CHAPTER[I 5

ERP Modules

INTRODUCTION

All ERP packages contain many modules. The number and features of the
modules vary with the ERP package. In this chapter, we will see some of the
most common modules available in almost all packages.
• Finance,
(9Manufacturing and Production Planning,
• Sales and Distribution,
• Plant Maintenance,
• Quality Management,
• Materials Management, etc.
This is by no means a comprehensive list. Some packages will have a
subset of this and some will have more modules and/ or features. For detailed
information, you will have to consult the product literature of the specific
ERP system.

FINANCE

Ev Introduction
~he en tire concept of information technology is based · on the premise that
providing the right information, to the right people, at the right time can
make a critical differ~nce to the organization. Much of this key information
could be taken from the financial data) But merely having the financial data
 ERP Modules 65

is not enough. You need a set of processes and views of your data that
provides up-to-the-minute financial information in exactly the form you need it
to make that critical difference and help with that crucial decision. Account-
ing software needs access to information in each area of your organization,
from R&D and market research through manufacturing, distribution and
sales. Your financial solution must provide the management with information
that can be leveraged for strategic decisions, in order to achieve competitive
advantage.
(This section provides an overview of the financial solutions in most of the
ERP packages. In today's business enterprise, you need to know that your
financial decisions are based on today's data, not numbers from records
closed a month ago, or even a week ago) And you need to know that this
same 'today's' data represents every segment of your organization's activities,
whether your enterprise stretches across a room or around the globe. This
is essential, because the most efficient way to get your enterprise to where
you want it tomorrow is to know exactly where it is today.
Whatever be the financial goals of your organization, the financial applica-
tion components of the ERP solutions work hand-in-hand to improve the
bottom line. This is true because the financial functionality is tightly inte-
grated across all business areas and all geographic areas. This tight integra-
tion includes all the other different modules, from materials management to
human resources to logistics. Because the ERP system automatically links
related areas, it eliminates the need to repeat procedures. You enter your
data only once. Within the ERP system, all areas work in concert, creating
a new level of efficiency in handling your financial data.
(The finance modules of most ERP systems provide financial functionality
and analysis support to thousands of businesses in many countries across
.the globe. These ERP systems include not only financial application compo-
nents; but also Human Resources, Logistics, Business Workflow and links to
the Internet. Hundreds of business processes are covered in these systems_)
{Th~ finance modules of most ERP systems will have the following sub-
systems:)
"'CJ Financial Accounting (General Ledger, Accounts Receivable/Payable,
Special Ledgers, Fixed Asset Accounting, Legal Consolidation)
VO Investment Management (Investment Planning/Budgeting/ Controlling,
Depreciation Forecast/ Simulation/ Calculation)
'r::J Controlling {Overhead Cost Controlling, Activity-Based Costing, Prod-
uct Cost Accounting, Profitability Analysis)
 66 Euterjnise Resource Planni11g

'tJ" Treasury (Cash Management, Treasury Management, Market Risk

Management, Funds Management)
''fj Enterprise Controlling (Executive Information System, Business Plan-
ning and Budgeting, Profit Centre Accounting)

D Financial Accounting
(The objective of a good financial accounting system is to provide company-
wide control and integration of financial information that is essential to stra-
tegic decision-making. The Financial Accounting Module of an ERP system,
gives you the ability to centrally track financial accounting data within an
international framework of multiple companies, languages, currencies, and
charts of accounts.) For example, when raw materials move from inventory
into manufacturing, the system reduces quantity values in inventory and
simultaneously, subtracts values for inventory accounts in the balance sheet.
Most of the Financial Accounting modules comply with international account-
ing standards, such as GAAP and IAS. They also fulfill the local legal require-
ments of many countries.

General Ledger
(The General Ledger (GL) is essential both to the financial accounting system
and to strategic decision-making. Through active integration with business
processes in logistics and in the accounting sub-ledgers, the GL serves as a
central pool of financial data for financial reporting as well as for other
accounting areas) However, the origin of centrally stored data can still be
traced at any time by drilling down on data from a given transaction.
(The General Ledger supports all the functions needed in a financial ac-
counting system. This includes flexible structuring of the chart of accounts
at the group and company level, distributed application scenarios, real-time
simultaneous update of sub-ledgers and the general ledger, elimination of
time-consuming reconciliation, and parallel views of data, in both the general
ledger and the managerial accounting applications) The GL provides docu-
ment parking, posting, reporting, and an integrated financial calendar for
automating periodic activities. A typical general ledger is shown in Fig. 5.1.
The system also provides summary information from other components at a
user-defined level of detail. By creating combinations of entered data, you
generate data summaries, that can be used in planning, allocation, distribu-
tion and reporting.
 ERP Modules 67

Sales
Purchasing
(Order & Bill)
(Quantity & Value)

Customer
(Receivable)

Employees (Salary &

Wages)

Fixed Assets

GENERAL LEDGER

>- Fig. 5 .1 Typica! general ledger

Usually, the GL has features that allow you to take advantage of more
functions -in General Ledger and in Cost Centre Accounting. For example, you
can create your own database tables and define non-standard fields, to suit
specialised accounting or reporting requirements. Some ERP systems support
features, like the option of grouping data selectively and then, updating it in
only there ledgers- which have been specified; provision for parallel charts of
 68 Enterprise Resource Planning

account and currencies; planning and allocation tools; direct data entry in
special purpose ledgers for adjustment postings; user-defined reporting; etc.

Accounts Receivable and Payable

(ERP systems offer a financial overview of global business partner relation-
ships, in the Accounts Receivable and Payable functions. These sub-ledgers
are integrated, both with the General Ledger and with, areas in Sales and
Distribution and Materials Management, where financial data originates.
Accounts Receivable and Payable transactions are performed automatically,
when related processes take place in other modules. This module uses stan-
dard business rules for procedures ranging from data entry and reporting, to
processing payments and bank transactions} Accounts Receivable and Pay-
able functions include Internet integration, document management, full sup-
port for EDI. processing, including automatic integration with cash manage-
ment and flexible reporting using customer and vendor information systems.
The module also provides, enterprise-wide credit management with workflow
integration, payment automation with EFT and check processing, and docu-
ment parking with various approval procedures.

