Supply Chain Management

While Selecting ERP solution and implementation partner for your company

noreply@blogger.com (.) — Sun, 21 Feb 2010 08:36:00 +0000

Things to remember while selecting ERP or SCM solution and vendor for your organization

1. Requirement document: Prepare the complete requirement document for each of the functional area with the help of the functional users in Excel and categorize each need as following and evaluate the solution based on the needs of the users.
a. Must Have
b. Nice to Have
c. May have
Sometimes the users do not have experience or familiarty with ERP and SCM solution. It is better that these users have experience or familiarity before preparing the requirement document. Alternatively services from a consulting organisation can also be taken for this purpose.
2. Don’t get misled by big names- It is better to evaluate the ERPs based on your need. When you evaluate ERPs, you may find that the features you need are not available in big brands, while these are available in other ERPs. Now days big companies are offering multiple products, so you must check what products they are offering to you.

3. Technical Architecture: check for the architecture of the ERP. I strongly recommend for web architected solutions over client server architecture. Web architected solutions are better than other architectures in many ways.

4. Tools and Utilities : check for the availabilities of utilities such as Excel Export, Import Features, Workflow configuration, Alert configuration, customization tool kit, audit trail, Online help, integration, etc in the solution

5. Customisability: I have seen that big names do not offer customizability in the product and ultimately you end up with non integrated processes. So, you may check up with the implementation partner about the extent of the customization that can be offered with the product.

6. Implementation Partner: You must check, who is the implementation partner, his/her previous implementations, references, etc. It is advisable to ask for a visit at customer site of the ERP vendor. It is advisable to go for a big implementation partner as they can attract experienced & talented people as compared to the smaller one. You may have to pay the higher implementation charges for implementation but that is really worth.

7. ERP vendor: If the ERP vendor is not a big name then, you can check following things about the ERP vendor
i. CMMI 5 level certification
ii. Presence across the globe
iii. Product road maps and previous versions of the product
A good ERP vendor would be continuously upgarding and developing the new products based on changes in the technology.

8. Implementation Methodology: You must check for the implementation methodology being offered and insist for providing detailed project plan, efforts & resources planned by implementation partner in each phase. Success of an ERP implementation depends on the efforts planned for each of the phase and the quality of the resources. So you must check whether the implementation partner is providing good quality resources, enough time for each phase or not.

9. Demonstration: Always ask for a detailed product demonstration by prospective supplier by involving users of your organization and evaluate the product.

10. Selection of implementation partner: If OEM is providing implementation services then it is advisable that you should insist OEM to provide the complete services ie. Implementation, customization, etc. This can help you to negotiate the cost of license and AMC by leveraging your spend value for the project.

11. Total Cost of Ownership : It has been observed that the solution supplied, implemented, customised and maintained by OEM is very much cheaper in long run . When OEM and OEM partner, both, are involved in that case normally product is delivered by OEM while the partner carries out implementation and customisation. This results in significantly increased AMC cost where OEM would be charging the license on AMC ( 18% to 20%) and partner would also be charging AMC( 18% to 20%) on customisations seperately every year.

CPIM or MBA ?

noreply@blogger.com (.) — Sat, 13 Feb 2010 10:47:00 +0000

I have found many professionals and students asking and completely confused over CPIM and MBA and often have questions like - which one is better MBA or CPIM? or what to choose- MBA or CPIM ?

I was also was not very sure about the answers of these questions before taking up CPIM examinations. When I started taking up exams for CPIM, I found that CPIM examinations tests your experience and knowledge in discreet manufacturing domain. If you are having couple of years of experience in discreet manufacturing domain in multiple roles such as inventory manager, Planner, Shop floor in charge, procurement etc then you really need not work very hard to crack the examination and what your really need is to study two or three books for all the examinations.

If you do not have a formal educational background in Manufacturing Management (MBA-Operations, MS-Manufacturing, BS-Industrial Engineering, etc.) and working or want to pursue your career in manufacturing domain then in that case CPIM helps you to understand end to end operations of supply chain in a structured way and certification becomes an asset for you !

Again at the time of recruitment, many companies prefer to have the CPIM certified candidates

Now, when it comes to an MBA in operations or manufacturing management from a good business college, then the students get the opportunity to study manufacturing and supply chain in depth for one year during their studies. During this one year, apart from studying many books on different topics of supply chain and manufacturing, students get the opportunity work on case studies, industrial trainings and projects. All of these help the students to understand the subject in depth and broaden their understanding.

Having said that, now I come again to the real question MBA or CPIM ? MBA and CPIM both have their own advantages but I would strongly recommend going for CPIM certification in following cases-

If you do not have any formal education in manufacturing and supply chain management and want to pursue your career in supply chain or manufacturing domain.
You are not having an MBA degree in manufacturing from a reputed business school.
If your employer is financing the cost of CPIM certification in that case you can go for the certification without giving any second thought.
You are in manufacturing consulting business where your clients frequently demand for CPIM certified consultants

Everything about FOB Pricing

noreply@blogger.com (.) — Sun, 21 Jun 2009 12:24:00 +0000

Let’s assume that you are sending an RFQ to your supplier for supply of material and supplier reverts back with his quotation with pricing terms as FOB Origin or FOB Destination. Now let’s understand the FOB pricing

FOB stands for Free On Board. As per these pricing terms the prices are applicable either at destination or at Factory. Let’s say if the price term is FOB Origin then it means that pricing is quoted at manufacturing location. If the pricing term is FOB Destination then it means prices is quoted at the customer location or nearby location.

Below are some variants of FOB pricing explained below

FOB Origin, Freight Collect

Buyer pays the freight Charges
Buyer bears the freight charges
Buyer owns the goods in transit
Buyer files the claims if required

Here Buyer pays the freight charges to the transportation at the time of collection of consignment

FOB Origin, Freight Prepaid

Seller pays the freight Charges
Seller bears the freight charges
Buyer owns the goods in transit
Buyer files the claims if required

Here the charges are prepaid so buyer need not pay anything.

FOB Origin, Freight Prepaid and charged back

Seller pays the freight Charges
Buyer bears the freight charges
Buyer owns the goods in transit
Buyer files the claims if required

In this case Freight charges are paid by the supplier to the transporter and these charges are collected from buyer by adding these into the invoice

FOB Destination, Freight collect

Buyer pays the freight Charges
Buyer bears the freight charges
Seller owns the goods in transit
Seller files the claims if required

Freight charges are paid by the buyer at the time of receiving the consignment

FOB Origin, Freight Prepaid(Delivered)

Seller pays the freight Charges
Seller bears the freight charges
Seller owns the goods in transit
Seller files the claims if required

FOB Destination, Freight collect and Allowed

Buyer pays the freight Charges
Buyer bears the freight charges
Seller owns the goods in transit
Seller files the claims if required

Here buyer pays the freight charges to the transporter and at the time of mking the payment the deducts that amount

Supply Chain of Couriers and Parcels in a Courier Company

noreply@blogger.com (.) — Sun, 31 May 2009 05:01:00 +0000

The basic set up for a typical courier company comprised of a collection/delivery center which is responsible for booking, collection, delivery of couriers/parcels/shipments. These parcels/couriers are then handed over to the city Distribution Centre by collection centers. After that, DC despatches these parcels/couriers to destination city DCs. After receiving the parcels/couriers, the destination DC then further despatches the parcels to the collection/delivery centres for deliveries. These collection/delivery centres finally do the delivery of the parcels/couriers at the consignee’s address.

This article explains how the complete courier/parcel supply chain works.

There are two types of customer- Corporate and Retail.
Corporate customer are again of two type –one those are having contract with the courier company for daily Pick-up/delivery of parcels and couriers at specified time on daily basis, and other one, who do not have any contact but call the collection centre on need basis for pick up of couriers and parcels.

Retail customer works in a different way- they either call at the call centre/collection centre for pick up or personally visit at the collection center and book the parcel.

Pick Up Registration
When a retail customer call the collection centre/call centre, or visits the web site for pick up and specifies the address and time to pick up. Subsequent to this a pick up request is generated in the system and this no is also given to the customer for reference.

