Enterprise Concepts - I

These days I have been more interested in functioning of an enterprise, some concepts/terms used. I have collected, edited and compiled some useful concepts of a Production/Manufacturing Enterprise that could be useful for all of us.

Lets start with MRP, that is Predecessor of ERP and then discuss about SupplyChain and Supply Chain Management (SCM). Later we shall discuss other ERP systems/modules like HRMS,CRM,Financials etc..

Material Requirements Planning (MRP)
Material Requirements Planning (MRP) is a software based production planning and inventory control system used to manage manufacturing processes

Objectives :

• Ensure materials and products are available for production and delivery to customers.
• Maintain the lowest possible level of inventory.
• Plan manufacturing activities, delivery schedules and purchasing activities.

MRP is a tool to deal with these problems. It provides answers for several questions:

• What items are required?
• How many are required?
• When are they required?

MRP can be applied both to items that are purchased from outside suppliers and to sub-assemblies, produced internally, that are components of more complex items.

• The data that must be considered include:
  The end item (or items) being created. This is sometimes called Independent Demand, or Level "0" on BOM (Bill of materials).
• How much is required at a time.
• When the quantities are required to meet demand.
  Shelf life of stored materials.
• Inventory status records. Records of net materials available for use already in stock (on hand) and materials on order from suppliers.
• Bills of materials. Details of the materials, components and subassemblies required to make each product.
• Planning Data. This includes all the restraints and directions to produce the end items. This includes such items as: Routings, Labor and Machine Standards, Quality and Testing Standards, Pull/Work Cell and Push commands, Lot sizing techniques (i.e. Fixed Lot Size, Lot-For-Lot, Economic Order Quantity), Scrap Percentages, and other inputs.
  

Manufacturing resource planning (MRP II)

Manufacturing Resource Planning (MRP II) is defined as a method for the effective planning of all resources of a manufacturing company. Ideally, it addresses operational planning in units, financial planning in dollars, and has a simulation capability to answer "what-if" questions and extension of closed-loop MRP.

Difference MRP and MRP II :

MRP was primarily concerned with materials, MRPII was concerned with the integration of all aspects of the manufacturing process, including materials, finance and human relations.
The goal of MRPII is to provide consistent data to all players in the manufacturing process as the product moves through the production line.

While MRP allows for the coordination of raw materials purchasing, MRPII facilitates the development of a detailed production schedule that accounts for machine and labor capacity, scheduling the production runs according to the arrival of materials. An MRPII output is a final labor and machine schedule

Predecessors to ERP:
Material Requirements Planning (MRP) and Manufacturing Resource Planning (MRPII) are predecessors of Enterprise Resource Planning (ERP), a business information integration system.

ERP:

Enterprise resource planning (ERP) systems attempt to integrate several data sources and processes of an organization into a unified system.

The two key components of an ERP system are a common database and a modular software design. A common database is the system that allows every department of a company to store and retrieve information in real-time. Using a common database allows information to be more reliable, accessible, and easily shared. Furthermore, a modular software design is a variety of programs that can be added on an individual basis to improve the efficiency of the business. This improves the business by adding functionality, mixing and matching programs from different vendors, and allowing the company to choose which modules to implement. These modular software designs link into the common database, so that all of the information between the departments is accessible in real time

To be considered an ERP system, a software package must provide the function of at least two systems. For example, a software package that provides both payroll and accounting functions could technically be considered an ERP software package.

Examples of modules in an ERP which formerly would have been stand-alone applications include: Manufacturing, Supply Chain, Financials, Customer Relationship Management (CRM), Human Resources, Warehouse Management and Decision Support System.

Supply Chain:

A supply chain or logistics network is the system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer. Supply chain activities transform natural resources, raw materials and components into a finished product that is delivered to the end customer. In sophisticated supply chain systems, used products may re-enter the supply chain at any point where residual value is recyclable. Supply chains link value chains[1].
A typical supply chain begins with ecological and biological regulation of natural resources, followed by the human extraction of raw material and includes several production links, for instance; component construction, assembly and merging before moving onto several layers of storage facilities of ever decreasing size and ever more remote geographical locations, and finally reaching the consumer.

A diagram of a supply chain. The black arrow represents the flow of materials and information and the gray arrow represents the flow of information and backhauls. The elements are (a) the initial supplier, (b) a supplier, (c) a manufacturer, (d) a customer, (e) the final customer.