Asset Accounting
(A.sset accounting, manages the company's fixed assets. Within the Financial
Accounting system, Asset Accounting serves as a sub-ledger to the General
Ledger, providing detailed information on asset-related transactions. Signifi-
cant features. include country-specific charts of depreciation complying with
local legal requirements, full support throughout the asset life cycle from
acquisition to retirement, depreciation simulation and interest calculation,
and integration with project management and order accounting for manage-
ment of capital assets) Asset Accounting also provides integration with Plant
Maintenance for management of machinery and equipment, management of
leased assets and assets under construction, mass processing with workflow
integration, and interactive reporting.

Legal Consolidation
(Consolidated financial statements need to be integrated effectively with
operational data at the individual company level. By using different valuation
methods, you can plan balance sheet strategies to suit the company's re-
quirements. The Legal Consolidation sub-system is closely 'linked to the Fi-
nancial Accounting system, permitting direct data transfer, from individual
statements into the consolidated report) This eases the workload of the staff
 ERP Modules 69

and reduces data entry errors. In addition to the consolidated statements

required by law, Legal Consolidation also allows you, to create multiple views
of your consolidation data. With these views you can generate reports about
legal entities or segments of your business.

E, Controlling

(The controlling system gathers the functions required for effective internal
cost acc01.;i.nting.It offers a versatile information system, with standard re-
ports and analysis paths for the most common questions. In addition, there
are features for creating custom reports to supplement standard reports)
/::.:c,.. d I t1 c c ,"'.' ,~ l·. ·r / t < ,,..[ 1

Overhead Cost ControlUng l/19~t-· . @/ c . n "IL.· ea_..J .~.·,--;~.'if

. · . .-.P ', ':.--~- · ''l ; . ·-·~. ' -1 .••.. • 1·"',.,
1JU!1Lh Onr. r,q ti, {:ri r t.>.li. r::.J.:.. /1 (l <-~ ~· t 1 ·• - . {

· (Many organizations experience a significant increase in the percentage of d.cut·.

indirect costs, which cannot be directly assigned to either the products
manufactured, or to the services rendered) While cost monitoring and
optimisation may be quite advanced in production areas, transparency is
often lacking in overhead cost areas. The Overhead Cost Controlling sub-
syst~m focqse~ on_ tqe .monitoring and allocation of overheads.
L·j,.... . 'z··_,. '1· . ('.
,[(,,t-T..-·f/['iCh~·
•. s s .t ,
,.1 , v~''J
•.... 1
·''{ ,:::1
;
(._. ,,; Y-U.j ttJ.A.-&· / "
J..,L~.t.- »>
~«

Cost Centre Accounting

(cost centre accounting analyses where overheads occur within the organiza-
tion. Costs are assigned to the sub-areas of the organization where they
originated) The system offers a wide variety of methods for allocating posted
amounts and quantities. In particular, activity accounting permits, the allo-
cation of great many costs to products, based on cost sources and enabling
assignments, which were not previously· possible.

Overhead Orders
(overhead orders subsystem collects and analyses costs, based on individual
internal measures. This system can monitor and automatically check budgets
assigned to each measure.)

Activity-Based Costing
(The goals of the entire organization, should come before the goals of indi-
vidual departments, when it comes to business process reengineering. The
Activity-Based Costing module, is a response to the growing need for moni-
toring and controlling cross-departmental business processes, in addition to -
functions and products. Seeing costs from a new perspective, substantially
 70 Enterprise-Resource Planning

enhances organizational transparency in overhead areas.)The system auto-

matically determines the utilisation of business processes by products, cus-
tomers, and other cost objects based on the cost drivers taken from the
integrated accounting environment. This, significantly reduces the effort in-
volved in maintaining a business process model in a separate system.

Product Cost Controlling

fferoduct cost controlling module determines, the costs arising from manufac-
turing a product, or providing a service. Plan and standard values, serve in
valuating warehouse stock and for contrasting revenues received with costs)
In addition, the values in Product Cost Controlling, are crucial for determin-
ing the lowest price limit for which a product is profitable. Simulations illus-
trate the effects of changes in production methods on the cost of goods
manufactured.

Cost Object Controlling

(Cost object controlling helps you monitor manufacturing orders. Integration
with the logistics components results in a logistical quantity flow, that pro-
vides instant information on actual cost object costs, allowing ongoing costing
calculations at any time) Follow-up calculations determine and analyse the
variances between actual manufacturing costs, and the plan costs resulting
from Product Cost Planning.

Profitability Analysis
(Profitab-ility analysis subsystem examines the sources of returns. As part of
sales controlling, Profitability Analysis is the last step in cost-based settle-
ment, where revenues are assigned to costs according to the market segmeny
You can define any market segment-distinguishing, for example, between
products, customers, orders, sales organizations, distribution channels and
business areas-and evaluate it, according to contribution and revenue
margins. Information from Profitability Analysis, frames important decisions
in areas such as determining prices, selecting customers, developing condi-
tions and choosing distribution channels.

D Clnvestment Management )

(Investment management provides extensive support for investment processes

right from planning through settlement. Investment management facilitates
 ERP Mad ules 71
investment planning and budgeting at a level higher than that needed for
specific orders or projects. You can define an investment program hierarchy
using any criteria-for example, department-wise. As a result of subsequently
assigning specific investment measures (internal orders or projects), to posi-
tions in the hierarchy, you are kept up-to-date about available funds, planned
costs, and actual costs already incurred from internal and external activities.
The investment program allows you to distribute . tmdg~ts, which are used
during the capital spending process. T~~~~-y~-t~·;;" .hel ps you· monitor, and
thereby avoid, budget overruns.
Investment Management provides tools, enabling you to plan and manage
your capital spending projects right from the earliest stage. In the initial
stage of the capital spending process, you enter the application for the spend-
ing project as an appropriation request. You define your own evaluation and
approval process, during which the system keeps a detailed history of the
status of the appropriation request. You transfer the data from the appropria-
tion request, to the investment measure, when the request is approved for
implementation. You enter detailed plan values in the appropriation request,
and its different variants, for use in the pre-investment analysis.
Depending on their complexity, investment. measures that need to be
monitored individually can be represented either as internal orders or
projects. These internal orders or projects, provide the means for actually
. carrying out the capital investment; that is, they serve as the objects for
collecting primary and secondary costs, for calculating overhead and interest,
for managing down payments and commitments, and for handling other re-
lated tasks. As the result of having an asset under const~uction assigned to
it, the investment measure also benefits from all of the required asset ac-
counting functions. Settlement is both flexible and almost fully automatic.
This kind of settlement ensures a complete integration with business plan-
ning and control, and provides consistently up-to-date values. Investment
Management module recognises the importance of the asset accounting as-
pects of investment measures. The system automatically separates costs
requiring capitalisation from costs that are not capitalised, debiting the cor-
rect costs to the asset under construction. For different accounting needs,
the system can use different capitalisation rules for making the split. At its
completion, the investment measure can be settled to various receivers by
line item. Asset accounting provides precise proof of origin for all transactions
affecting acquisition and production costs.
Budgeted balance sheets and cost planning are always based on current
values. Planned depreciation values for investment measures and appropria-
72 Enterprise Resource Planning