Pick Up Process
The courier person gets the pick up schedules from the collection centre. This pick up schedule contains the time of pick up and pick up addresses of the customers (Retail and Corporate) and is normally based on the route. Based on this pick up schedule, the courier person visits the customer’s place; pick ups the courier and hands over the pre-printed bar coded Air Way Bill (AWB). After the collection, these parcels are handed over at the collection centre, where these are scanned with the scanner and entries such as address etc are made in the system. Now, each parcel is identified in the system with unique bar coded AWB. These parcels may be sorted out at the collection centre and collected in a bag; which given a unique bar coded ID for traceability. If the organization is IT savvy and having good IT infrastructure then it normally provides PDAs to the courier persons. The courier person can directly downloaded pick up schedule through system into the PDA

DC Operations
The DC receives the bags from different collection centers and scans the bar coded ID. Immediately after scanning the bar code, all the parcels are in received status in DC. These parcels are sorted and consolidated based on destinations. This job is normally done through scanner, which automates the process and virtually eliminates the errors in transactions. These parcels are collected in bag and this bag is given a unique ID for specific destination.

Now these bags are despatched to the destination DCs through surface transport or through air. If these bags are despatched through air, then DC shall schedule its operations and vehicle so that it reaches to airport before the departure of the flight to the destination city. At the time of despatching these bags ( Also AWB of the parcels) are no more in DCs , but in in-transit in the system

Destination DC Operation
The Destination DC schedules its vehicle for collection of parcels from the air port based on the time of arrival of flights. After receiving these bags, bar coded IDs of bags are scanned. Immediately after scanning, these parcels are in received status at the destination DC. At DC,these bags are opened and parcels are de-consolidated and sorted out based on ZIP/PIN/Area code and are further despatched to the Collection Centers/Delivery centers.

Delivery Process
After receiving the bag and on scanning the bar code ID, the status of these parcels gets changed to “received” at delivery centre. Again, the Delivery/collection centre deconsolidates and sorts out the parcels/courier based on ZIP/PIN/Delivery area code or route. These are again bagged in a bag which has a unique ID based on destination area. The delivery sheet is prepared for delivery of these parcels or the sheets can be downloaded in the PDA also. This Delivery Sheet/PDA and parcel bag are handed over to the courier person

The courier person along with delivery sheet/PDA reaches at the consignee’s address and delivers the parcel and takes the signature of the consignee on delivery sheet /PDA. After delivery of the parcels/courier, the courier person reaches at collection/Delivery centre and updates the status of the shipments in the system by manually or by uploading the PDA data in the system. This activity closes the transaction and updates the status of AWB as “delivered”.

At any given point of time, if customer wants to know the status he/she can see by entering the AWB no on the company’s web site or making an enquiry on the call centre.

Key Words: Courier Supply chain, Parcel suply chain, how a acourier company works, how couriers/ shipments are tracked, FedEX supply chain, UPS Supply chain, DHL supply chain, processes of a courier company.

What's the Difference Between Discrete and Process ERP?

noreply@blogger.com (.) — Wed, 15 Apr 2009 04:51:00 +0000

I received a letter from TEC on difference between process and discreet manufacturing ERP. Following is the content of the letter

By Josh Chalifour

November 12, 2008

A quick definition from APICS (The Association for Operations Management) describes discrete manufacturing as "the production of distinct items such as automobiles, appliances, or computers," whereas process manufacturing covers "production that adds value by mixing, separating, forming, and/or performing chemical reactions. It may be done in either batch or continuous mode." Now let's look at a few examples.

Think about what your company manufactures. Does it require mixing chemicals? If so, you may need an ERP system that does things like calculate ingredient quantities. If your industry produces the type of product that doesn't lend itself to being disassembled into its individual components, it's likely you need to consider a process ERP system. On the other hand, if your company assembles products from many component parts, you'll require discrete manufacturing functionality.

You Cannot Put the Juice Back into the Orange

In his TEC article Process Manufacturing Software: A Primer, IT consultant Joe Strub explains the difference with this example:

Once you make a can of soda, you cannot return it back to its basic components such as carbonated water, citric acid, potassium benzoate, aspartame, and other ingredients. You cannot put the juice back into the orange. A car or computer, on the other hand, can be disassembled and the parts, to a large extent, can be returned to stock.

In addition, process manufacturing is scalable. If a formula calls for 1,000 pounds of cake flour, but you only have 500 pounds, you can still bake cakes—just not as many. Conversely, in discrete manufacturing, one missing part means waiting for it before the finished assembly unit can start rolling off the production line.

Here at TEC we model functionality for manufacturing in discrete or process industries under the following categories.

If you're talking about requirements involving bills of material (BOMs) that list the component parts for assembly, you'd find those covered through the discrete manufacturing categories. But if you're talking about functionality for formulas, recipes, or ingredients, those would tend toward the process manufacturing categories.

To compare process ERP solutions head-to-head based on your organization's needs and characteristics (size, industry, business model, geographical markets, IT platform and requirements, etc.), visit TEC's Process ERP Comparison Reports. To compare discrete ERP solutions head-to-head, visit TEC's Discrete ERP Comparison Reports.

For more details on difference between manufacturing ERPs visit Flow ,Discrete & Process manufacturing in ERP ?

Supply Positioning Analysis

noreply@blogger.com (.) — Sun, 12 Apr 2009 13:04:00 +0000

This article intent to show Supply Positioning model. This model helps in prioritizing the efforts and developing supply strategy of your company

Following two factors are considered while developing this model

Annual Expenditure Value of the SKU/Service
More the expenditure value for a particular SKU/Service, more it is important for your business as it will offer potential for cost savings.

Criticality to the business
If the SKU/service is not available/delivered on time then how this is going to affect you company’s profit or operations? – This question decides the level of the criticality of the SKU/Service

Lets analyze both the factors in the below matrix

Expenditure is plotted on the X-Axis and criticality is plotted on the Y-axis of this chart. As you move on the X-axis from left to right the expenditure value increases. Generally as per Pareto’s rule 80% of the Items/Services account for 20% of the expenditure and 20% of the item account for the 80% of the expenditure. You can use here ABC analysis to identify the items and services

Now let’s analyze the characteristics of the items as per the quadrant

Routine
This quadrant is represented by items which are least critical to your business and account for least expenditure value. Normally these items are standard in nature, of low value and many suppliers. The examples for this quadrant are stationary items, house keeping materials, IT peripheral like CDs, etc. Level of attractiveness for doing business for these SKUs/Services would be low for the suppliers.

Leverage
SKUs/Service in this quadrant are similar to Routine quadrant but the spend value is very high for these items. These are again standard services/SKUs and readily available in the market but these SKUs/Services are of high values and offer great potential towards cost reductions and savings. Level of attractiveness for doing business for these SKUs/Services would be high for the suppliers.

Bottleneck
These SKUs/Services are characterized by high risk and low annual expenditure value. These are mission critical items/services. Unavailability of these services and SKUs may immediately affect the operations and profitability of your company. Items in this quadrant can be MRO items for critical machines and equipment. Normally these items are highly specialized, not readily available in the market and have very limited suppliers. Since spend value is low for these items and services so it may not offer high level of attractiveness to suppliers for doing business with your company.

Critical
Similar to bottleneck items, these items are very critical to your business. The spend value for these items is higher and offers higher level of attractiveness to suppliers for doing business with your company. You may have a greater ability to influence the supply of these items. These items are the key contributors to the profitability of your company. The examples for these items are key components on which your Finished Products depend. Similar to bottleneck items, these items may not be readily available in the market and may have very few suppliers.

How to improve the supply Position?
The ideal situation would be to eliminate the criticality of the items/services and at the same time having strong position in front of suppliers i.e. leverage position. Here you do not have fear of unavailability of the items/services, offer higher level of attractiveness to your suppliers for doing business with your company and command the strong bargaining power with the suppliers.