Supply Chain Management: (SCM)

The primary objective of supply chain management is to fulfill customer demands through the most efficient use of resources, including distribution capacity, inventory and labor. Various aspects of optimizing the supply chain include liaising with suppliers to eliminate bottlenecks; implementing JIT (Just In Time) techniques to optimize manufacturing flow; and using location/allocation, vehicle routing analysis, Dynamic programming and, of course, traditional logistics optimization to maximize the efficiency of the distribution side.

Supply chain management (SCM) is the process of planning, implementing and controlling the operations of the supply chain as efficiently as possible. Supply Chain Management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption.

Procurement:

Procurement is the acquisition of goods and/or services at the best possible total cost of ownership, in the right quantity and quality, at the right time, in the right place for the direct benefit or use of corporations, or individuals, generally via a contract

Procurement steps:

1. Information Gathering: If the potential customer does not already have an established relationship with sales/ marketing functions of suppliers of needed products and services (P/S), it is necessary to search for suppliers who can satisfy the requirements.
2. Supplier Contact: When one or more suitable suppliers have been identified, Requests for Quotation (RFQ), Requests for Proposals (RFP), Requests for Information (RFI) or Requests for Tender (RFT) may be advertised, or direct contact may be made with the suppliers.
3. Background Review: References for product/service quality are consulted, and any requirements for follow-up services including installation, maintenance, and warranty are investigated. Samples of the P/S being considered may be examined, or trials undertaken.
4. Negotiation: Negotiations are undertaken, and price, availability, and customization possibilities are established. Delivery schedules are negotiated, and a contract to acquire the P/S is completed.
5. Fulfillment: Supplier preparation, shipment, delivery, and payment for the P/S are completed, based on contract terms. Installation and training may also be included.
6. Consumption, Maintenance and Disposal: During this phase the company evaluates the performance of the P/S and any accompanying service support, as they are consumed.
7. Renewal: When the P/S has been consumed and/or disposed of, the contract expires, or the product or service is to be re-ordered, company experience with the P/S is reviewed. If the P/S is to be re-ordered, the company determines whether to consider other suppliers or to continue with the same supplier.

Logistics or distribution:

The logistics chain includes the owners (wholesalers and retailers), manufacturers' agents, and transportation channels that an item passes through between initial manufacture and final purchase by a consumer. At each stage, goods belong (as assets) to the seller until the buyer accepts them. Distribution includes four components:

1. Manufacturers' agents: Distributors who hold and transport a consignment of finished goods for manufacturers without ever owning it. Accountants refer to manufacturers' agents' inventory as "matériel" in order to differentiate it from goods for sale.
2. Transportation: The movement of goods between owners, or between locations of a given owner. The seller owns goods in transit until the buyer accepts them. Sellers or buyers may transport goods but most transportation providers act as the agent of the owner of the goods.
3. Wholesaling: Distributors who buy goods from manufacturers and other suppliers (farmers, fishermen, etc.) for re-sale work in the wholesale industry. A wholesaler's inventory consists of all the products in its warehouse that it has purchased from manufacturers or other suppliers. A produce-wholesaler (or distributor) may buy from distributors in other parts of the world or from local farmers. Food distributors wish to sell their inventory to grocery stores, other distributors, or possibly to consumers.
4. Retailing: A retailer's inventory of goods for sale consists of all the products on its shelves that it has purchased from manufacturers or wholesalers. The store attempts to sell its inventory (soup, bolts, sweaters, or other goods) to consumers.

Warehouse management system:

A warehouse management system, or a WMS, is a key part of the supply chain and primarily aims to control the movement and storage of materials within a warehouse and process the associated transactions, including shipping, receiving, putaway and picking.

The objective of a warehouse management system is to provide a set of computerised procedures to handle the receipt of stock and returns into a warehouse facility, model and manage the logical representation of the physical storage facilities (e.g. racking etc), manage the stock within the facility and enable a seamless link to order processing and logistics management in order to pick, pack and ship product out of the facility

Order Fulfillment :