tion requests, can be transferred directly to ongoing overhead cost planning.

The system recalculates expected depreciation amounts whenever planning
data is updated.

Er Treasury Module
You can gain a significant competitive advantage by efficiently managing the
short, medium, and long-term payment flows and the resulting risk exposure.
Tasks such as short-term monitoring and concentration of bank account
balances, medium-term planning, and forecasting of incoming and outgoing
resources in accounts receivable and payable, to a long-term view of areas
such as materials management and sales, underline the importance of inte-
grating information from various company divisions. Linking these operating
divisions to realised and planned financial transactions and positions in
Treasury, has a significant impact on the company's success. Such integra-
tion also facilitates management and control of cash flows, and risk positions
through all the divisions in the company. The Treasury component provides
you with a basis for effective liquidity, portfolio and risk management.

Cash Management
The cash management subsystem, allows you to analyse financial transac-
tions for a given period. Cash Management also identifies, and records future
developments for the purposes of financial budgeting. The company's pay-
ment transactions are grouped into cash holdings, cash inflows and cash
outflows. Cash Management provides information on the sources and uses of
funds to secure liquidity inorder to meet payment obligations when they
become due. Cash Management also monitors and controls incoming and
outgoing payment flows, and supplies the data required for managing short-
term money market investments and borrowing. Depending on the time pe-
riod under review, a distinction is made between cash position, short-term
cash management and medium and long-term financial budgeting. The Cash
Management component thus ensures that all information relevant to liquid-
ity is available to you for analysis purposes, creating a basis for the necessary
cash management decisions.

Treasury Management
In your role as treasurer, you· take the results of your current liquidity, cur-
rency, and risk positions and consider the conditions prevailing on the money
and capital markets, before implementing concrete decisions in the form of
financial instruments in Treasury Management. The Treasury Management
l ERP Modules 73

component offers functions for managing financial deals and positions, from
. trading to transferring data to Financial Accounting. Treasury Management
also supports flexible reporting and evaluation structures for analysing finan-
cial deals, positions and portfolios. For short-term liquidity and risk manage-
ment, you can use the money market, or foreign exchange transactions, to
smooth out liquidity squeezes and gluts, or to eliminate currency risks. Se-
curities and loans come into play in the medium and long-term.
Derivative financial instruments facilitate active management of interest
rate and currency risks. The trading area contains functions for recording
financial deals, exercising rights, performing evaluations and calculating
prices (for example, option price calculator) .. In back office processing, you
enter the additional data required for processing deals (such as account
assignment and payment details) and generate automatic confirmations.
Position management functions, such as securities account transfers or cor-
porate actions relating to securities, are also supported in the back office
area. The general ledger is updated in the accounting area, which also offers
flexible payment processing functions in addition to valuation and accrual/
deferral methods. By using common organizational elements throughout,
various organizational structures can be represented in the system, such as
a central enterprise-wide treasury department or 'in-house banks'. This also
ensures full integration of Treasury into other modules of the system.

Market Risk Management

Market risk management plays a vital role within Treasury, in ensuring your
company's competitiveness. The process involves a complex feedback loop
encompassing data collection, risk measurement, analysis and simulation as
well as active planning of financial instruments. This process dovetails closely
with other treasury and corporate functions. Market Risk Management acts
as an integrated, central risk control station with monitoring and manage-
ment functions. Access to information on current and future cash flows and
on financial deals already processed, is an absolute must. As a result, Cash
Management, which pools all cash flows from the business sectors, such as
sales and distribution or purchasing, forms the basis. Consequently, all cash
flows from the company's operating business can be accessed for the purposes
of risk management. Furthermore, all financial transactions managed in Trea-
sury Management can be evaluated together with the cash flows generated by
the various operating divisions. The component provides various measure-
ments for analysing and assessing interest rate and currency risks. Mark-to-
market, effective rate and effective yield calculations are based on up-to-the-
minute market data, uploaded via data feed, and financial transactions or
74 Enterprise Resource Planning

positions. By simulating market data, you can determine the risk structure
of 'what-if' analyses (such as crash scenarios or worst case scenarios). You
can also measure and compare the impact of alternative hedging strategies,
using simulated transactions.

Funds Management
Funds management subsystem supports your funds management process
from budgeting all the way through to payments, including monitoring expen-
ditures, activities, resources and revenues. Budgets are entered for areas of
responsibility that can cover as many management levels, as you require.
Funds centres and their hierarchical structure provide a base for top-down
budgeting and represent responsibil1ty areas within budget control. The sys-
tem enables you to control your various funds commitments and determine
how much of your budget has already been utilised via availability checking.
The information system can supply you with information at any time, on
when, where, and how your funds commitments arose. Analyses by respon-
sibility area and commitment items allow you to identify any budget bottle-
necks.

D Enterprise Controlling
Enterprise controlling comprises of those functions that will optimise share-
holder value, . while meeting internal objectives for growth and investment.
This modules usually include executive Information System, Business Plan-
ning arid Budgeting, Consolidation, and Profit Centre Accounting.

