ERP Systems

This week we discussed selling process in ERP system. When it mentioned selling process, the first IT system that came to mind is customer relationship management system. What the difference between ERP and CRM in selling process?

The first difference is that ERP focuses on improving business process and efficiency but CRM focuses on increasing sales revenue. Second, CRM mainly manages company’s sales, marketing, and customer support. It helps the company to simplify and standardize the interactions with current and potential customers. Moreover, it offers marketing and sales person information. For example, it calculates the time of closing deal, the revenue from different marketing tools, and historical sales data. All information can help marketing and sales department know the priority and make decisions. However, ERP system integrates the information passing through different departments and facilitates the business process.

Recently, one of biggest CRM providers, Microsoft completes its acquisition of LinkedIn. This news triggers the disturbance among CRM system providers. The reason is that today salespeople rely heavily on LinkedIn to help them find prospects and make cold call emails. CRM with LinkedIn’s users data is a powerful tool for the company to look for prospects and manage customer relationship.

 

Amazon’s “Fulfillment by Amazon” service is one of the most famous fulfillment networks that enables third party sellers to store their products in the fulfillment centers managed by Amazon.

When a customer places an order for items sold by a FBA seller, the order is picked, packed and shipped by Amazon. Customer service for these orders is also managed by Amazon, and Amazon’s shipping rates and policies apply to these orders for shipping within the US.

Process:

Sellers’ Benefits:

• Major benefit for sellers lies in the fact that they are able to scale their businesses and reach out to more customers using Amazon’s facilities.
• Since Amazon handles customer service and returns, there is an inherent trust with in customers and hence sellers don’t have to worry about building customer relationship.
• There is no minimum requirement for the quantity of products that sellers can send, also details of inventory are handled by Amazon, saving seller’s time.
• It’s simple and cost effective. Sellers are charged for the storage space and for the  orders fulfilled by Amazon. Cost of shipping is included in the subscription fee  charged by Amazon.

Amazon’s Benefit:

•  Generates revenue via FBA fee and from the margin of seller’s products.

 

Hanjin Shipping Co., one of the worlds’ top ten container carriers in terms of capacity( according to Statista), filed for bankruptcy in Seoul, Korea and Newark, U.S. in the late August and early September respectively. According to Richard Howells’s article published on Huffington Post, Hanjin’s bankruptcy has caused products that worth $14 billion floating and idling on the ocean. Imaging you were one of the retailers who had been prepared for the coming holiday (shopping) season, what would you do on hearing this bad news? All the hard works, visiting vendors, quality control, making and signing contracts, waiting your inventory to be loaded by goods that will boost your annual sales, are all in vain. Now you need to locate your cargos, figure out a way to bring them into the shore, reschedule onshore transportation, looking for substitutions, and probably pay for other extra fees for storing and violation.

I tried to find out where I can trigger this emergent action in procurement process from a buyer’s position, but failed. It happens sometime after PO processing and before goods receiving. If I were an international enterprise like Samsung, I might be able to turn the situation around from fulfillment process because I’m big I have resources and I practically am the producer and the seller. However, if I were a small retailer selling Christmas light bulbs, this crisis could force me to abandon those goods (waiting is unrealistic), initiate another procurement process, put a new PO to another or same vendor, hence drain my cash flow and increase operation risks. No matter what, knowing your conditions and capability is the first thing when facing an unexpected crisis.

By the way, the paragraph in Richard Howells’s article about “How to Prepare” is enlightening. In summary, in order to survive from this kind of crisis, you need to 1. Predict and response to a supply chain disruption with the assistance of real-time data, 2. Match supply and demand in no time, and 3. Develop risk mitigation strategy for unpredictable disasters. After all, procurement is just one component in the supply chain.

The general processes involved in the Procurement process follow the general steps: Creating a Requisition on Business Requirements, converting the Requirement into a Purchase Order and sending it to a Vendor. The Vendor then receives the PO and ships the necessary materials, and when the warehouse receives the materials, they then receive an invoice from the vendor. The company then sends the payment to the vendor. The procurement process can be optimized to reduce costs, and effectively planned to increase return on investment.

I also saw that about a month ago, a company called Coupa Software, filed for an IPO. Coupa Software is a cloud based spend management that helps customers optimize their procurement processes.

