How to manage business without ERP
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The document discusses best practices for small and medium enterprises (SMEs) to manage their businesses without expensive ERP systems. It first provides an overview of SMEs in India, noting they are an important part of the economy. However, SMEs face both internal issues like limited capital and skills, and external issues like competition and funding shortages. As a result, many SMEs lack optimal processes and best practices. The document then presents a case study of managing purchases without ERP. It recommends classifying items into A, B, C categories based on value and analyzing ordering techniques for each. Data collection and management reporting is also important to monitor business parameters without expensive software.
How to manage business without ERP
- 1. Best Practices for SMEs “Managing your business without expensive ERPs” HASH MANAGEMENT SERVICES LLP CHENNAI www.businessense.in
- 2. Contents Introduction to Hash Management Services LLP SMEs in India – An Overview Issues facing SMEs How to manage the business without expensive ERPs Case Study - Purchase function in an SME
- 3. Introduction to Hash Management Services LLP Hash Management Services LLP works with manufacturing companies in the areas of Productivity improvements, Inventory and Purchase Optimization, and Supply Chain Re-Engineering Our areas of expertise are Lean Manufacturing Implementation covering 5S and other tools, Supply Chain Management, Market Assessment and Detailed Project reports Working on innovative ways to serve clients in the SME sector – through online training programs and niche applications to monitor the businesses More than 50 companies in the last 6 years across the following sectors: Auto Ancillaries Leather and Footwear Manufacturing Pumps Castings and Forgings Fabrication Electronic Components Manufacturing Medical Equipment Manufacturing Heavy Engineering www.hashllp.com Light Engineering www.businessense.in
- 4. Contents Introduction to Hash Management Services LLP SMEs in India – An Overview Issues facing SMEs How to manage the business without expensive ERPs Case Study - Purchase function in an SME
- 5. Introduction to SMEs in India SME sector of India is considered as the backbone of economy contributing to 45% of the industrial output Around 30 million SMEs in India Growth rate of 8% per year Approximately 40% of India’s exports Employ 60 million people Create 1.3 million jobs every year Produce more than 8000 quality products for the Indian and international markets Source: Website of Small & Medium Business Development Chamber of India, Europe-India SME Business Council
- 6. Contents Introduction to Hash Management Services LLP SMEs in India – An Overview Issues facing SMEs How to manage the business without expensive ERPs Case Study - Purchase function in an SME
- 7. Issues facing SMEs - Internal Sub-optimal scale of operation Supply chain inefficiencies Limited capital and knowledge Non-availability of suitable technology Ineffective marketing strategy Identification of new markets Constraints on modernization & expansions Non availability of highly skilled labour at affordable cost Source: Website of Small & Medium Business Development Chamber of India
- 8. Issues facing SMEs - External Increasing domestic and global competition Fund shortages - absence of adequate and timely banking finance Turbulent and uncertain market scenario Shortage in Skill Development Centers Industry Specific – Leather and Footwear Pollution related requirements Labor oriented – Absenteeism / Attrition Source: Website of Small & Medium Business Development Chamber of India
- 9. Results of these issues Lack of Best Vicious Practices Cycle Internal External Issues Issues
- 10. Lack of Best Practices Lack of Process Oriented approach Lack of a robust planning process No Systematic data collection Lack of analysis of data Lack of visibility in critical business parameters MIS Reports – not presented to the senior management on time Lack of awareness of the best practices
- 11. Contents Introduction to Hash Management Services LLP SMEs in India – An Overview Issues facing SMEs How to manage the business without expensive ERPs Case Study - Purchase function in an SME
- 12. Is ERP a solution to all these issues? Many think ERP is the magic pill which would solve all these issues ! But, what goes in, comes out ERP readiness is not assessed in many cases Many instances of poor implementations People use reports / data from various sources even after implementing ERP Organization should be very clear on their business requirements before implementing ERP
- 13. How to manage the business with out ERPs Understanding how each department/function interacts with other in an organization Understanding the important parameters that one should monitor on a regular basis Ensuring data collection and analysis – MIS Reports Training the staff and employees on the basics of operations management
- 14. Contents Introduction to Hash Management Services LLP SMEs in India – An Overview Issues facing SMEs How to manage the business without expensive ERPs Case Study – Purchase function in an SME
- 15. Current Situation - Purchase Buying materials as and when required ABC Classification not done No specific ordering techniques for different types of materials No systematic planning process No documented Vendor Management Processes Telephone based ordering – no documentation High value items are purchased in large quantities In some cases we found nearly 3 months of stock holding