So ultimately your objective should be to increase the leverage. This can be achieved as below:

Move Items/Services from Routine quadrant to Leverage- Here you can consolidate your requirements such as combining equipment purchase with installation and maintenance services, buying office consumable and computer peripherals from the same vendors etc.
Reduction in variety of specifications, specification standardization and supply base optimization.
Consolidation of demands of all the sites for common categories
Forming purchase consortia with other industries to leverage the spend
Working with engineer to reduce the technical risks and try to use standard specifications as much as possible
Carry out study of market to search other sources of supply to reduce the risk of supply for critical items

Supply Chain Financing

noreply@blogger.com (.) — Mon, 27 Oct 2008 04:27:00 +0000

Wafer thin margins and stringent payment terms such as 90 days credit, put extreame pressure on finance people for managing working capital.

Now a days banks are poviding supply chain financing solution to manage such situations. Here a bank agrees to pay a supplier promptly in return for collateral provided by accounts receivable offered by the downstream purchaser. The downstream firm then reimburses the bank once the accounts are settled.

How it works

Supplier X ships EUR 8 million of goods annually to the approved buying organisation, on payment terms of 90 days post-shipment.

Bank sets up a EUR 2 million trade Receivables Purchase facility (EUR 8 million*90/ 360 days) for Supplier X.

In return for the facility, Supplier X discounts invoices by an agreed amount. With buying organisations’s agreement, Bank charges Supplier X for the cost of funds, plus 1.00% (or other agreed amount), to purchase the receivables owed by the buying organisations.

Assuming Supplier X’s own financing cost is the cost of funds plus 2.00%, Banks’s financing solution enables it to reduce funding costs by EUR 20,000 per annum (EUR 2 million*1%).

Additionally, the buying organisation has the option to negotiate better credit and purchase terms.

SCM Interview Questions

noreply@blogger.com (.) — Fri, 24 Oct 2008 17:27:00 +0000

List of the some interview questions, generally asked at Junior and middle level positions

1. What do you understand by Supply Chain Management
2. Explain complete supply chain cycle starting from Business Planning to Sales and including procurement(for MTO and MTS environment).
3. What is Sales and Operations Planning (S&OP) process and what are the advantages of S&OP process ?
4. Explain demand planning process you have handled or handling.
5.Explain Procure to Pay to Pay cycle?
6.How do you search a supplier
7. Explain the Vendor rating process
8. What are the risks in procurement how do you minimise these risks
9. What is spend analysis and how do you use spend analysis to reduce the procurement costs and processing costs
10.What are the GL postings in procure to pay cycle?
11. What are the different types of matching such as 2 way, 3 way or 4 way and why these are required?
12. Explain Sales order to billing cycle?
13. What are the GL postings during sales order to billing cycle?
14. What are different inventory Valuations?
15. What are the different Inventory analysis ? how do you do ABC, XYZ and FSN analysis?
16. What is the difference between Physical inventory and Cycle counting and which process is better ? and why?
17. What are the different types of MRP runs (i.e. Regenerative, Net Change etc).
18. Explain Consumption based planning and Demand based planning, which is better and how?
19. How do you calculate safety stock for consumption based planning ?
20. How do you plan the requirements of material which are very rarely moving and unpredictable in demand?
21. what are insurance items?
22. What is Bullwhip effect in supply Chain, how it affects the supply chain and how would you reduce it?
23. Explain Stock transfer cycles between two locations and what are the GL postings ?
24. What would be your sourcing strategy to buy low value items?
25. Explain Scrap Sales process and the GL postings during the process.
26. Explain SCOR and CFPR models
27. How would you evaluate the inventory performance ? What is Inventory Turn Over ratio and what would you recommend to increase it under a set of assumptions.
28. What is Bill Of material what information it contains?
29. What is in-transit inventory and how it is calculated, how do you monitor in-transit inventory levels?
30. What are different types of contracts ( Blanket and Fixed) in procurement, which type of contract should be used in what conditions.
31. What the normal terms and conditions in a agreement while signing it with a supplier?
32. How do you negotiate with a supplier and what could be the negotiation points during negotiation process?

33. What are the GL postings in Stock revaluation and stock adjustment transactions?

34. How do you manage stock out situations?

35. What is Planning horizon and how does it impact MRP and MPS run results ?

36. How do you fix the credit limits of the customers (Distributors, Dealers)

37. Tell me a situation when you negotiated with a vendor successfully.

38. How do you analyse Inventory Shrinkages?

(Please visit again for updated list)
Key Word : Interview Questions, Supply Chain Management Interview Questions

MRO Supply Chain of Process Industries

noreply@blogger.com (.) — Wed, 01 Oct 2008 09:03:00 +0000

Annual expenditure on MROs in a process industry may be to the tune of 5% (Maximum) of the annual turnover but when it is accounted for the complete group company it could be a millions of dollar expense. So any saving done in reducing the inventory, procurement cost or reduction in procurement price directly affects the bottom line of the company.
I have handled various roles from Maintenance Engineer to Inventory Controller to Procurement Executive in MRO supply chain over a period of time. This article elaborates my experiences in managing the supply chain of MRO spares in Process Industries

Masters

Codification of Materials

Unfortunately, codification is one of the most neglected activities in any industry. For better control of inventory, it is necessary to employ a good codification tool for codifying the material. Shell Catalogue Management Tool (Software developed by Shell International Inc., USA) is of the best tool for codification and this tool is currently being used by many companies. When nos of SKUs increase more than 4000, there are chances of creation of duplicate codes for the new material, coming into the system. More the nos of duplicate codes, more is the inventory. So again, good codification system is the foundation of good inventory control.

Frequently, OEMs provide the different part no for the same spares, as the same part is installed in different machines and you end up buying and maintaining these spares separately as the same spare part is having different Material code. If you are very critical or valued customer of the vendor, then you can force the vendor to avoid such practice by mentioning the same in the agreement.

If your MRO budget is several Millions of dollars and your company is employing huge force of Procurement executives then these material codes should be mapped with Category Group and Category Group should be Mapped to category Manager for better management of strategic procurement.

Material groups are different from Category Groups as the material group represents material having similar characteristics based on physical appearance and usage while Category code groups the material, having similar characteristics as per the market. Some time Category or Material groups can be similar depending upon the industry.

Bill of Material

Your system should support Equipment BOM. Equipment BOM shall contain all the SKUs and quantities which are required for maintenance. There is no need to create a complete BOM of the equipment. Only maintenance spares would suffice the purpose here. This BOM shall be helpful in identifying the interchangeability of spares between you machines, which shall help in reducing your inventory levels.

Creation of Maintenance activities and Plans

For every equipment, there should be correct maintenance masters and plan. These masters shall be useful in deriving the time based requirement of the materials and financial budget plans

Classification of items based on Criticality & Predictabilty

Inventory controller in collaboration with Maintenance engineers and planners, based on their experience, should define the material based on Criticality and Predictability matrix as under

SKU Code	Criticalily	Predictability
SKUCODE1	Very High	Very High
SKUCODE2	Very High	Very Low
SKUCODE3	Very Low	Very High
SKUCODE4	Very Low	Very Low

This classification shall be useful in taking the decision by inventory controller in identifying the items which are to be stocked, not to be stocked and deferred procurement.

Examples

SKUCODE2 is very critical material and has very low predictability of consumption, so this material should be stocked in warehouse

SKUCODE4 is very low in criticality and very low in predictability so this material should not be stocked. This material should be procured as and when there is any need.

SKUCODE1 is highly critical and and highly predictable in consumption so this material may procured in deferred procurement practice as per the procurement lead time.

Key Processes for efficient Supply Planning

Annual Maintenance Planning:

This is a one time annual activity for making complete maintenance plans for the Process Plant. This plan should have complete Preventive, Shutdown and any unplanned (Based on historic Patterns) Maintenance Plans for each machine. While creating maintenance plan for each machine, system should be able to include the list of SKUs, which are likely to be consumed during maintained.

Annual Material Planning

Annual maintenance planning, Maintenance & Material master shall provide the input for annual material planning and financial budget.

Category Planning

Spend across the group shall be aggregated for all the sites and plants and offer a great leverage to category manager. Category plan at the group level for each category would form the basis for procurement planning for the category. Now comes the procurement process.

