Author: mithun

Walmart is the world’s largest and most powerful retailer with the highest sales per square foot, inventory turnover, and operating profit of any discount retailer. It’s safe to say that the inventory management is one of the biggest contributors to the success of the company, and one of the factors of its successful IM is contributed by implementation of the vendor-managed inventory model.

Walmart implements a vendor-managed inventory model in which its suppliers access data, such as current inventory levels and the rate at which certain goods are sold, from Walmart’s information system. Suppliers use this data to decide when to send their goods to Walmart. Then the goods then received from vendor can be owned by the supplier until the customer consumes it (consigned stock) or is owned by the customer when the customer receives (non-consigned stock).

Major Benefits:

As supplier have access to data directly from Walmart’s IM – Reduced delay in movement of Inventory across supply chain.

Reduced cost for inventory management – As financial and human resource expense directly falls on the suppliers saving Walmart a significant cost.

Fig. Vendor Managed Inventory(http://resource.centerscm.org/2015/08/vendor-managed-inventory.html)

(reference: http://panmore.com/walmart-inventory-management

http://docs.oracle.com/cd/E51433_01/fscm92pbr2/eng/fscm/sinv/concept_UnderstandingVendorManagedInventory-9f2467.html

http://www.vendormanagedinventory.com/definition.php)

According to the Council of Supply Chain Management Professionals, it incorporates “the planning and management of all activities involved in sourcing and procurement, conversion and logistics.” Three key features of a SCM system are:

Demand Management

Demand management helps companies and partners to focus on meeting the needs of customers, rather than the production process. By updating customer needs with partners and increasing their collaboration, companies can increase business opportunities for all members.

Communication

Effective communication enables all members in the chain to share the same demand and operational information, which keeps them informed of developments that affect their contribution. It also facilitates members to respond rapidly to new business opportunities, helping to get new products to market quickly.

Integration

Integrating supply chain processes helps each member reduce its inventory costs. According to a case study on the Wal-Mart by the University of San Francisco. Suppliers share up-to-date information on demand to route their products to Wal-Mart’s warehouses for onward shipment to stores with minimum time in inventory. This reduces Wal-Mart’s costs significantly, enabling them to offer customers highly competitive pricing. To achieve this level of integration, companies develop single information networks that enable all members to access and share supply and demand data securely.

Reference: http://smallbusiness.chron.com/four-elements-supply-chain-management-52355.html

Increasing number of ERP vendors are growing service options to the consumers but ERP solutions are no one-size-fits-all. Therefore, ERP vendor solution is generally classified into: Tier I, Tier II or Tier III vendor. Selecting appropriate tier solution as the business grows and matures is very crucial.

Tier I: (SAP, Oracle, IFS North America, Infor., Microsoft Dynamics)

These solutions are generally for- large and complex businesses with many departments and global locations having revenues in billions.  They are built to handle large enterprise complexities. Whereas this is necessary for a billion dollar company, a smaller company would be overwhelmed by the general complexity.

Tier II: (IBS, NetSuite, QAD, Sage, Microsoft Dynamics NAV)

These offers a step down in complexity and cost from Tier 1 and fit well with mid-size companies. Need for complexity in this group may vary quite a bit, hence, there are several vertical market vendors that have focus on the complexity of just one specialized industry.

Tier III: (Quickbooks, Cincom, Deacom)

Tier III have very limited feature and complexity, hence are cheapest. Generally you get basic accounting abilities, therefore, small businesses having less demanding needs or businesses running a vertical line of business application with weak accounting benefits using a Tier 3 solution.

A warehouse management system (WMS) supports the day-to-day operations in a warehouse. An ERP system has most of the capabilities of WMS like tracking the course of inventory items picked, packed and shipped but integrating a WMS to ERP offers many beneficial features. Following features and capabilities demonstrates importance of integrating a Warehouse Management System to ERP system:

Information analysis: WMS facilitates optimization of inventory on the basis of real-time information. Information analysis helps to show the best location for every item to be put based on historical trends and data and so on.

Reduce man-power: WMS facilitates to cut manpower expenses as the system itself can do many things at the same time. It help accomplish many things with a small number of people.

Automate: Automating and streamlining the processes helps to overcome the problems of stock visibility and traceability, and improving picking accuracy, avoiding losses made through non deliveries, mis-deliveries, returns and service level fines.

Reducing Employee Theft: Warehouse-related theft costs as much as $80 billion each year. WMS can help management isolate exactly what’s gone missing to provide an early warning that employee theft may be occurring.

Improve ground-visibility:  Provide visibilities across warehouse operation to clearly identify areas of blockage and wastage of materials.

(Fig ref: daniday.wordpress.com/2010/03/04/warehouse-management-system/)

This post focusses on one of the value creation process – Production and key elements of production master data: Bill of Material, Product Routing and Work Center.

In a brief the entire Production Process can be summarized as following:

Generally Production is either of two types: Make to Stock and Make to Order. If the company produces Make to Stock, the production is triggered when inventory and warehouse report of low inventory, and if company produces Make to Order, the trigger is a customer order.

This trigger leads to Planned Order that converts to a Production Order. This conversion results from the Optimization of Production process to achieve high efficiencies. The Production Order contains all the information to produce the finished good. As the Production Order also includes the Bill of Materials for the production, which can detect insufficient raw material/semi-finished goods and further trigger procurement/production processes respectively.