- 16. 3 Steps to manage Purchase Function ABC Analysis Ordering Techniques based on the analysis Data Collection and MIS Reports
- 17. ABC Classification Pareto Analysis / 80-20 rule 20% of the items would constitute 80% of the value Few other examples: 20% of the causes results in 80% of the defects 20% of the population controls 80% of the wealth Items Value 80% 20%
- 18. ABC Classification In any organization, the raw materials form about 60~65% of the Cost of Goods Sold (COGS). COGS: All Raw Materials – 60~65% Labor Cost – 7~8% Power & utiities – 8~10% . . . _______________________ Total – 100%
- 19. ABC Classification While analyzing the raw materials it would be clear that the top 20% of the items would constitute about 80% of the purchase value. Next 30~40% items would constitute about 15% of the purchase value. Remaining 50% of the items constitute 5% of the purchase value. Few Items = More consumption in value A Category B Category More Items = Low consumption in value C Category
- 20. 3 Steps to manage Purchase Function ABC Analysis Ordering Techniques based on the analysis Data Collection and MIS Reports
- 21. Ordering Techniques Category Characteristics Ordering Techniques Reason For items whose Scheduled Shipments / consumption is Standard Order Quantity Very High Value. Need regular through-out (SOQ) A to monitor the season continuously For items whose Re-Order level consumption do not follow a pattern Moderate Value – Order based on the B Moderate Impact on Re-Order level Re-Order level the Inventory Holding Low Value – No major Do not focus more on C impact on the MinMax / Two Bin System the C Category items Inventory Holding Cost
- 22. Scheduled Shipments / Standard Order Quantity Few items in the A category whose consumption does not vary across months can be ordered with a single purchase order asking the supplier to deliver the items as per the schedule the company gives the supplier. Average consumption of an item is around 1200 kgs per month and there is no major variation in consumption predicted for the next 3 months. In this case the item need not be bought in bulk and stored. Instead the item can be ordered once for 3 months and can be asked to scheduled such that it reaches the factory every week Quantity in Kgs Week 1 Week 2 Week 3 Week 4 October 300 300 300 300 November 300 300 300 300 December 300 300 300 300 January 300 300 300 300
- 23. Re-Order Level Material Material Material Arrival Arrival Arrival Re-Order Point consumption Lead time Averge Monthly consumption in kgs - A 900 -360 kgs Average Per day consumption in kgs - B=A/25 36 Stock holding Lead time in days - C 10 Leadtime Quantity in kgs - D=C*B 360 Safety Stock in days - E=C*25% 2.5 Safety Stock Quantity in kgs - F=E*B 90 Day 1 Day 10 Re-Order Level in kgs - G=D+F 450 Safety Stock – 90 kgs Re-Order Quantity - D 360
- 24. Two Bin System – For C Class Items Both the bins are full Stage 1 FULL FULL 300kgs 300kgs Do not order. Wait till one bin becomes empty One Bin is empty. Order 600 kgs. EMPTY FULL (By the time the materials arrive Stage 2 0 kg 300kgs the second bin also nears empty level) Both the bins are full FULL FULL Stage 3 300kgs 300kgs Do not order. Wait till one bin becomes empty
- 25. Benefits of the Ordering techniques Before All the three methods of ordering the Implementation materials require close coordination 25~30% reduction in inventory with the Stores. Effective use of these three methods After of ordering would bring down the Implementation inventory by around 25~30% of the current levels (from our past experience in various firms across industries)
- 26. 3 Steps to manage Purchase Function ABC Analysis Ordering Techniques based on the analysis Data Collection and MIS Reports
- 27. MIS Reports Type Report Name Key Parameters Frequency Questions to ask Monthly Purchase Monthly Is there a significant increase in the purchase value compared to the last month Monthly report Purchase value If yes, what are the major items contributing to this increase ? Absolute Reports Pending Order Pending Orders Updated How many POs are pending daily. Is the trend increasing ? What are the items Report Report Daily present more than the lead time? No of stock-outs in a month No of times A Class items What is the trend of number of stock-outs? What are the items contributing to the exceeding the stock outs? Are these items frequently figuring in this list? How to avoid this in respective the future? stock-Out report Monthly leadtime How many times the lead time has exceeded ? By how many days? Is this No of times safety happening for the same item? Same supplier? Is this time to update the lead times Variance stock is reached ? Reports for items under ROL ordering system Quality issues in What is the Pareto of the quality issues in the incoming materials ? What is the Incoming Quality the incoming Monthly trend ? Is it for the same item / from same supplier? What is the time taken by the Report materials supplier to rectify/send new materials ? How to avoid this in the future ? How many of the price revisions happened for A & B category items ? what is the Price Change Report Price changes Monthly impact of the price change in our costing? How to minimize the effect? Is the relevant departments(accounts/bill passing) aware of the price change ?
- 28. How to follow these 3 steps regularly? Training the staff on the basics of each function Continuously monitor the key parameters Make this a culture of your organization
- 29. Best Practices for SMEs “Managing your business without expensive ERPs” HASH MANAGEMENT SERVICES LLP CHENNAI www.businessense.in