Inventory Turnover Ratio/Replacement Asset Value

noreply@blogger.com (.) — Sun, 28 Sep 2008 13:58:00 +0000

Inventories are the most important part of the supply chains to support the customer (internal or external) service in a manufacturing, retail or trading organizations and the biggest investment in these organizations is into inventory. So it is necessary to move inventory as quickly as possible

Inventory Turnover ratio is being used to measure the movement of the inventory from warehouse. The higher the inventory turn over ration the better it is. A high inventory turnover ration means that less money is blocked to support the customer needs for a specified service level

Inventory Turn Over Ratio = Total Cost of Goods Sold for a Period/Average Inventory for the Period

Lets say Cost of the goods sold is $1 million for the year and your average inventory for the year has been $ 0.1, then your inventory turns is 10

This definition of ITR (Inventory turnover ratio) can provide a good picture for raw materials and finished goods inventory, but it fails to give the good picture of the inventory of the MRO materials.

To measure the inventory of MRO, concept of Equipment Replacement Value-ERV (Sometimes called as Asset Replacement Value -ARV, Replacement Asset Value-RAV) is used

Theoretically, ERV is the current cost to rebuild your factory/plant today exactly as it is today. It is the current cost to construct the plant to its present design. This approach takes in the effect of inflation on both the project costs and the spare parts and maintenance costs. The difficult part is how you can cost the rebuild of your plant today.

The most accurate way can be to give all your design and construction drawings of the plant and facility as-it-is today to a contractor and ask for a current price to build it. But that is a huge and impractical exercise as you may not be having the details of specifications in your hand. You can also approach to your insurer and ask them to let you use their replacement Cost data for the equipment in your plant and then, asset number by asset number, give it a current cost. But few insurers would have all the data you need. The last and most widely used option is that to get the as constructed asset value from the finance department of the company for each asset and then increase the as-constructed cost for inflation over the intervening years since construction.

Once the detail of ERV has been obtained, then inventory value as percentage of ERV calculated i.e. Inventory Value/ERV. This value can be used for benchmarking.

For refineries and petrochemical plants this figure usually is in the range of 1.1% to 2%

Related Words: Inventory Turns, ARV, ERV, RAV, Inventory Turnover Ratio, ITR, Inventory KPIs

ERP Project Life Cycle

noreply@blogger.com (.) — Fri, 26 Sep 2008 17:39:00 +0000

The normal lifecycle of an ERP Implementation Project shall consist of the following milestones:
1. Business Process Study: Regular interactions with the client grow in order to understand the various business processes and the way they are presently carried out.
2. Setting the objectives of ERP implementation; setting the expectation of the client
2. Pre-Implementation Training: A pre-implementation training, detailing the concepts and features, shall be given to all the end-users at the client site. This shall improve the lead time in collecting the inputs for the preparation of specifications. I don't think this activity will take place in normal ERP implementation life cycle stages.
3. Requirement Analysis: The requirements of the client are collected, using the SRS (Software Requirements Specification) form, to further the process study.
4. GAP Analysis: In relation to Information Technology, this analysis points out the differences or gaps that exist between the standard capabilities of the desired system & the expectations of the client. The deliverable is a GAP Report.
5. In order to get maximum benefit out of the ERP processes must be re-engineered and then mapped with the redesigned processes
5. BMR (Business Mapping Report): This follow-up of the GAP Analysis should address the identified solution(s) for the gap areas.
5a. Master Data preparation and managment: This is perhaps most illtreated activitiy which ultimately leads to delays if not addressed at early stages of the project planning. A team must look after these before and after the project to ensure accurracy in master data as this may lead to erroneous results causing panics after Go Live.
6. Project Plan: This milestone shall set the actual plan for execution and roll out for the roles and task allocations.
7. Installation of Software: The Vanilla installation of the complete software should now be carried out to ascertain the infrastructure preparedness at the client site.
8. Customization of Forms & Reports: The Client's requirement as to the customization of forms (user interfaces) and reports (existing as well as new requirements) are addressed here.
9. The system must be tested for complete processes and each type of transactions so as to check its robustness.
9. Migration of Historical Data: Beyond the opening balance incorporation, if the client desires to bring the historical data, this step will be required to plan the conversion and clean up - prepare the data for the new environment.
10. Design of Routines & Workarounds: Though this is not a milestone, the additional routine and workaround requirements (as identified in the GAP & BMR) shall be addressed through this step.
11. Setup & Configuration: The new environment shall be setup based on the SRS and the software shall be configured (on different deployment methods) fully.
12. Testing Environment: A testing environment (a simulation of the live environment) shall be created in the new software to enable the end-users to acquaint and equip themselves for beginning in the live environment.
13. End-User Training: The next milestone shall be giving training to the end-users on the setup, configuration, transaction processing and report generation. This shall be the post-implementation training phase.
14. System Walk-Through: This milestone requires entry of sample transactions by the end-users in the testing environment.
15. Go Live: This is the Sign-Off phase where the project gets implemented.
16. Post Implementation Support: An immediate support commitment, subsequent to the implementation, and the detailed modes of support, etc., are given to the client.

SAP MM Interview Questions

noreply@blogger.com (.) — Fri, 26 Sep 2008 17:23:00 +0000

Some of the SAP MM interview questions collected from internet

1. What is the difference between the stock transfer between two plants belonging to same company code and those belonging to different company code?
2. What are the fields in Purchasing view?
3. What are the steps in automatic account assignment config.
4. How do you create movement types? What are the steps involved? When will you recommend a new movement type?
5. What is meant by access sequence? When it is used?
6. How does the PO pick up the pricing schema?
7. What are the steps involved in creating a pricing procedure?
8. What are the types of special stocks available?
9. What are the types of inforecords?
10. What is meant by consignment stock?
11. What are the steps involved in consignment cycle?
12. Tell me about the subcontracting cycle.
13. How is scrap accounted in subcontracting?
14. How are the byproducts taken care of in subcontracting?
15. Tell me about the various movement types and usage.
16. What is meant by scales? Can scales be used in standard purchase order?
17. What is the difference between a contract and a scheduling agreement?
18. How does the system calculate taxes?
19. How does the system calculate nondeductible taxes?
20. What is meant by batches? How can the batches be searched?
21. How is a shelf-life item managed in SAP? What is the full cycle?
22. What are the settings required for quota arrangement?
23. What is meant by MRP Type and lot sizing?
24. Can it be configured in such a way that the external requisitions can also be taken into account while MRP runs in consumption-based planning if VB is selected as MRP type?
25. What is a reference purchase organization? When can it be used?
26. Explain the concept of split valuation and when can it be used? What are the settings required?
27. What are valuation area, valuation category and valuation class?
28. What is meant by a credit memo?
29. How are free items managed in a PO?
30. What is meant by a release strategy?
31. What are release groups and release codes?
32. What are the differences between release procedure with classification and release procedure without classification? When are they used?
32. Is it possible to have a release procedure without classification for a PO?
33. What is the maximum number of levels available in SAP?
35. Is it possible to have scales in a quotation?
36. What is GR blocked stock? When it can be used?
37. What is the movement type for return to vendor? How to reverse it?
38. How are the variations in subcontracting taken care of in SAP?
39. What are the tools available for data migration in SAP?
40. What is LSMW?41. What is the difference between LSMW and CATT?
42. How to give specifications for developments?
43. How do you plan for a vendor rating system and move about?
44. What is RTP?45. What is the movement type used in receipt of RTP?
46. How is an item with serial no. managed?
47. How do you make variants?48. What are the types of tables in SAP?
49. How to inventory excise duty in SAP?
50. What are the documents generated in the MIGO 101 movement type? What are the accounts hit?

Basics of e-Procurement

noreply@blogger.com (.) — Sun, 22 Jun 2008 15:39:00 +0000

The term e-Procurement is used for referring the procurement processes using internet technology. E-Procurement helps to reduce the transactional costs, achieving faster & automated transactions, helps the buyer to focus more on strategic part of procurement.

1. Benefits
Below are the advantages of e-procurement over manual procurement

1.1. Improved Process efficiencies

Manual procurement is labour intensive and time consuming process. Switching to e-procurement helps companies to reduce employees’ cost, paper and redundancy and cycle times. Time saved of employee in procurement can be utilized in more productive work. Similarly reduction in procurement lead lime helps in reducing inventory levels. It is estimated that that switching manual procurement to e-procurement can reduce procurement processing cost by 80%

1.2. Reduction in errors

Manual processes are always prone to errors. In manual processes as and when the information is transferred at many occasions it is re-written or re-typed at various stages. Since many people are involved in various stages of procurement approval processes. This can further increase the chances of errors at multiple data entry points
In case of e-procurement data is transferred automatically with inbuilt securities.

