functions:◦ In a sales transaction, it can always happen that the party

that places the order (may be the purchasing department), is different from the party that receives the order (subsidiary company) and finally paying for goods is also different (financial team sitting in another country).

◦ ERP system manage this through partner function.

◦ Following functions:

Sold-to party: places the order

Ship-to party: receives goods or services

Bill-to party: receives the invoice for goods or services

Payer: is responsible for paying the invoice

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Material Master◦ Basic data:

◦ Sales Org 1:

◦ Sales Org 2:

◦ Sales:

◦ Foreign trade – export:

◦ Sales text:

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Condition Master◦ ERP maintains terms & condition for delivery◦ Do complex calculation: prices, surcharges, taxes,

discounts, freights, etc◦ Condition types in ERP define multiple uses of a condition

Route Master◦ The route is the transport channel of an outbound delivery

from the delivering plant to the customer.◦ It has beginning point & Ending point◦ The route can be used to define the actual transit time

(period in which the goods are being transported) and the lead time for transportation planning.

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The perfect order is designed to measure the effectiveness of the order management process.

It measures the percentage of orders that proceed through every step of the order management process, without fault or error.

Each step in the order management process must go smoothly for the order to be considered perfect.

Steps may include:◦ Order entry,◦ Inventory availability,◦ Accurate packing,◦ On time delivery,◦ Correct invoices, etc.

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Perfect order list of problems:◦ Order entry error

◦ Missing information

◦ Ordered item is unavailable

◦ Inability to meet ship date

◦ Picking error

◦ Late shipment

◦ Late arrival

◦ Incomplete paperwork

◦ Invoice error

◦ Follow up required by customer

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Perfect Order Measure Description

On time delivery/order cycle time

Products are delivered to customer on time

Warehouse picking accuracy Correct items are picked in retail distribution centre in correct quantities

On time shipment Products are shipped to customer on time

Product availability Product available to satisfy customer order

Product quality Products are delivered in perfect condition – no defective or damaged consignment

Invoice accuracy The whole order is correctly billed

Payment accuracy Payment is correctly updated in system

Document accuracy All documents are correct, i.e. warranty document, insurance document, delivery note, etc.

Customer handling accuracy All queries from the customer relating to the order is handled efficiently – order status information, customer complaints 27

Managing global trade effectively is a bigger challenge for companies.

Because most of the large companies these days sources portion of their items from other countries.

Good amount of their revenue comes from export.

Global trade provides opportunity in lots of complexity in the supply chain in terms of complex customs regulations, long lead time, legal requirements in terms of trade agreements between different countries.

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Challenges of Global Trade◦ Long lead time leading to high transit inventory

◦ Poor visibility into the process as lots of entities

◦ Poor service as supplier

◦ Complexity of global trade - for ex, typical cross border shipment may involve more than 25 parties, 35 documents to be generated or transferred, 600 laws, 500 trade agreements, etc. a single error may result in costly delay.

◦ Disputes take longer time to resolve

◦ Risk of Global trade

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Success Factor of Global Trade◦ Mitigate financial risk of trading globally, managing

currency fluctuation

◦ Improve reputation with enforcing agencies

◦ Start dealing with government agencies electronically

◦ SOX (Sarbanes-Oxley) compliance : for audit trial

◦ Reducing risk of business disruptions through a strong mitigation strategy for non-compliance: securing global supply chain from risks like customs risk, natural disaster, etc.

◦ Abide (stay on) by trade compliance and documentation standards.

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ERP systems have a separate module that supports different processes related to global trade.

For ex, SAP has a separate module called, “Global Trade Service (GTS) to support transaction related to international trade.

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1. Product Classification: ◦ The aim of process for duties and taxes is to create a

consistent classification of goods across company.

◦ Export and Import business transactions need official commodity codes to report to customs authorities.

◦ There can be different numbering systems like Export Control Classification Number (ECCN), Harmonized traffic systems number (HTS), commodity code, etc.

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2. Custom duty calculation: ◦ Upon importing into any country or while exporting,

import or export duty need to be calculated and paid to customs authorities.

◦ Duty rate for new items need to be uploaded and if there is any change that need to maintained in ERP system.

3. Management of different customs master data:

◦ Custom management also includes maintaining different master data like: custom code lists, commodity codes, guarantees etc.

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Security is becoming a global issue in supply chain.

As a responsible company, they should not source anything from a supplier who is under a denied list (reasons like connection with terrorist) by government.

Now a days intelligent screening software in ERP system, which can screen suppliers having multiple addresses, prohibited trade party, etc.

This can help in block the transaction and send alert.

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These are measures granting preferential customer treatments for goods from certain countries and geographical areas.

Preferential treatments can be: reduced rate of custom duty.

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Some countries impose tight restrictions on trade with other countries and this introduces significant variability in the import and export rules under which global corporations must operate.

This process is called embargo check.

For ex, such a check may show that a company in italy can ship certain products to russia, but the same check reveals that a U.S. company can not ship an indentical product to cuba.

ERP systems need to support such checks checks for international trade.

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If products are imported or exported without proper licence, there can be severe consequences.

That is why the classification of licensable material need to be tracked and proper licence to apply to be given to transactions for both import and export.

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Import or export declaration

Transit document

Required forms like entry summarizes, packing lists, etc.

Letter of credit

Documents for managing trade preference processing like managing vendor declarations, preferential origin, printing of preference documents, etc.

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There can be variety of processing in import and export like:◦ Entry processing and anti-dumping counter veiling checks

◦ Quota check

◦ Custom declaration before goods receipt

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These days government authorities are more demanding and they expect electronic communication.

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◦ Custom’s management

◦ Sanctioned party list screening (not source anything from a supplier who is under a denied list by government)

◦ Preference processing

◦ Embargo check (a government order prohibiting the departure or arrival of merchant ships in its ports)

◦ Managing import & export licenses

◦ Managing import & export documentation

◦ Import & export processing

◦ Electronic communication with customs authorities

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How ERP system support global trade Challenges:◦ Managing physical and financial supply chain well

◦ Managing government regulations

◦ Managing collaborations among number of players.

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Managing Customer Service◦ Assembly of technical objects on site at the customer

◦ Dispatching of spare parts to the customer

◦ Repair of customer devices

◦ Managing warranty

◦ Helpdesk

◦ Having ready solution database

◦ Managing returns

◦ Managing service contracts

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