how to manage business without erp

HASH MANAGEMENT SERVICES LLPCHENNAI

www.bus inessense . in

Best Practices for SMEs

“Managing your business without expensive ERPs”

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

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 Light Engineering

www.hashllp.comwww.businessense.in

Contents



Issues facing SMEs



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

Contents



Issues facing SMEs



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

Issues facing SMEs - External

Source: Website of Small & Medium Business Development Chamber of India

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

Results of these issues

Lack of Best

Practices

External Issues

Internal Issues

Vicious Cycle

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

Contents



Issues facing SMEs



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

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

Contents



Issues facing SMEs


Case Study – Purchase function in an SME

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

3 Steps to manage Purchase Function

ABC Analysis

Ordering Techniques based on the analysis

Data Collection and MIS Reports

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

20%

80%

80%

20%

Items Value

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%

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.

A Category

B Category C Category

Few Items = More consumption in value

More Items = Low consumption in value


ABC Analysis



Ordering Techniques

Category Characteristics Ordering Techniques Reason

AVery High Value. Need to monitor

continuously

Scheduled Shipments / Standard Order Quantity

(SOQ)

For items whose consumption is

regular through-out the season

Re-Order level

For items whose consumption do

not follow a pattern

B

Moderate Value – Moderate Impact on

the Inventory Holding

Re-Order levelOrder based on the

Re-Order level

C

Low Value – No major impact on the Inventory Holding

Cost

MinMax / Two Bin System

Do not focus more on the C Category

items

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 4October 300 300 300 300

November 300 300 300 300December 300 300 300 300

January 300 300 300 300February 300 300 300 300

March 300 300 300 300

Re-Order Level

Material Arrival

Material Arrival

Material Arrival

Safety Stock – 90 kgs

Lead

tim

e co

nsum

ption

-360

kgs Average

Stock holding

Re-Order Point

Day 1 Day 10

Averge Monthly consumption in kgs - A 900Per day consumption in kgs - B=A/25 36Lead time in days - C 10Leadtime Quantity in kgs - D=C*B 360Safety Stock in days - E=C*25% 2.5Safety Stock Quantity in kgs - F=E*B 90Re-Order Level in kgs - G=D+F 450Re-Order Quantity - D 360

Two Bin System – For C Class Items

FULL300kgs

FULL300kgs

EMPTY0 kg

FULL300kgs

FULL300kgs

FULL300kgs

Both the bins are full

Do not order. Wait till one bin becomes empty

One Bin is empty. Order 600 kgs. (By the time the materials arrive the second bin also nears empty level)

Both the bins are full

Do not order. Wait till one bin becomes empty

Stage 1

Stage 2

Stage 3

Benefits of the Ordering techniques

All the three methods of ordering

the materials require close

coordination with the Stores.

Effective use of these three

methods of ordering would bring

down the inventory by around

25~30% of the current levels

(from our past experience in

various firms across industries)

AfterImplementation

25~30% reduction in inventory

BeforeImplementation


ABC Analysis



MIS Reports

Type Report NameKey

Parameters Frequency Questions to ask

Absolute Reports

Monthly Purchase report

Monthly Purchase value Monthly

Is there a significant increase in the purchase value compared to the last monthIf yes, what are the major items contributing to this increase ?

Pending Order Report

Pending Orders Report

Updated Daily

How many POs are pending daily. Is the trend increasing ? What are the items present more than the lead time?

Variance Reports

stock-Out report

No of stock-outs in a month

Monthly

What is the trend of number of stock-outs? What are the items contributing to the stock outs? Are these items frequently figuring in

this list? How to avoid this in the future?How many times the lead time has exceeded ? By how many days? Is

this happening for the same item? Same supplier? Is this time to update the lead times ?

No of times A Class items exceeding the respective leadtime No of times safety stock is reached for items under ROL ordering system

Incoming Quality Report

Quality issues in the incoming materials

Monthly

What is the Pareto of the quality issues in the incoming materials ? What is the trend ? Is it for the same item / from same supplier? What is the time taken by the supplier to rectify/send new materials ? How to avoid this in the future ?

Price Change Report Price changes Monthly

How many of the price revisions happened for A & B category items ? what is the 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 ?

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

HASH MANAGEMENT SERVICES LLPCHENNAI

www.bus inessense . in

Best Practices for SMEs

“Managing your business without expensive ERPs”