1.3. Better compliance

Non compliance or maverick spending occurs when goods and services are procured from the suppliers, who are not evaluated or selected by procurement department. This is also called off-contract buying as procurement happens outside the existing contracts.
E-Procurement systems facilitate purchasing from the preferred suppliers thereby reducing the non-compliance and maverick spend. Reduction in maverick buying in turn leads to lower transaction costs and greater leverage and pricing discounts with approved suppliers.

1.4. Enhanced Leverage

A good e-procurement system helps the buyer to source the material strategically by leveraging the spend by consolidation. Consolidation can be consolidation of orders of or the quantities of categories from around the company to get the leverage with the supplier. Additionally e-procurement reduces off-contract buying by enforcing contracts thereby increasing the leverage of spend.

1.5. Improved Sourcing

In manual procurement, it becomes difficult to search and select a supplier for an MRO material or specialized direct material in the supplier base. E-Procurement system helps the buyer to search the supplier from supplier base or through online.

2. E-Procurement Tools:

There is wide range of e-procurement models in use. Let us gain a understanding of the major types of e-procurement transactions and tools, and for this purpose e-procurement model can be divided into a numbers of different types.

Some of these are as under

E-Catalogues
Internet Trading Exchange or e-marketplaces
Reverse Auctions
RFX Model (RFP, RFQ,RFI, e-Tendering)
Self Service Procurement
Purchase Cards
Supplier Portal

2.1 E-Catalogues

In normal case of business scenario, supplier visits end users and buyers and provide their product information through Product catalogues. These catalogues normally contain product specifications, rates, validity of rates, discounts, minimum order quantity etc. In the context of e-procurement, these catalogues are available in electronic formats.
There are three ways to maintain the catalogues.

2.1.1 Buyer Hosted Catalogues: Supplier provides the catalogues to buyer in electronic format or the supplier accesses the system of buyer and uploads the catalogue

2.1.2. Supplier Hosted Catalogue: In this case supplier hosts catalogue on his website buyers visit the website of suppliers and browse the catalogues.

2.1.3. Third Party Hosted: In this case suppliers maintain their catalogues by accessing third party web site and buyers access the third party system to browse the catalogues.

2.2. Internet Trading Exchange or e-marketplaces

This is the single point entry meeting place for buyers and suppliers. Here buyers post their requirements and suppliers can quote against the requirements posted by the buyers. Features of a e-marketplace can vary from plain transactional trading to enabling suppliers and buyers to collaborate in the areas of supply chain planning, product designing & development, knowledge sharing.

The business model for such kind hubs is to charge money from buyers and suppliers based on transactions, volumes etc.

There are two types of E-Market places

Vertical e-Marketplace
Horizontal e-Marketplace

2.2.1 Vertical e-Marketplace:
These market places are very specific to a particular industry such as automotive, textile etc. Such kind of e-marketplaces is supported by one or more major players of the industry. These type of marketplaces cater the requirement of direct and specialized MRO purchases

2.2.2. Horizontal e-market Place
Horizontal trading exchanges focus on general requirements which are common across the industries, such as ORM supplies, general MROs etc. These marketplaces focus on indirect purchase of the industry. The example in this space is Ariba Network

2.3. e-Reverse Auctions

Reverse auctions can be conducted either through an e-marketplace or directly by a buying organization. There are mainly three types of auctions

English Reverse Auctions
Japanese Reverse Auction
Dutch Reverse Auction

2.3.1. English Reverse Auctions
In this type of reverse auction buyer opens the auction with the price of the item and seeks lower bid. Bidders outbid each other by placing lower bids. The auction ends when no body is able to quote lesser than the lowest quote. It is time bound bidding.
The buyer may reserve the price above which he is not willing to pay. In case of winner of the bid is not able to supply the full quantity the buyer can go for second lowed bidder to fulfill the quantity. Sometimes buyer may impose the condition of supplying full quantity in the auction.

2.3.2. Japanese Reverse Auction
In this auction the buyer sets the opening price for the bidders and bidder must declare whether they are “in” the auction for supply of material at the price set buy the buyer. The buyer keeps on reducing the price by an incremental value within a specified time period and bidders declare whether they are still “in”. The auction ends when there is only one bidder is lift “in”.

2.3.3. Dutch Reverse Auction
In Dutch reverse auction, buyer sets an opening minimum price and keeps on increasing by some fixed incremental value. Auction ends immediately when anyone of the bidders is ready to supply the material at that price.
This type of auction is popular in Airline Industry. When the capacity of the aircraft is full and any new passenger comes who require the ticket immediately due to emergency travel, the airline staff starts this auction process in the aircraft and the passenger in the aircraft are the bidders. Buyer starts auction with some price and keeps on increasing this prices after fixed time, the moment any passenger raises his hand is the winner.

2.4. RFx Model (RFP, RFQ, RFI, e-Tendering):

RFQ has long been a traditional way common tool of procurement. If RFQ is prepared manually it is very time consuming process. Now a days RFQs are prepared electronically in ERPs, trading exchanges and e-marketplaces. Use of ERPs and trading exchanges makes possible quick creation and transmission to suppliers.

Now a days there is new focus on Request for Proposal (RFP) and Request for information (RFI). So this area now a days called e-Sourcing or RFx Model.

Meaning of these terms

2.4.1. Request for Quotation RFQ) is a request for supplier to quote for a particular product or service. The buyer sets the requirements and specifications in the document. The supplier has to quote in the prescribed format specified by the buyer. Issuing a RFQ means that buyer may probably (not the guaranty) make a commitment with one of the respondents

2.4.2. Request for Proposal (RFP) is a request by a buyer for supplier for submitting the proposal. RFP asks suppliers to propose how they would meet the buyer’s product or service need. This approach is largely used when the supplier is having greater expertise than buyer.

2.4.3. Request for Information (RFI) implies that there is no commitment from either side. Buyer asks for the information from supplier and evaluate whether they might go for particular service or job with a particular supplier.

2.5. Self Service Procurement: Self service procurement passes on the procurement jobs to end users. Materials procured under self service are normally non strategic, under contract and with fixed pre negotiated prices. Self service procurement frees the buyer from transaction procurement and helps him to focus on strategic procurement.

In self service procurement end user searches the catalogue (Catalogues are pre approved by buyer) and creates the shopping cart or purchase requisitions. These shopping carts/purchase requisitions are forwarded to supervisor of the end user automatically for approval based on work flow. Shopping carts/PR gets converted into an approved electronic PO automatically after the approval of Shopping Cart/PR. PO is also delivered to supplier automatically i.e. no intervention and no role of procurement staff in placing the orders!

2.6. Purchase Cards

To know about Purchase Cards click here

2.7. Supplier Portal: Supplier portal extends the organisational boundaries to suppliers. Here suppliers after loging into the system can download purchase orders, acknowledge the POs, quote against tenders and RFQ, participate in auction bidding, view the status of goods delivery , rejections/acceptanc, payments, inventory etc.

Financial Postings in Procure To Pay Process

noreply@blogger.com (.) — Sat, 21 Jun 2008 04:01:00 +0000

Procure to pay process is an integral part of any type of service or manufacturing organisation. If the Buying organisation is using any good ERP system then at every stage of this process some financial postings take place.

Below is the list of financial posttings against each activity of the process.

Assumption: Material Procured is a stokable item under revenue expenditure

Demand Based Planning (MRP)

noreply@blogger.com (.) — Sun, 08 Jun 2008 11:20:00 +0000

Re-Order Point based Planning: It is a simple technique. Based on the historic data, arrive at average consumption for a given period. Take the average (Quoted) lead time for the item. Calculate the quantity that needs to be maintained till material is replenished. Once the quantity reaches that level, an order is placed based on the Economic Order Quantity. It is a great technique that works. In the industry there are a few variants of the same technique, mainly differing in the quantity that is ordered or on the timing of the order.