“The company connects nearly 500 companies with some 2 million suppliers. Businesses can hereby see and measure value which can be obtained from making the best procurement decisions. Coupa’s customers have already used the platform to decide on a cumulative $250 billion worth of spending, resulting in estimated savings of $8 billion.” E

The above excerpt was quoted from the website: http://seekingalpha.com/article/4010834-coupa-software-strong-ipo-market-leaves-high-flier-relatively-expensive

http://www.coupa.com/software/procurement/

http://www.businessinsider.com/coupa-startup-worth-1-billion-files-to-go-public-2016-9

Procurement plays an important role in preparing for demand. It involves planning for right quantity of raw materials required for meeting the demand of finished goods. Although it seems quiet predictable to procure right quantity of materials through technologies like Big Data for several industries like consumer products, automotive industry, retail etc, it is more difficult in food processing industry. Therefore, it is resulting in lost sales or excessive inventory.

As we discussed in class, we can make purchasing as cheap as possible by meeting the economies of scale resulting to minimized cost, selecting a standard vendor and getting best quality, and having contracts to get good lead times. With data driven intelligence it would be easy to optimize all the factors like cost, quality and time, considering market is not influenced by uncontrollable variables like weather.

Weather is the major barrier in planning for purchasing for raw material in food processing industry as monsoon affects the production of crops and thus as availability for raw material purchasing. This results in burden from procurement standpoint with excessive pricing. Therefore procurement of raw materials in food processing industry has become one of the major business issue in decision making with regards to materials requirement and planning. The effect is then again cascaded to sales through lost sales, and lack of intelligence to prepare for the consumer demand. With emerging technology, I believe this issue will be addressed by providing proper intelligence to plan for procurement and thus by effectively meeting consumer demands.

 

 

 

 

This week we discussed about Master data, Organizational Data from a Procurement perspective and also about the whole Procurement Process.

The different steps in a Procurement Process are :

1) Determination of Requirements: This process involves determining what services and materials are needed.
2) Creating Purchase Requisition : the purchasing department is informed about what items or services are required.
3) Creating Purchase Order : when the requisition is approved it becomes a purchase order.
5) Goods Receiving and Inventory Management : Process in which the goods or services are received and receipt of goods are confirmed by entering PO number. Inventory is updated.
6) Invoice Verification : In this process the PO order and Invoice are checked and matched.

Some the different business models in a Procurement Process are
1) Vendor-managed inventory ( VMI ) is inventory that is managed by the vendor and vendor(supplier) decides when and how much to stock. In Vendor Managed Inventory process the vendor and distributor are linked via Electronic Data Interchange or a secure internet connection due to which vendor has access to the retailer or distributor’s stock levels This is done by linking the companies ERP (Enterprise Resource Planning) systems together.

2) Consignment Inventory is inventory that is in the possession of the retailer, but is still owned by the supplier. Usually used when the retailer is not confident of sales and the supplier uses the retailer for carrying inventory. It creates a condition of shared risk/shared benefit and both parties are benefited by the sale of the product.

We are purchase and inventory team this week! So what’s the procurement process in our company? Before we going to make an order, we should collect all the purchase requirements in a certain time, and in a ERP system, we collect the material (Master Data). We do this to make our purchase order effectively. Then if we do not have vendor, we should take times to do the vendor selection (Receive different quotations and pick up one to several vendors). Now we can make purchase order. Our system would remind us purchase team of goods shipping time and amount in case of some special situation. After this, purchase team job done. Inventory team goes on with Good receipt, which has Financial Impact (Assets increase) and Material Impact(Inventory increase). Next, we process our invoice verification. We need to check our purchase order, master data of materials. Last, we make the payment and trigger the financial impact (Cash decrease). Inventory team now can go home and play video game.

This week in class we talked about procurement in the ERP system. We took the grocery store Safeway as an example. Because Safeway is implementing the vendors manage inventory system, unless the goods’ material status got changed, it won’t create the financial impacts. This finding was interesting, and it creates more possibility for us when we are doing our own projects.

The whole procurement process should consists of these parts.

“1)Requirement: What is business needs that is called requirement
2)Source of supplier:its nothing like request for quotation sending the RFQ to supplier based on the who are supporting this project.
3)Vendor Selection:Once RFQ received we need to analyse who given best price meets the delivery requirement.
4)Order Processing:Once the supplier selected get confirmation from manager.
5)PO processing:Process the purchase order
6)Good Receipt: Once goods received enter the good receipt number to update the number in the system.
7)Invoice verification: Based on received good the price are correct or not
8)Payment processing.”

Some business has adopted the Procure to Pay model to cut the cost. By understanding the procurement process, we can manage the business more productively and efficiently.

(Source: Basics of External Procurement Process http://nazrinrizal.blogspot.com/2010/07/basics-of-external-procurement-process_15.html)