Executive Information System

The executive information system provides an overview of the critical infor-
mation necessary to manage the organization. This component integrates
data from other ERP components, and non-ERP data sources both inside and
outside the enterprise. Drill-down reporting and report portfolio are available
to evaluate and present the data. In drill-down reporting, you can analyse the
data interactively. Exceptions can be defined in order to highlight areas of
concern. The drill-down reports can also be made available in the graphical
report portfolio for less experienced users. The report portfolio is aimed at
users with basic knowledge of the system who wish to access information put
together for their specific needs.
 ERP Modules 75

Er Business Planning and Budgeting

Business planning and budgeting supports the management teams of busi-
ness units and groups in the calculation c business targets, such as return
r

on investment. This module also supports central investment planning, bud-

get release and tracking. This module automatically transfers data about
investment requirements from transaction applications, and provides exten-
sive analysis functions for budget monitoring.

Er Profit Centre Accounting

Profit centre accounting analyses the profitability of internal responsibility
centres. A company's organizational structure is represented in the form of
a profit centre hierarchy, with the profit centre as the smallest unit of respon-
sibility. All business transactions in Financial Accounting, Materials Manage-
ment, Asset Management, and Sales and Distribution, which affect profits,
are automatically reflected in Profit Centre Accounting. It is also possible to
analyse selected balance sheet items by profit centre and use them for cal-
culation of ratios (such as ROI). Profit centre planning is part of total corpo-
rate planning. Profit centres, in particular, emphasise the integration aspect
of corporate planning, as plans from other application areas can be com-
bined, extended and altered in this module. Profit centre related postings can
be analysed through the system's standard reports and facility, to create
custom reports for special analyses. There is also a provision to provide
profitability information to appropriate management and controlling depart-
ments.

SALES AND DISTRIBUTION

D Introduction
In today's global business environment, the one thing companies can count
on is rapid change-and the new opportunities and challenges that change
is sure to bring. New competition pushes businesses to achieve higher levels
of service, while evolving technology compresses product life cycles and forces
companies to adopt new technologies or risk losing market share. In this
ever-changing environment, keeping a competitive edge means being able to
anticipate and respond quickly to changing business conditions. To keep
pace with these rapid changes, companies need an integrated and flexible
76 Enterprise Resource Planning

enterprise system that supports all aspects of their business with state-of- ·~
\

the-art functionality. This innovative solution should upgrade effortlessly and ~

interface easily with third-party applications, as well as have the ability to
incorporate existing systems while extending its reach to the Internet and
e-commerce.
With today's business environment characterised by growing competition,
shrinking cycle times and the accelerating pace of technological innovation,
companies are increasingly being forced to streamline business processes. In
a world in which it is no longer enough to simply have the best product, these
companies are focusing on core competencies and closer partnerships over
the whole supply chain. Here, increased efficiency in sales and distribution
is a key factor to ensure that companies retain a competitive edge and
improve both profit margins and customer service. In helping business to
'beat them on delivery', the sales and distribution modules of many ERP
vendors offer a comprehensive set of best-of-breed components for both order
and logistics management. Many of these systems are tightly integrated with
the Distribution Requirements Planning (DRP)engine of the 'for just-in-time'
deliveries. This integration enables the mapping and supply of single-site or
multi-site organizations and the definition of relationships in a company's
internal supply chains. Developing precise logistics planning for just-in-time
deliveries, this system can also generate replenishment orders by using de-
fined warehouse requirements.
The following are the sales related business transactions:
• Sales queries, such as inquiries and quotations
• Sales orders
• Outline agreements, such as contracts and scheduling agreements
• Delivery/ Shipment
• Invoicing/Billing
• After sales support
During sales order processing, the following basic functions are carried
out:
• Inquiry handling
• Quotation preparation and processing
• Contracts and contract management (order management)
• Monitoring the sales transactions
• Checking for availability
• Transferring requirements to materials planning (MRP)
 ERP Modules 77
• Scheduling the delivery
• Calculating pricing and taxes
• Checking credit limits
• Invoicing /Billing
• Creating printed or electronically transmitted documents (confirma-
tions, and so on)
Depending on how your particular system is configured, these functions
may be completely automated or may also require some manual processing.
The data that results from these basic functions (for example: shipping dates,
confirmed quantities, prices and discounts) is stored in the system where it
can be displayed and, in some cases, changed manually during subsequent
processing. The sal~s and distribution module very actively interacts with the
Material Management and Financial Accounting modules for delivery and
billing.
Figure 5.2 shows sales and distribution and its associated processes.
Typically, a Sales and Distribution module will contain the following sub-
systems:
• Master Data. Management
• Order Management
• Warehouse Management
• Shipping
• Billing
• Pricing
• Sales Support
• Transportation
• Foreign Trade

Er Master Data Management

Every company will have products, customers, and will require raw materials
and will have suppliers. The task of the Master Data management module is
to keep information about all these entities, so that these can be made
available to the decision-makers and also for the automatic generation of
reports, contracts, invoices and so on.
In sales and distribution, products are sold or sent to business partners,
or services are performed for them. Data about the products and services as
well as about the business partners forms the basis for sales processing.
78 Enterprise Resource Planning

Inquiry

Quotation

Sales

Contracts

Order

MATERIALS
Shipping Delivery
MANAGEMENT

Billing Invoice

FINANCIAL ACCOUNTING

>- Fig. 5.2 The sales and distribution module

Automatic sales processing, using an ERP system, requires that the master
data has been stored in the system. In addition to sales and distribution,
other departments of the company, such as accounting or materials manage-
ment access the master data.

D Order Management

This module usually includes Sales Order Management and Purchase Order
Management and supports the entire sales and purchase processes from start
to finish. With companies today being confronted with increasingly demanding
customers and increasingly complex buying and selling organizations, both
 ERP Modules 79

internally and externally, Order Management combines the provision of effi-

cient management solutions with the possibility of anticipating and respond-
ing quickly to changes in global business conditions.

Sales Order Management

Applications in sales order management (Fig. 5.3) represent a company's
most important point of contact with the customer. These applications allow
a company to manage sales operations quickly and efficiently and provide
comprehensive solutions for the management of quotes, orders, contracts,
prices and customer discounts. Through the use of templates, the system
streamlines order entry procedures to manage products ranging in complex-
ity from standard stocked items to those that are engineered-to-order. The
system can also customise and streamline order entry procedures to the
specific requirements of both an individual business and its customers. In-
telligent pricing and discount strategies that are accompanied by simulation
capabilities to support 'what-if' scenarios and are available for multi-currency
environments.