Assumptions :

1. The demand is fairly regular
2. The supplier supplies the material with in the lead time
3. The material is available relatively easier in the market
4. The material cost, handling and storage cost are low

The above method of planning works well, only when the above assumptions are true. But the question is how many of these assumptions are true and for how many items? The biggest draw back of this method is, it is independent of demand. What does that mean? Material planning will happen based on past consumption, but not based on future requirement.

Let us take an example. Item X, has a re-order level of let us say 300 quantity. Whenever the quantity drops less than 300, an order will be raised on vendor. If the vendor offers a higher discount for a higher quantity, the order will be for a higher quantity. The inventory after the receipt of the material is now 1500. If the monthly consumption (average) is around 300, the quantity is sufficient for 5 months. Now, if the organization does not get any order for this item for the next 5 months, this will simply remain in Inventory. That leads to an important question, should the planning be based on the demand only?

There are two types of demand.

Independent Demand: The finished products or saleable items, the demand comes from either Customer Orders or forecast.

Dependent Demand : The sub-assemblies or components or raw materials that are part of the BOM for the end items. The demand for these items is indirect or comes from the Finished products demand when we explode the BOM (Bill of material).

In other words, we can broadly say, external demand and internal demand. Demand based planning has become very popular and that helps in reducing the "Unwanted Inventory" and improve the number of Inventory turns. Material Requirements planning is done based on this principle. Material Requirements Planning process is basically, getting the independent (External Demand) demand, and netting of on hand quantities. Once this is done for high level items, then explode the bills of material to calculate the components, and then repeat the process further down the levels till the raw material requirements.
There are many a books explaining this process mathematically. However let us take an example and analyze.

EX: Gross requirements /Net Requirements/Scheduled Receipts
Item Lead Time (Weeks)
A 1
B 2
C 3
D 1
E 1
-------------------------------------wk1-------wk2------wk3------wk4------wk5
Item D
Gross Requirements------ ----0---------10---------0---------0---------0--
Scheduled Order Receipt ----0----------0---------10----------------------
Projected Available ------------0----------0---------10--------10--------10
Net Requirements-----------------------10---------------------------------
Planned Order Release------10--------------------------------------------

In the above example, for Item D, the gross requirements for Week 2 is 10. So the net requirements is also 10.So planned order release is also 10 and based on the lead time, the suggestion is to place the order in the week 1 itself. However on close observation, you will find that there is a scheduled receipt of the same item in week in 3. This item will remain in stock till the next demand. This example clearly depicts that, MRP is not just a mathematical approach and even though we may use excellent ERP / planning packages, the planner needs to analyze various scenarios and take necessary ACTIONS. This is very essential. Otherwise, even with the best MRP applications, many organizations have gone bankrupt and unable to get ROI on their investments.

How to do FSN/FNS analysis

noreply@blogger.com (.) — Mon, 07 Apr 2008 14:35:00 +0000

By doing FSN analysis materials can be classified based on their movement from inventory for a specified period. Items are classified based on consumption and average stay in the inventory. Higher the stay of item in the inventory, the slower would be the movement of the material

F – Fast Moving
S- Slow Moving
N- Non moving

Sometimes the terms FNS is also being used, where

F – Fast Moving
N- Normal Moving
S- Slow Moving

There following steps in doing the FSN analysis

Calculation of average stay and the consumption rate of the material in warehouse
FSN Classification of materials based on average stay in the inventory
FSN Classification of the material based on consumption rate
Finally classifying based on above FSN analysis.

Process

Let’s take 10 materials for analysis. Following is the analysis of SKU01. Period of analysis is 15 days
Calculation of consumption rate and average stay of the material in the inventory

Opening Balance : 50

Average stay of the material = Cumulative No of Inventory Holding Days/( Total quantity received + Opening Balance) =1161/115 =10.09 Days

Consumption Rate = Total Issue Qty/Total Period Duration =46/15 =3.06 Nos/Day

Now list down the materials with average stay and consumption rate

Now Carry out the FSN analysis on the basis of Average Stay only as below in MS Excel as below by sorting down in descending order of Average stay. Every company has its policy for defining FSN . Here FSN has been taken as F--10%, S-20%, and N -70%

Now carry out the FSN classification only on the basis of consumption rate similarly as above

Now carry out final classification by combining both as under

Related Words: FSN analysis, FNS Analysis, Identification of fast moving, Slow moving and non moving inventory, Inventory Control using FSN analysis, Inventory Analysis.

Re-Order Point Calculation by using Data Trimming Methodology

noreply@blogger.com (.) — Fri, 04 Apr 2008 13:47:00 +0000

When consumption of consumable materials are having lumpy or uncertain demand pattern in the past, then calculating the safety stock and re order point by applying the normal distribution function on raw data, you can get the desired result i.e. re order point with safety stock with desired service level. But there is still tremendous scope for reducing re-order point and safety stock without reducing the service level.

Let’s analyze the following material

Material Code: SKU001
Procurement lead time: 1 Months
Service Level: 95%

Below is the consumption pattern of SKU001. It clearly shows that the demand is of uncertain pattern with very few high demand peaks (i.e column No 2)

Average Consumption per month = 11.58, Standard Deviation = 6.9
Re order Point = demand during lead time + Safety Factor x Std Deviation of demand
Re –Order Point =11.58 + 1.64x6.9 = 22.89 ~23

These demand peaks (P1, P2 & P3) are causes of increase in value of standard deviation and average consumption.

If the average consumption or standard deviation are reduced then automatically re order point quantity and safety stock are also reduced i.e. inventory is also reduced.

Since these 3 nos of peaks (Highlighted in yellow color, P1,P2 & P3 in graph ) are the cause of higher value of average consumption and std deviation.

We can trim these peak data points, let’s by two times of the average consumption. (You can trim the data point from to 1xaverage consumption to 3 x Average consumption. It all depends on your data points)

After trimming the data (P1 to P’1, P2 to P’2 & P3 to P’3) the values come as under

Average Consumption per Month = 10.81
Std Deviation = 4.57
After calculating the Re-Order Point as earlier, it comes out 18, which is reduced by 21.7%.

This is not the end of the trimming; the data can be further trimmed. Here, you can trim these three demand peaks ( P’1, P’2 7 P’3) to next highest peak of demand (Issue Qty 17, Month Dec’05, Now P’’1, P’’2 & P’’3). After trimming the value comes as under

Average Consumption per month = 10.31
Std Deviation =3.34
Now Re-order Point shall be 15.78 ~ 16 (After rounding off)

Total percentage reduction in the re-order point qty = 100*(22-16)/22 = 22.27%

So here, it can be seen that by modifying the existing raw historical data there is enough scope for reducing the inventory
Related Words : Re-Order Point Planning, Consumption based planning, Material Requirement Planning (MRP), Safety Stock Calculation

Inventory Control Using ABC & VED Analysis - a Case Study

noreply@blogger.com (.) — Sat, 29 Mar 2008 12:41:00 +0000

This case study shows how inventory can be controlled in medical stores by combined use of ABC and VED analysis.
The basic principle of inventory control is ABC based on cost criteria and VED on criticality.

Methods: Based on ABC-VED matrix, economic analysis of drug expenditure of priced vocabulary of medical stores (PVMS) section 01 for the year 2003 of a 190 bedded service hospital was under taken.
Result: Out of 493 drugs in PVMS section 01, only 325 drugs were being used in the reference hospital. The total cost of drugs used was Rupees 55,23,503. Of these 325 drugs, 47(14.4%) drugs were Category A , consuming 70% of total expenditure, 73 (22.46 %) drugs Category B consuming 20% and rest 205 drugs (63.7%) Category C drugs cost only 10% of expenditure. VED categorization done by consensus opinion of medical officers, found 24 (7.3%) drugs vital, 160 (49.3%) essential and rest 141 (43.3 %) desirable.

Conclusion: On coupling the two techniques ABC-VED matrix was made and drugs were classified in to Category I (AV+BV+CV+AE+AD) comprising 68 drugs, Category II (BE + CE +BD) 159 and Category III (CD) 98 drugs. The management of Category I drugs was monitored by top management resulting in better control on the annual expenses and at the same time making available the vital Category II by middle and Category III at lower managerial level.

