Page 118 - DCAP302_ENTERPRISE_RESOURCE_PLANNING

Enterprise Resource Planning

notes dealing with hundreds and thousands of raw materials and components, keeping track of the
lead-times for each and every individual item manually is a practically impossible task.
ERP systems help in automating this task and thus make inventory management more efficient
and effective. Also, since the ERP system is integrated and the materials management module is
integrated with other modules like sales, marketing, purchasing, manufacturing and production
planning, the demand for a particular item can be known as early as an order is received. For
example, consider that an order is received for supplying say 100 cars with air-conditioners. As
soon as the order details are entered into the system, a lot of actions are triggered. The system
will check whether the items are available in the finished goods inventory. Then it will generate
a BOM for the order and will check whether all the items are available in the inventory. Since
all the records are kept in the system’s database and since everything is up-to-date, finding out
the parts that are to be ordered takes no time. So, once the items that are to be manufactured are
identified and once the production planning system prepares a production plan, the materials
management module will prepare purchase orders for each and every item taking into account
the lead-times and when the items are required for production. If the purchasing process has to
go through the invitation of quotations, vendor selection, etc, the system does that also.
Since most suppliers are also connected to the organization’s system as soon as purchase order
or requisition is issued the supplier’s system is updated with that information. Thus, the supplier
knows what items are to be supplied, and when. Since activities like preparation of contracts,
issuing of purchase orders and payments, etc. happen through the system electronically, the
saving in time are phenomenal. So the ERP systems by virtue of their integrated nature, the
use of latest technologies (like electronic funds transfer (EFT) electronic data interchange (EDI))
reduce the lead-times and make it possible for organizations to have the items at the time they
are needed (just-in-time inventory systems).
Some other benefits of reduction lead-time are:

1. Labor cost reduction: the automation and removal of redundant processes or redesign of
processes led to full time staff reduction in tasks in business areas including: customer
services, production, order fulfillment, administrative processes, purchasing, financial,
training and human resources.
2. Inventory cost reduction in management, relocation, warehousing, and improved turns.

3. Administrative expenses reduction in printing papers and supplies.
4. Better resource management.
5. Improved decision making and planning.
6. Performance improvement.

6.4 reduction in cost

Quality is defined in many different ways excellence, conformance to specifications, fitness for
use, value for the price and so on. Whereas manufacturing and design engineers typically are
responsible for some of the technological issues in quality assurance for products, operations
managers often conduct the analysis of quality related costs, which is an important task. Strategic
opportunities of threats frequently motivate the launch of aggressive quality management
initiatives. Analyzing the cost of quality can provide the financial justification for implementing
them. Typically the quality costs are in the range of 20% of the cost of goods sold. Carefully
planning quality improvement activities not only improves quality but, lowers quality related
costs.
Increased business flexibility by response to internal and external changes quickly at lower costs
and provide a range of options in response to the changed requirements.

112 LoveLy professionaL university