Items mentioned in Bill of Material are received from inventory with a Goods Issue and similarly, produced goods are stored in inventory as Finished/Semi-finished with a Good Receipt. Finally the process ends with Conform Production Order that records the cost occurred in the production to compare with Planned Order and determine the actual worth of the product produced.

We have been learning the importance of an ERP system and the numerous benefits it offers to the companies specifically large businesses having number of departments and requiring cross-functional communication to perform various operations. Yet having such powerful system comes with an upfront cost that could not affordable by many SME’s, they need to have an IT department to manage the complex system also infrastructure costs for having up-to-date equipment and the physical storage space to house it all.

How can SME’s have the facilities of ERP system with reasonable costs? The answer is Cloud ERP, which is provided as a service where the data is managed in Cloud by the ERP vendor which is accessed by the customers via web browser. Cloud ERP has been able to be cost effective as it:

• Prevents upfront costs for equipment and the physical storage space.
• Lower need of IT support as IT is in the cloud
• Remove maintenance and support cost since update and upgrades are handled by the cloud vendor
• Fixed monthly plans gives flexibility to use cash on core business
• Immediate availability as no installation equipment’s and software required

And many other benefits. With technological and security advancement in future, maybe Cloud ERP could make the on premise ERP system outdated.

The Fulfilment process is triggered by a purchase order received by the sales department who then verifies and creates a sales order but The sales order can be simply defined as a document that relates the customer with their order and conditions. This tells us that the process involves three Master Data- Customer, Material and Conditions.

The Master Data used only reflects an overview, the whole fulfilment process leads to a number of Transactional Data that has impact on succeeding steps of fulfilment processes. The key transactional data is the Order by customer (which generates Sales Order) without which the fulfilment process doesn’t hold any value. After receiving the Order, the process follows by Shipping of goods with Delivery Document. One more document is created and issued to customer after shipment, i.e. Invoice. Here we understand key differences and need for these two separate documents. Invoice gives details of a sale transaction i.e. description of goods, rate, expenses, amount payable and so on issued by accounts department. Delivery document informs customer about details and quantity of goods supplied and is issued by dispatch department.  Once the customer receives his order, the process is completed by customer payment(hopefully).

This week post is for the Purchasing/Procurement process and the jobs carried out by the Purchasing department. Purchasing department has a vital role to achieve a balance between three crucial factors: Cost, Quality and Time and they need to carefully prioritize them depending on the procurement goal working at all three organizational levels to achieve suitable trade-offs between the factors.

Cost is impacted by economies of scale, Time by Contracts taking place on Plant level and Vendor selection has crucial impact on Quality of ordered material.

A general procurement process, its impact on other processes and all the documents created can be summarized as follows:

1. When Inventory recognizes the need to procure materials because of low inventory, it sends a purchase requisition document to Purchasing department.
2. Purchasing department contacts its vendors and requests for their quotation. After receiving the quotation, purchasing department prioritizes the trade-off factors and sends the purchase order to suitable vendor.
3. When Inventory receives the ordered materials with goods receipt, invoice verification is done using purchase order and order invoice.
4. After verification, material document is created for received materials, which is sent to Accounting department who makes the payment and creates financial document.

Fig:Procurement to Payment Process  (Reference :http://www.ramco.com/resources/business-processes/procure-to-pay.aspx)

This week was mainly dedicated learning about the accounting perspective of an ERP system. Accounting is called the “language of business” because it’s the only way to keep track of all the business transactions and activities

One major topic discussed was handling accounting system for any multi-national organization, where we learned about Charts of Accounts, which segregates companies in three organizational levels: Client, Company Code and Plant and gives a systematic approach to manage accounting for companies operating under different taxation bodies.

Another issue discussed was keeping a track of all the transactions through Documentation (invoice, returns, goods received) rather than just feeding them in system using transaction IDs, which provided more reliable way to record and revive information about any transaction and keep track of all business processes. Further we discovered how documentation is divides into two categories – Material Documents and Virtual Documents.

An elementary aspect of accounting is to understand how and when income or expense is incurred to the company, this concept was comprehended by understanding the Reconciliation Accounts: Accounts Receivable and Accounts Payable and their implementation. Also, how different operating nature of companies (i.e. manufacturing, service, software as service) compel their reconciliation accounts to be implemented differently.

I did not have any professional experience with ERP and that was one of the reasons I wanted to understand the necessity of the ERP system especially in large organizations, but the simulation of a simple pen manufacturing company performed this week helped a lot to realize the value and need of an ERP system in any organization. The simulation helped to know in advance of the problems I am to address and resolve by studying and working on ERP systems. In simulation we observed how necessary it is to have an efficient ERP system to support range of fundamental business issues such as availability of real-time information for decisions, operational efficiency and better management of supply and demand. How implementation of efficient ERP systems can lead to success of organization can be realized by looking at LG Electronics successful ERP implementation. LG’s case story demonstrates many crucial issues faced by a multi-national company, many of which we came across in our pen manufacturing simulation such as, unclear top-level reporting, lacking transparency, internal data sharing, disengaged employees. Implementation of appropriate ERP solutions helped LG to overcome existing challenges and also achieve many other benefits and further growth of the company.

(link: http://www.investopedia.com/articles/investing/111214/lg-case-study-successful-enterprise-resource-planning-system.asp)