To read the complete analysis click here

Inventory Analysis

noreply@blogger.com (.) — Wed, 26 Mar 2008 08:52:00 +0000

Below are the type of Inventory analysis , which are carried out for classifying materials so that materials and processes can be treated differently based on the classes of materials.

ABC
XYZ
FSN
VED
SOS
GOLF
HML
SDE

ABC Analysis

ABC analysis classifies the materials based on their consumption during a particular time period( usually one year). Depending upon the company to company A B & C items can be as under

A – Approx 5% to 10% of the Items accounting for 60% to 80% of the consumption value
B – Approx 10 % to 30% of the Items accounting for 10% to 30% of the consumption value
C –Approx 60% to 85% of the Items accounting for 5% to 15% of the consumption value

Usage of ABC Analysis
1. In day to day warehouse operations, materials are some time under issued, over issued, issued and not accounted into the system, misplaced, stolen etc. This results into inaccuracy in the inventory. Cycle counting is the process to count and reconcile the materials. Ideally, every material in the warehouse should be counted during a fixed interval (every year) for maintaining 100% accuracy, but counting & reconciling every material is not cost effective and very expensive. To count the accuracy of the inventory in a cost effective manner, it is recommended to count the materials based on inventory classification. If A class materials are counted within a fixed interval (could be six months or a year) then you need to count only 5% to 10% of the total materials and it will cover 60% to 80% of the inventory value. That means that you only count 5 % to 10% of the materials and remove the inaccuracy from the inventory value from 60% to 80%. Similarly B class materials can also be counted on a less frequency ( from once in 18 months to 24 Months) as the nos of materials become higher and C class materials at even lesser frequency(Once in 27 months to 36 months) as nos of material becomes more (60% to 85% of the total materials).

2 . An inventory controller shall be concentrating more on the A class items for reducing the inventory as he/she shall be concentrating only 5% to 10% of the total items and shall be getting the opportunity to reduce inventory on 60% to 80% of the value.

3. Any reduction in lead time of A class items shall result in reduction in inventory, so procurement manager will workout with suppliers to reduce the lead time.

4. On issue of materials, Tight control on A class, Moderate control on B class, Loose Control on C class. So A class items may be issued after getting the approvals from Senior Executives of the company. B may be moderately controlled . Very little control can be exercised while issuing C class item

Important Note: An A class item need not necessarily be a fast moving item. Alternatively C class may or may not be a fast moving item. ABC analysis is purely based on the dollar value of consumption.

XYZ Analysis:

XYZ analysis is calculated by dividing an item's current stock value by the total stock value of the stores. The items are first sorted on descending order of their current stock value. The values are then accumulated till values reach say 60% of the total stock value. These items are grouped as 'X'. Similarly, other items are grouped as 'Y' and 'Z' items based on their accumulated value reaching another 30% & 10% respectively. The XYZ analysis gives, you an immediate view of which items are expensive to hold. Through this analysis, you can reduce your money locked up by keeping as little as possible of these expensive items.

SOS Analysis:

Seasonal, Off Seasonal Report helps you to view seasonal required items.

S- For seasonal Materials
OS - For non-seasonal Materials

Purchase planning has to be done if the material is seasonal as material shall be available for a particular time period of the year.

Seasonal Items can be further classified into two groups
1. Leechee is seasonal fruit which is available only for one month in year. If any Juice and pulp company wants to buy this fruit then the procurement department shall have to plan in advance the requirement and procurement job becomes concentrated only for one month. Other than this issue, shelf life and storage is also a big problem as the plan is consume is throughout the year while the buying time available is only one month.
2. Some materials are seasonal but are available throughout the year such as grains, and other non perishable items. These items are bought during season and these items are cheaply available during season. The company can take the advantage of economies of scale in buying these materials in bulk. But at the same time the inventory carrying cost should not go beyond the profit margins while holding the large inventory

Non-seasonal materials are available throughout the year without any significant price variation.

Non seasonal items can be Plastics, Metals etc. The prices of these materials are independent of the season.

HML Analysis

This analysis is done for classifying the materials based on their prices
H -High Price Materials
M-Medium Price Material
L – Low price materials

Procurement department is more concerned with prices of materials so this analysis helps them to take them the decisions such as, who will procure what based on the hierarchy and price of material .

Some of the other objective can be as under
Helps in taking the decision such as whether to procure in exact requirement or opt for EOQ or purchase only when needed

When it is desired to evolve purchasing policies then also HML analysis is carried out i.e. whether to purchase in exact quantities as required or to purchase in EOQ or purchase only when absolutely necessary

When the objective is to keep control over consumption at the department level then authorization to draw materials from the stores will be given to senior staff for H item, next lower level in seniority for M class item and junior level staff for L class items

Cycle counting can also be planned based on HML analysis. H class items shall be counted very frequently, M class shall be counted at lesser frequency and L class shall be counted at least frequency as compared to H & M class

SDE Analysis :

S-Scarce Material i.e. hardly available
D-Difficult material i.e. difficult in sourcing.
E-Easy materials i.e. materials available easily

SDE analysis is done based on purchasing problems associated with items on day-to-day basis. Some of the purchasing problems are as under: -
Long Lead Times.
Scarcity and hardly available
Sourcing the same material from many geographically scattered sources
Uncertain and unreliable sources of supply

Purchasing department classifies these materials and formulates the strategy and policy of procurement of these items accordingly. So classification of materials is done based on level of difficulty in sourcing

S Class Materials

These materials are always in shortage and difficult in procurement. These materials sometimes require government approvals, procurement through government agencies. Normally one has to make the payment in advance for sourcing these materials. Purchase policies are very liberal for such materials

D Class Materials:

These materials though not easy to procure but are available at a longer lead times and source of supply may be very far from the consumption. Procurement of these materials requires planning and scheduling in advance. Particular OEM spares of the machinery may fall under this category as that OEM may be very far from the ordering or consumption location.

E Class Materials

These materials are normally standard items and easily available in the market and can be purchased anytime.

GOLF Analysis:

Government, Ordinary, Local, and Foreign Report help you to do material analysis based on location and type of organization.
G -Government suppliers
O- Ordinary or non government suppliers
L - Local suppliers
F - Foreign suppliers

FSN Analysis:

Classification of materials based on movement i.e. Fast Moving Slow Moving and Non Moving. Some times also called as FNS (Fast Moving, Normal Moving and slow moving).

Want to know how to do FSN analysis ? Click Here

VED Analysis :

By using this analysis for material we classify materials according to their criticality to the production i.e. how and to what extent the material M1 is going to effect the production if the material M1 is not available.

V- Vital,
E- Essential,
D- Desirable.

V class item is the item, if not issued, then the production stop shall result, Water, Power, Compressed Air are some the Vital class Items
Essential Class of items- If these items are not available then stockout cost is very high.
Desirable Class of items- If these items are not available then there is not going to be immediate production loss; stock out cost is very less.

List of the Global ERP companies

noreply@blogger.com (.) — Fri, 21 Mar 2008 08:03:00 +0000

Vendors of popular global ERP software (sorted roughly according to worldwide ERP related revenue):
Ramco Systems is the only company from India in this list

Try your hands on Microsoft ERP- Microsoft Dynamic NAV

noreply@blogger.com (.) — Thu, 20 Mar 2008 10:57:00 +0000

Do you want to access Microsoft’s ERP Microsoft Dynamics NAV and do transactions?

Thanks to Microsoft. Here is the way to access Microsoft Dynamics NAV.

If you have an MSN Hotmail, MSN Messenger, or Passport account. It’s your Windows Live ID. You can use your Windows Live ID to access the server of Microsoft Dynamics NAV.

If you do not have then you can create Windows Live ID by using your e-mail address as Windows Live ID.

You can log on by using your Windows Live ID and proceed as per the instructions on the site.

Speed of transaction will depend on your internet speed.

Click here to access the sever

Spend Analysis/Spend Data Management

noreply@blogger.com (.) — Wed, 19 Mar 2008 14:28:00 +0000

Spend data management is the process of aggregating, classifying, and leveraging historic spend data for the purpose of reducing costs, improving operational performance, and ensuring compliance.