Credit Checking Inventory Availability

Pricing & Discounting Checking
Discounting
Margin Analysis Inventory Commitment

Materials Management Sales Quotations I Contracts

Production Planning Order EDI /Internet
Warehouse Management Entry
Invoicing

Change Order
Management
Delivery Status Order History
Monitoring Statistics
Returns Handling

> Fig. 5.3 Sales order management

80 Enterprise Resource Planning

On-line Available-to-Promise calculations ensure that there is sufficient

product availability for a specific customer and, if so, to identify exactly
where and when that product is available. Built-in contract and release
management system evaluates whether or not customer contract agreements
are being met with and incorporates multilevel customer credit reviews and
substantial order blocking functionality. Evaluation of sales performance is
possible through extensive report capabilities that retrieve both current and
past information that concern orders, cancellations, budgets and revenues.
Rebate and commission control enables the automatic calculation of em-
ployee and supplier commissions to reward achieved targets based on pre-
defined agreements and customer bonuses, or rebates to reward customers
for purchasing certain quantities. Electronic Data Interchange {EDI), stream-
lines communication throughout a company's entire supply-chain, from cus-
tomer to supplier. The system should support standard business documents
such as orders and invoices, along with general information such as project
information and product specifications.
A good system will have tools and features for Sales Force Automation
(SFA) and customer .service. These tools include the tracking and tracing of
appointments, schedules and follow-ups, plus product and sales feasibility
information.

Purchase Order Management

Purchase order management is increasingly essential in today's ever more
competitive business environment because it enables a company to make the
correct purchase decisions about quality and price, where quality refers to
supply lead-time as well as to the (to be purchased) product itself. Purchase
order management (Fig. 5.4) includes online requisitioning, centralised con-
tract management, just-in-time schedules and vendor management. Offering
access to an approved supplier list, purchase order management enables a
purchase quotation to be sent to multiple suppliers. The purchase contract
information is made available to the people in the purchasing department.
This information will help in supplier selection and provide an insight as to
which suppliers can supply items with the right specifications, in the shortest
period of time. The system will have facility to generate purchase contracts.
Purchase. requisition is a function that is used in the purchase process.
Purchase requisitions allow companies to enter non-system-planned require-
ments for various types of items. Requisitioning can be linked to workflow for
authorisation purposes and to approve suppliers. Schedules can be used,
instead of orders; to provide detailed purchase and delivery information.
 ERP Modules 81

Planning I
Schedule Sourcing
Requisitions Sales I Shop
Definitions Information
Floor

Request for
Quotation

Purchase Purchase
Order Schedule

Purchase Contracts

Warehouse Orders

~ Fig. 5.4 Purchase flow

These schedules are generated in contracts in just-in-time environments-in

which customer service, in-time delivery and cost reduction are all-impor-
tant-and can be sent through the supply chain by means of EDI commu-
nication. In addition, schedules are fully linked with other modules of the
system.
Sophisticated vendor management tools allow companies to check the re-
liability and performance of vendors. The vendor rating system can handle
both objective and subjective criteria. Objective criteria are tracked and traced
automatically by the system and can include information about receipts,
quality approval, invoicing and purchase-order confirmation. Subjective cri-
teria are determined by the user. Together, these criteria enable companies
to make the right purchase decisions with regard to quality, price and deliv-
ery. Purchase Order Analysis enables historical as well as statistical data to
be used to assist in the analysis of purchase activities.
82 Enterprise Resource Planning

Er Warehouse Management

This module provides real-time information about inventory levels across the
enterprise and tools to manage the daily operational needs of single-site or
multiple-site four-wall warehouses. Coordination of an organization's ware-
house network is one of today's most important business needs and requires
an understanding of the relationship between the different organizational
units such as warehouses, production facilities, sales offices, and purchase
offices. While the mapping of a single-site or multi-site organization and the
definition of relationships in the internal supply chain can be undertaken
with the help of the Distribution Requirements Planning (DRP), the actual
transfer of goods can be handled through the Warehouse Management appli-
cation. The various components of a good Warehouse Management applica-
tion will be designed to meet a wide range of warehousing needs, such as the
mapping of internal goods flow within warehouses and the monitoring of all
warehouse inventory transactions. In addition, these components are
centralised for areas that include production, sales, purchase projects and
service and provide companies with the tools to inform customers about
where (the company's or the customer's) goods are located, the number of
goods on hand, current storage conditions and projected delivery schedules.
The Warehouse Management application should also offer expanded capabili-
ties such as cross-docking, rules-based inventory replenishment, picking
optimisation, multi-level packaging and consigned goods management. These
capabilities also allow for easy integration with financial tools to provide
greater enterprise-wide insight into costs.
Components of a good Warehouse Management Application include the
following: ·
D Inventory Planning Comprises all planned inventory movements, which
enable the accurate forecasting of trends and the consequent adjust-
ment of reordering points, safety stock, lead-times for orders and ser-
vice levels. Inventory planning also allows the commitment of inventory
to a specific customer order-'hard allocation'-so that customers re-
ceive the right order in the right quantity at the right time.
D Inventory Handling Allows for monitoring of all warehouse order sce-
narios such as the receipt, issue arid transfer of inventory. Functions
include the previously mentioned expanded capabilities such as cross-
docking, receipt by back-flushing, rules-based replenishment of inven-
tory, picking and wave-picking optimisation, assembly and multi-level
packaging. To ensure fast communication with suppliers and customers,
 ERP Modules 83

advanced shipping notifications can be received or sent by means of

Electronic Data Interchange (EDI), which enables shipments to be re-
ceived and allocated ahead of time.
D Intelligent Location Assignment Used to create intelligent storage put-
away lists, which enable the storage of goods that are automatically
inspected for quality and the detection of dedicated locations by criteria
such as item, storage conditions, packaging definitions, size restric-
tions and location availability.
D Inventory Reporting This function permits full visibility of inventory at
single or multiple sites and provides a company with the tools to give
customers accurate delivery dates. The system's extensive reporting
capabilities also enable consigned goods management.
D Inventory Analysis This module enables the analysis of information
that result from warehousing activities and the use of feedback in
process optimisation. In addition, inventory analysis supports inven-
tory forecasting, inventory valuation, ABC analysis and slow-moving
analysis.
D Lot Control This facility offers lot tracking and tracing, so that a com-
pany can trace all the raw materials and finished goods that its prod-
ucts require. In a business world where customers demand product
responsibility, lot control helps to store product quality data and meet
IS09001 certification standards.
D Distribution Data Collection This is an essential element in paperless
warehousing that provides the communications link between storage
and shipping systems and warehousing equipment like bar-coding
scanners.

