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.