In ideal scenario, this information should be readily available but in actual, a company may be having different locations in different countries and many of these locations may be having different material code for the same material codes, different supplier codes for the same supplier, different types of transaction systems and different type of databases. So, to getting the correct data become a challenge for such an organization. Before analyzing spend data it is utmost important to have the clean data for effective results

Below are the some sample parameters for doing spend analysis

Invoice & PO Analysis

Number of Purchase order for a supplier per week
Average value of purchase order
Average No of Purchase order raised by buyers
Number of Purchase orders with one line item
Number of Purchase order with more than 10 line items.
Number of invoices with one line item
Number of Invoices with more than 10 line items
Number of invoices for a supplier in a week
List & Number of Suppliers who generates more than one invoice per week with a single line item
List & Numbers of Suppliers who generate invoices with more than 30 line items
Number of suppliers for material group or category
Number of invoice where spend is more than 70% of the spend value
List & the Numbers of suppliers generating invoices more than 70% of your spend value
List and the Number of Categories, where spend is more than 70% of the spend
Percentage of the invoices having reference with purchase orders
List of the categories where PO is used more than 80%
List & No of Suppliers where PO is used more than 80%
Total Spent on a category/Material Group
Average Invoice Value
Average Number of line items per Invoice
Average Number of Purchase orders per buyer
Percentage of the total spend under the contracts
Spend value by Purchase Cards
Spend value by employee reimbursements

Supplier Analysis

Percentage of supplier used against total numbers of suppliers in the database
Count of suppliers with a single invoice
Average invoice value of suppliers with a single invoice
80% of the suppliers by volume equates to X% of the spend
20% of the suppliers by spend equates to X% of the volume
Count of suppliers with more than 100 invoices
Count of suppliers with more than 250 invoices (approx. 5 a week)
Number of ‘new’ suppliers this year
Number of ‘new’ suppliers in the previous financial year who have been re-used in this financial year
List top 50 suppliers by spend and volume of invoices
List suppliers who are in the top 50 by spend and by volume of invoices
Number of Duplicate suppliers identified
List of the supplier who have supplied material without any defect in quality
List of the suppliers who have supplied material in correct quantity
List of the suppliers who have supplied material with less than 0.1% defects
List of the suppliers who have sent the invoices without any defect.
Number of Local Suppliers
Number of SMEs
Contracted Suppliers
Suppliers who are Purchase Card enabled
Bottleneck, Routine, Strategic and Leverage suppliers (i.e. risk vs. spend)

Material/Services Analysis

Percentage of invoice lines and spends against unspecific categories
List product/service categories which are in the top 50 by spend and by volume of invoices
List product/service categories by number of unique suppliers used
Risk/Value analysis of the top 50 product/service categories
List of the materials for which number of PO were more than 100

Spend data Analysis

Leveraging of Spend Value

For example, from that above data, for a certain category of items, let’s say Bearings, if spend analysis shows that there are five or six or more vendors/suppliers, from whom the company has procured Bearings. Then by analyzing the total annual spend value on Bearings the strategic sourcing manager can negotiate with existing vendors as what discount each one of them can offer if he places the entire spend value order with any of them. Based on spending power, Strategic sourcing Manager can also negotiate with supplier for VMI (Vendor Managed Inventory) also!

If spend analysis shows that one department pays a lot more for a motor than another one does, for example, the company can move to consolidate motor purchases. It can also implement the processes needed to ensure all departments comply with new contract rules regarding purchasing the less expensive motor. By focusing on the elimination of duplicate, equivalent or similar item-analysis companies can achieve significant cost savings. Companies can also add supplier hierarchy, diversity attributes and performance standards into spend analysis.

Procurement & Payment Processing Costs

Looking from the data, there may be suppliers who have supplied material without any defect. For such kind of suppliers you can eliminate the inspection process.

There may be suppliers who are sending multiple invoices for the one purchase order or sending more than one invoice with one line item per week. This practice by suppliers leads to increase in payment processing cost at your company. Sourcing manager can discuss this issue with supplier and can request them not to raise invoices frequently or once in a month or at lesser frequency.

If spend data shows that there are lots of transactions with or without PO for low value materials then the company can take the decision of introducing Purchase Cards for procurement of low value & less critical materials as Purchase card is an effective tool to reduce the procurement and payment processing costs.

Benefits of Spend data Management/Spend Analysis

Business Processes on SAP R/3

noreply@blogger.com (.) — Tue, 18 Mar 2008 08:11:00 +0000

Don’t have hands on experience on ERP or on SAP R/3 or want to know business processes on ERP in details?

Don’t worry! Below is the link, where you can see the step by step processes such as Creation of Purchase Requisition, Change in Purchase Requisition, Releasing Purchase requisition etc in detail with SAP R/3 screen shots and SAP transaction codes.

The modules available in this web site are Procurement, Inventory, Supplier Relationship Management (SRM), Plant Maintenance and many more.

On this web site you can see on the screen or you can download the MS Word file.

Click here to visit the website.

Warehouse KPIs

noreply@blogger.com (.) — Mon, 17 Mar 2008 16:06:00 +0000

Here is the list of some of the Warehouse KPIs.

1. % of vehicle unloaded with 24 hrs of reporting of vehicles at main gate.
2. % of SKUs for which GRN in the system was created within 12 hours after the unloading of vehicle.
3. % of SKUs inspected within 7 days after creation of GRN in the system.
4. % of SKUs moved to warehousing locations within 24 hours after inspection.
5. % of rejections for which suppliers were intimated within 24 hours after inspection.
6. % of Material request/Pick orders served within 12 hours of request raised.
8. Material request fill rate.
9. Service Level Maintained.
10. % of PRs against with action was taken within 24 hours.
11. Inventory Turn Over Ratio .
12. ARV/ERV ratio for the inventory(for MRO SKUs in Process Industries).
13. % of A,B,C, X,Y & Z class item counted within specified target.
14. % Discrepancy found during cycle counting (By Value and By Nos of SKUs).
15. % of Incorrect/Damaged SKUs issued/despatched from warehouse.
16. Space Utilization by Nos of SKUs/Value per Sqft.
17. Warehousing cost per SKU/Value.
18. Obsolete inventory as a % of Total Inventory Value.
19. Slow Moving inventory as a % of Total inventory value.
20. Surplus Inventory as a % of Total inventory value.
21. % reduction in obsolete inventory value YoY.
22. % reduction in slow moving inventory YoY.
23. % reduction in surplus inventory YoY.

Order Accuarcy Measurement

noreply@blogger.com (.) — Fri, 07 Mar 2008 10:26:00 +0000

Order Accuracy Measurement calculates accuracy of each process and step right from receiving Purchase order from customer and up to the delivery of the material and invoicing.

How can you record the errors?

Despatching location staff punches the sales order based on received PO from the customer. At this stage he may commit error while punching it. Warehousing staff picks and ships the ordered items. Later on or at the time of despatching the material, invoice is created and sent to the customer.

When your customer receives the material & invoice and notices the error, he contacts the despatching location of your company and notify the concerned staff of the mistake.

The source of error can be wrong punching in sales order, wrong picking & shipping or incorrect Invoicing or the combination of these. The staff of despatching location then creates the credit note for the shipped wrong/damaged item or for incorrect invoice.

Whatever may be the error, you issue a credit note to your customer as a corrective action.

When you issue a credit note to any customer, vendor etc, almost every system requires a "reason code" to be used.

When you use reason codes while issuing credit notes to your customers then you can use these reason codes to analyze the error rate or accuracy of each activity or process and you can use the activities/processes to arrive at the Order Accuracy Measurement.

Reason codes could be Incorrect Sales Order, Pack & Ship Inaccuracy, Damage-In-transit,
Inaccurate Invoice etc

Order Entry Accuracy: 99.92%
Pick & Ship accuracy: 99.0%
On time Delivery: 95%
Shipped without Damage: 98.5%
Invoicing Accuracy: 99.6%

Therefore, the Order Accuracy is = 99.92%x 99.0%x 95% x 98.5% x 99.6% = 92.19%

If you have practice of giving credit note to your customers of late deliveries the you can measure the performance of "On time Delivery" else you can raise credit note with zero value, if your system allows it to do so.