D Shipping
The shipping module supports the following functions:
• Monitoring dates of orders due for delivery
• Creating and processing deliveries
• Planning and monitoring work lists for shipping activities
• Monitoring material availability and processing outstanding orders
• Picking (can be linked to the Warehouse Management System)
• Packing deliveries
• Information su pport for transportation planning
84 Enterprise Resource Planning

• Support for foreign trade requirements

• Printing and sending shipping output
• Data update in goods issue

The 'Delivery note' is the central shipping document. When a delivery is

created (at the shipping point), shipping activities such as picking and delivery

Warehouse

Shipping Point

Deadline Monitoring
Availability Check
Creating Deliveries
Order
Picking &
Delivery Scheduling

Goods Issue &

Transportation
Delivery Note

>- Fig. 5.5 Shipping process

scheduling are initiated and monitored, and the data generated during ship-
ping processing is recorded (Fig. 5.5). A delivery note can refer to a sales
order or to a transportation order for stock transfer. Depending on your
requirements, you can create deliveries automatically using work lists, or
manually. You can make agreements with your customers for complete and
partial deliveries and for order combinations. The monitoring functions allow
you to monitor created deliveries and outstanding sales activities.
 ERP Modules 85

Er Billing
A business transaction is completed for Sales and Distribution once it has
been billed. The ERP systems support billing functions like issuing of invoices
on the basis of goods and services, issuing of credit and debit memos based
on corresponding requests and proforma invoices, canceling billing transac-
tions, giving re bates, transferring billing data to Financial Accounting, Pur-
chasing and so on. The billing system is integrated with the other modules
like Financial Accounting, so that the documents are automatically gener-
ated.

E) Pricing
The term pricing is used broadly to describe the calculation of prices (for
external use by customers or vendors) and costs (for internal purposes, such
as cost accounting). The pricing module keeps the information about the
prices of the various items, the details about the quantity discounts, the
discounts to the different customer categories and so on and enables the
organization to generate documents like quotations, delivery notes, invoices
and so on. Also, since this information is available to all the sales people,
they can make better decisions thus improving the sales performance.

D Sales Support

The Sales Support component helps the sales and marketing department to
support your existing customers and, at the same time, to develop new
business. Sales Support provides an environment where all sales personnel-
both the field sales people and the staff in the sales office-can contribute to
and access valuable information about customers, sales prospects, competi-
tors and their products, and contact people. The Sales Support component
functions, both as a source of information for all other areas of Sales and
Distribution and as an initiating force for acquiring business.
The Sales Support function has a rich tool set that will help in creating
direct mailings to develop new business as well as to consolidate the existing
customer base. On the basis of the sales information already stored in the
system, you can create address. lists of the customers and sales prospects
whom you wish to target with your direct mailing campaign.
86 Enterprise Resource Planning

E:r ·Transportation
Transportation is an essential element of the logistics chain. It effects both
inward and outward movement of goods. Effective transportation planning is
required to ensure that shipments are dispatched without delay and that
they arrive on schedule. Transportation costs play a considerable role in
determining the price of a product. It is important that these transportation
costs are kept to a minimum, in order to keep the price of a product com-
petitive. Efficient planning and processing of transportation contributes to
keeping these costs down. The aim of the transportation element of the SD
System is to provide basic functions for transportation, like transportation
planning and processing, freight calculation, freight settlement, customer
freight calculation, customer freight invoicing as well as functions for service
agent selection.
The transportation functionality fulfills the requirements in the areas of
transportation planning and processing, for both inbound and outbound
shipments. You can control and monitor the entire transportation process
from the planning stage right through to the dispatch of the goods from your
shipping point (outbound shipment) or the vendor location (inbound ship-
ment) and their arrival at the customer location (outbound shipment) or your
plant (inbound shipment).

El Foreign Trade
In domestic, and increasingly, in international trade, you are required by the·
authorities to adhere strictly to the laws and regulations. The growing ten-
dency towards the formation of trade areas is a further challenge to a com-
pany operating on a worldwide basis. The entire logistics chain, from the
import of raw materials, finished and unfinished goods, to the sale of goods
and the transfer of data to materials management and financial accounts, is
significantly influenced by foreign trade activities, These main tasks in for-
eign trade processing can be carried out using the foreign trade system.

MANUFACTURING

D Introduction
Competition in the next millennium places an increased emphasis upon time, as
expressed by speed, quality, service and global focus. Agility is the watchword.
 ERP Modules 87
Manufacturers are measured by their ability to react quickly to sudden, often
unpredictable change in customer demand for their products and services.
To compete successfully beyond the year 2000 requires manufacturing appli-
cations that are time and activity based and above all else, focused on the
customer. Increasingly, these manufacturing applications are a centre point
within the spectrum of a supply chain, running from the customer to a
supplier and encompassing the entire enterprise.
A good manufacturing system should provide for multi-mode Manufactur-
ing applications that encompass full integration of resource management.
These manufacturing applications should allow an easier exchange of infor-
mation throughout the entire global enterprise, or at a single site within a
company. Regardless of how big or small an enterprise is, these applications
should provide a wealth of feature/function, broad scope of coverage, opera-
tional stability and a platform-independent architecture. These capabilities
empower an enterprise to achieve productivity gains, adopt forward-thinking
technologies and implement process reengineering. As a company's internal
processes become more sophisticated or as market forces change, these
solutions should be capable of meeting the challenge. The manufacturing
system should be integrated with the other modules of the package.
A robust system of manufacturing planning business process, and execu-
tion must satisfy a variety of business practices and production methods.
These business practices and production methods place stringent demands
on the manufacturer. Regardless of how manufacturers view their internal
operations, to the customer, it boils down to quick response to customer
demand in two fundamental ways-Manufacturers either make products to
stock prior to receipt of a customer order, or they make and ship the prod-
ucts upon receipt of a customer order. Manufacturers must accomplish this
task quickly, efficiently and cost effectively to remain profitable and competi-
tive. These two fundamental ways of responding to customer demand are as
shown in Fig. 5.6.
Today, companies must be able to deliver customer-specific products with
the lead-time of standard, off-the-shelf products. To help manage product
and market shifts, the Manufacturing module provides the freedom to change
manufacturing and planning methods, as and when they need a change. The
Manufacturing modules of most ERP vendors, do not limit businesses to a single
manufacturing method, such as make-to-stock or make-to-order (Fig. 5.7).
Instead, many manufacturing and planning methods can be combined within
the same operation, with unlimited flexibility to choose the best method-or
combination of methods-for each product, at each stage throughout its life
cycle.
88 Enterprise Resource Planning