Order fulfillment is in the most general sense the complete process from point of sales inquiry to delivery of a product to the customer. Sometimes Order fulfillment is used to describe the more narrow act of distribution or the logistics function, however, in the broader sense it refers to the way how firms respond to customer orders.
The first research towards defining order fulfiment strategies was published by Mather (1988) and his discussion of the P:D ratio, whereby P is defined as the production lead-time, i.e. how long it takes to manufacture a product, and D is the demand lead-time, i.e. how long customers are willing to wait for the order to be completed. Based on comparing P and D, a firm has several basic strategic order fulfilment options:[1]
i) Engineer-to-Order (ETO) - (D>>P) Here, the product is designed and built to customer specifications; this approach is most common for large construction projects and one-off products, such as Formula 1 cars
ii) Build-to-Order (BTO); syn: Make-to-Order (MTO) - (D>P) Here, the product is based on a standard design, but component production and manufacture of the final product is linked to the order placed by the final customer's specifications; this strategy is typical for high-end motor vehicles and aircraft
iii) Assemble-to-Order (ATO) - (Dproduct architecture that allows for the final product to be configured in this way; a typical example for this appraoch is Dell's approach to customising its computers.
iv) Make-to-Stock (MTS); syn: Build-to-Forecast (BTF) - (D=0) Here, the product is built against a sales forecast, and sold to the customer from finished goods stock; this approach is common in the grocery and retail sectors.
Order Life cycle:

• Product Inquiry - Initial inquiry about offerings, visit to the web-site, catalog request
• Sales Quote - Budgetary or availability quote
• Order Configuration - Where ordered items need selection of options or order lines need to be compatible with each other
• Order Booking - The formal order placement or closing of the deal (issuing by the customer of a Purchase Order)
• Order Acknowledgment / Confirmation - Confirmation that the order is booked and/or received
• Order Sourcing / Planning - Determining the source / location of item(s) to be shipped
• Order Changes - Changes to orders, if needed
• Shipment Release - Process step where the warehouse / inventory stocking point starts the shipping process. May comprise of picking, packing and staging for shipment.
• Shipment - The shipment and transportation of the goods
• Delivery - The delivery of the goods to the consignee / customer
• Invoicing / Billing - The presentment of the commercial invoice / bill to the customer
• Settlement - The payment of the charges for goods / services / delivery
• Returns - In case the goods are unacceptable / not required

Work In Process : (WIP)

Work in process or in-process inventory consists of the unfinished products in a production process. They are not yet complete but either being fabricated or waiting in a queue or storage. Production management aims to minimize work in process. Work in process requires storage space, represents capital investment and presents a risk of expiration of the goods. A queue to a production step shows that the step is probably under-capacity with respect to other steps.

Demand Chain:

A Demand chain is composed of the enterprises that sell the goods or services.
Distributors
Resellers
Catalog sellers
Site rentiers
Wholesellers

Some terms:

i) NET 30 ,Net45 etc.. à A buyer promising Seller that he will pay complete amount with in 30 days after buying that product.

ii) ..2% 10,Net30 etc à If he(buyer) pays complete amount with in 10 days after the product is delivered then 2% of discount is offered
iii) Decoupling point: à Point where the Forecasted Demand meet the actual demand.

Currency - Supply –Demand –Inflation –Deflation - My Views

Currency – as we all know is a unit of purchasing power. Old days (Till 1971) we(government) used to back up the equivalent amount of gold for the existing currency floating in the market. Storing equivalent amount of gold always made sure that government can always redeem the gold in exchange to currency.
But this idea was not good..because the note (currency) had no face value (or trust to people) by itself , but it had value because of the back up gold present in reserves. This gave a lot of fluctuations in the economy ie., at times of war or crisis or unstable economy people used to feel that the government lost so much of gold (or money) and hence the currency they have doesn’t have a proper back up. Like for eg : Intially if Govt had 10 gms of Gold are there for 100 RS. After some economic problem, assume it had only 5 gms of gold. So as a result what happens. People realize that there is no enough backup and hence the trust (hence face value) of the currency decrease. In the above example the trust on the currency would have ideally fallen by half.
So in 1971 US Govt has decided to stop backing up any gold for currency. The immediate question everyone got was - what is the value of currency - with out any back up its just a paper..so is it not worth a pie ?. No – The Govt said – The value of the currency is the belief in the people that that particular paper has the worth . So that’s how currency has become just the belief of the people with out any true value behind it. Slowly all other countries followed US.

Some countries , taking this as an advantage , tried minting more currency in times of crisis or wars to pay of the debts they had to other countries.
What happened as a result, was a huge decrease in the face value of the currency.

Lets see how this happens –
If Supply of currency increases (ie., more minting of money) with limited supply of production of a country, the purchasing power of all people increases and hence everyone will be able to afford the supply of products...increasing demand..and so in an affect increases the cost of products.
Increase in cost of products is nothing but Inflation – This in other terms means the drop of the ability/facevalue/worth of the currency.

Question – When more currency is minted, but also supply of the products has also increased what will happen?
It tries to suppress inflation a lil bit..but if the production increases in parllel to supply of currency increase..there will be proper balance.(no inflation or deflation)
This is an ideal situation.