Supplier

Customer

>:- Fig. 5.6 Manufacturing process (from raw materials (supplier)

to finished goods (customer))

In addition, this control and visibility comes without having to sacrifice the
functionality needed to efficiently manage different types of production. These
systems support the entire range of production strategies-only one system
is needed to manage all manufacturing activities. Engineer-to-order products
can be planned using the system, while the system's forecasting and distri-
bution planning features handle make-to-stock items. Products that are
assembled-to-order can be planned using advanced features available in the
Manufacturing module. All demands can be aggregated into user-definable
plans at a detail or summary level. Enterprise requirements then flow into
consolidated production schedules and material and capacity. plans, and all
l ERP Modules 89

Planning

Make-to-order
•
Business
Process

•
Execution
Customer Make-to-stock

}- Fig. 5.7 Make-to-order and Make-to-stock

production activity can be scheduled and tracked through shop floor control
systems.
The manufacturing module should enable an enterprise to marry technol-
ogy with business processes to create an integrated solution. It must provide
the information base upon which the entire operation should be run. It
should contain the necessary business rules to manage the entire supply
chain process, whether within a facility, between facilities, or across the
entire supply chain. Control and execution can be performed at strategic,
tactical and operational levels within the business. These require effective
planning to support contract commitments throughout the supply chain,
control over intermediate range planning horizons and time fences, and ex-
ecution over the short range of frozen scheduling required by the shop floor.
Whether a single-site implementation, several sites within one country, or
hundreds covering the globe, the manufacturing system should provide the
 90 Enterprise Resource Planning

foundation for creating concurrent business processes across the supply

chain and achieving Return on Assets (ROA)improvement.

How Dots MANUFACTURING RESPOND TO THE CusTOMER?

Manufacturers must respond quickly and effectively to customer demands.

While agility is desirable, agility without an effective enterprise manufactur-
ing system results in speed without purpose. The very heart of an enterprise
manufacturing system centres on its integrated planning, business process
and execution capabilities. Traditional Closed Loop MRP concepts have long
heralded the importance of effective planning, business process understand-
ing, and timely execution. Strategically, effective-planning results in improved
inventory turns, increased productivity and improved return on assets. Tac-
tically, effective business processes provide improved customer satisfaction,
reduced time to market and improved market share. Effective execution
provides short cycle time, quality assurance, continuous improvement and
quick response to process variability. All three elements contribute to a
management's decision to install an enterprise-wide manufacturing manage-
ment system. Some of the major subsystems of the Manufacturing module
are:
• Material and Capacity Planning
• Shop floor control
• .Qu ality Management
• JIT /Repetitive Manufacturing
• Cost Management
• Engineering Data Management
• Engineering Change Control
• Configuration Management
• Serialisation/Lot Control
• Tooling

·Er Material and Capacity Planning

Today's customer-focused business environment makes it more critical than
ever for manufacturers to have an effective production plan for managing
material and capacity. Customers want accurate shipment dates-sometimes
to the hour-even when there are schedule and product changes. The Plan-
ning systems of ERP packages are designed to provide the responsiveness
 ERP Modules 91

your company needs to meet those customer requirements. With these sys-
tems, planners can simulate alternative plans; gaining the information they
need to determine which parts and assemblies to make, which to buy and
when to manufacture or purchase. Most packages have features to generate
recommendations for purchases and production and, where necessary, rec-
ommend changes to current plans to prevent under or over-utilisation of
work centres. If requirements change often, exception-based planning fea-
tures can run continuously, providing virtually real-time visibility of the
changing plans, using item time fences to avoid erratic production plans.
Material plans can be developed from a wide variety of sources that include
the master schedule, sales forecasts and dependent and independent de-
mand. An extensive selection of order modifiers provides even greater control
and flexibility.
Changed Planning Schedule

Customer

Scenario

\
Simulate Evaluate

Exit
~ Fig. 5.8 The simulation process
92 Enterprise Resource Planning

For analysis, planners can create an unlimited number of simulations. The ir

simulation process is shown in Fig. 5.8. The company can customise plan- te
ning processes because input is described by system parameters that are
easily changed. To reduce effort and accelerate communication across the tc
supply chain, planned orders can be confirmed and converted automatically a
(or manually) into production and purchase orders. In addition, graphical g:
reporting makes potential material and capacity problems easy to identify. n
Meeting your business goals requires detailed production planning and c.
effective execution control. The ERP packages give your company full control S.

with flexible scheduling and sophisticated shop floor functionality. They also 0

offer extensive freedom for defining production processes in the most appro- 0

priate way. Depending on the requirements of the company's product and c

processes, production can be scheduled using work orders or repetitive build 11

schedules. With the repetitive planning feature, companies can implement

Just-in-Time techniques to streamline material issue and production report- E
ing. Using the shop floor control facility, the company has the visibility nec-
essary for managing lead-times and for carefully controlling the amount of v
work-in-process and the timely release of production orders. Most of these
systems are flexible enough to enable the company to establish order-pro-
cessing priorities that reflect business priorities. For achievable supply chain
plans, both internal and external operations-and their relationships-are
considered by the system before creating production plans and assigning
priorities. The Electronic Planning Board provides a graphical production
management tool that delivers immediate visibility of changes in capacity
utilisation. The planning board shows all scheduled production, current pro- r
duction status, utilisation and materials and capacity availability.
c
Er Shop Floor Control