Question – So when is it appropriate for government to increase the currency supply(ie., mint currency)?

Ok. Lets say , The country’s GDP increases (ie., production/supply of goods increases) . Now there are more number of products in the market than before.
Infact people are willing to buy(ie., virtual demand) but they don’t have sufficient currency to buy the products. What happens because the demand (or virtual demand) is still high but the currency is not sufficient, the price of the product has to be decreased( to sell of the products). In other terms this means the face value of the currency increases , sometimes double fold , triple fold also. Although this situation appears better to us, it has equal –ve impacts on the country’s economy as Inflation. Ie., for example Exports will be affected because of deflation or FDI’s will decrease. So in these cases the Government might chose to mint more money to avoid a Deflation situation.

Now lets move one to the global scenario and see how does this have an impact on the Currency Exchange rate.

Lets assume in 2006 in US 1Kg of rice costed 1$ ( not real figures just an assumption) . The same 1 Kg of rice in India costed 20 Rs.
Now lets say by 2008 the production of rice in India increased with constant or a less equivalent raise in demand. Then the price of 1 Kg Rice decreases lets say to 10 Rs. But assume in USA in 2008 the production of Rice remained same (or less) and demand is same(or more). This means the price of 1 Kg of Rice ihas to be still 1$. Now just move to a little macro level by taking the production of rice to Overall production of the country.
The product that was purchased for 1$ in US is purchased in India in 25 Rs ( ie., ½ Dollar). Ie., the ratio of purchasing power of Dollar to Rupee was 1:2 in 2006.
In 2008 it became 1:4. ie., Rupee appreciated by twice over that period.

There are various other factors that determine an exchange rate. Trade value, inflation, and interest rates, to name a few. These are basic principles to help understand the concept.
Let's work in a closed vacuum and assume there is no inflation between two countries or any other factors and examine fluctuations based on wealth and trade. We begin with country A, which lets call the USA and country B which we call Britain. Lets imagine that 1 UD Dollar = 1 British Pound. Now let's say that the Americans own $100 and the British own 100 Pounds. If America buys $5 worth of product from Britain, America would have $95 and Britain would have 105 Pounds. Suddenly Britain becomes wealthier. In theory Britain is approximately 10% wealthier now. (100/95x105=10.52%) So suddenly $1 would be worth around 1 Pound and 10 Pence. This is the principle of trade surpluses and trade deficits and wealth within a currency.
Now let's imagine that America and Britain each have $100 again. Let's say that over 1 year, prices in America stayed the same but in Britain, prices went up 5%. We would now have an effect where Britain is 5% poorer then America and $1 would be now worth 1 Pound and 5 Pence. This is where interest rates are determined. Britain could have helped keep $1 worth 1 Pound by having an Interest rate of 5%.
Interest rates are determined normally by a Reserve Bank governor that determines economic policy for a currency. Interest rates can also be manipulated to stimulate an economy by strengthening or weakening a currency.
Now we can also consider what would happen if Britain deicide to print twice as much money as it had before. If America and Britain each has $100 and 100 Pounds each respectively, and Britain decided to print 200 Pounds in an attempt to get wealthier, suddenly $1 would equal 50 pence. However if Britain had found 100 Pounds of gold and was worth 200 Pounds, then $1 would still equal 1 Pound.
Very basically, this is how the system works, however is much more complex in reality
….will be continued…..soon…:-)

'Obama' plans to heal the planet earth..

Barack Obama's Opening speech(a lil self-aggrandising) at St Paul, Minnesota in his Campaign for Democratic Nominee...

“[G]enerations from now, we will be able to look back and tell our children that this was the moment when we began to provide care for the sick and good jobs to the jobless; this was the moment when the rise of the oceans began to slow and our planet began to heal; this was the moment when we ended a war and secured our nation and restored our image as the last, best hope on Earth,”

Listening to this speech a 19 year old Tiffany Harris responded saying -

“He's bringing a new generation; a better generation,” She then indicates her pregnant stomach and gushes: “It's like, I'm bringing a new generation, and he's doing that too.”

Some other said -

"Obama is a God sent...."

Wow ! I enjoyed reading this and felt that Lallu (ji) should have contested for the Democratic nominee position..It also reminded me a recent add of IBM -"Stop talking ..Start Implementing" :-)

Long live US presidents speeches.....

Lets hold on till Novemeber ,to hear some more speeches,when the big fight (for the Presidency)starts.