With increasing emphasis being placed upon reducing manufacturing time in

support of the need to reduce product time to market, manufacturers have
turned greater attention to evaluating their shop floor activities. Process
reengineering efforts and the elimination of waste have necessitated greater
reliance upon powerful, user-friendly, flexible shop floor planning and control
systems. Management needs timely, accurate information and the ability to
manage the shop floor by exception. Cost information must be flexible as
well. Factories are being realigned to reduce material travel time through a
facility. This realignment places an added burden upon the supporting sys-
tems. Managers must often time experiment with trial-and-error approaches
 ERP Modules 93

in the never-ending search for process improvement. Shop floor control sys-
tems must be flexible and adaptable to changing needs.
A shop order can be reprinted at any time with user selection of whether
to reallocate material. This reprinting gives a shop foreman flexibility to print
a duplicate copy when an order is split between operators. This feature also
gives the shop scheduler, the ability to reprint the shop packet and to reflect
new material allocations that correct previous shortages. Every shop order
can be maintained throughout its life. All systems provide a full function
shop order maintenance capability, allowing the user to evaluate and adjust
operation steps and components. Orders can be rescheduled either backward
or forward. For example, an operation's start date can be overridden to reflect
changed events and then the order can be forward scheduled to reflect the
impact upo~ future operations.

Er Quality Management
With product quality under the microscope in all industries today, every
company strives for superior quality in its products and services. All manu-
facturing modules track quality control activities across the enterprise=-Irom
intermediate producers to finished goods. These systems allow a wide variety
of characteristics and parameters to be specified in test and inspection op-
erations and maintain an extensive history to improve product quality and
identify recurring problems.
Elimination of defects in standard product designs and manufacturing
methods, before production, is just as important as eliminating defects dur-
ing production. In fact, to achieve quality levels, manufacturers must focus
on identifying and correcting defects in underlying product designs and pro-
duction methods and not simply inspect the in-coming material and finished
goods. The Quality Management Systems usually support the bench-marking
and use of optimal product design, process engineering and quality assur-
ance data by all functional departments within the manufacturing enterprise,
thereby facilitating definition of repeatable processes, root cause analysis and
the continuous improvement of manufacturing methods. This documentation
supports the job functions of the quality assurance and production managers
in validating the manufacturer's conformance to ISd9000, Good Manufactur-
ing Practices (GMP)worldwide, MIL-Q-9858 in the United States, and a va-
riety of country specific industry standards of quality assurance. Specifica-
tion Control in the Quality Management System offers a state-of-the-art ap-
proach for documenting specifications and enables an organization to
 l
94 Ente1jJrise Resource Planning

standardise and simplify its quality assurance and control functions. Sample
I
1
types sample rules and testing levels are completely user-defined for maxi- 1
mum flexibility and ease of use. Maintenance of standard specifications,
detailed sampling instructions and testing procedures is performed on-line. I
Cyclic, subsequent and repeat testing options are available to support the
material acceptance function, with breakdowns of test procedures into mul-
l
i

tiple dispositions to improve inventory turnover and reduce inspection lead-

times. The system's database eliminates redundant specifications and en-
sures that a single change to standard procedures takes effect immediately
throughout the organization. User-defined review and commitment controls
ensure maximum accuracy. The Material Procurement subsystem provides
tools for implementing Total Quality Management programs within an orga-
nization. Original manufacturers may be defined independently from vendors,
so that businesses can strictly adhere to quality assurance and control func-
tions, without preventing their buyers from seeking the best possible price
and delivery terms. Each item supplied by an original manufacturer may be
linked to a standard product specification. Actual test results and material
disposition histories are retained by item, lot, original manufacturer and
specification for in-depth quality performance review and analysis.
Material Inspection subsystem offers a wide range of capabilities for pro-
cess supervision and control. These capabilities are fully integrated with the
other modules like purchasing, inventory management and shop floor control
functions to ensure that the right quality control procedures are followed.
Capabilities include on-line maintenance of product specifications by produc-
tion method and customer, event driven sample requests, sample log-in, test
results entry, quality performance anaJysis and equipment calibration sup-
port. Product quality metrics are collected and archived in a manner that
offers full support for statistical process control techniques. Material Dispo-
sition is another feature available in many systems that offers advanced
material review and disposition functions that ensure the right quality control
decisions are made and leave an audit trail of decisions for compliance pur-
poses. Capabilities include automated material review and approval, auto-
mated material dispositioning, sub-lot control, optional automatic second
dispositioning, optional .automatic repeat testing, grading, redesignation, and
implementation of user-defined policies and procedures for authorisation and
control.
Production Reporting supports complete production reporting. Both em-
ployee and crew labour reporting is possible, with crew reporting automatically
allocating efficiencies between crew members. User-defined shift teams can
1 ERP Modules 95

be entered to support quality circles and subsequent reporting of results.

Employee/ clock maintenance provides for designation of employees and
teams. Both labour grades and labour rates can be designated. Labour grades
entered by employees override those designated for the work centre. Labour
rates enable the entry of actual cost data, even when labour grades have not
been established. The Shop Floor Control system is fully integrated with Cost
Accounting and Control. Both production reporting and employee/ clock
maintenance contribute data that is summarised at the time of shop order
close with full variance analysis reporting made available to the user. Shop
Floor Control also makes use of a powerful and flexible shop calendar facility,
which can be global with overrides reflecting each facility and each work
centre within the facility.

Er Just-In-Time/Repetitive Manufacturing
The past decade has seen a surge of interest in the adaptation of Just-in-
Time (JIT) manufacturing techniques. While companies have embraced the
concepts of waste elimination, product factory layout, manufacturing cells
and Kanban signaling, many implementations have struggled due to lack of
software tools to effectively support the transition. Many systems not only
provide high volume repetitive manufacturing functionality, but also provide
for the transition to rate-based production by allowing the use of repetitive
I scheduling, even for products that are not rate-based. This allows a produc-
tion facility to transition products from discrete manufacture into a JIT /
Repetitive focus. For example, when the demand pattern for an item begins
I to stabilise and show a repeatable/ predictable pattern, then a production
J

I schedule can be initiated even though the item may not be designated as
rate-based. Over time, as the item's demand pattern grows,. the item can be
switched to full rate-based production scheduling. This transition capability
enables production facilities to adopt process reengineering, setup reduction
programs, single minute exchange of die (SMED) programs, employee empow-
erment work teams, etc. with the confidence of knowing that the planning
and control system will effectively support their efforts. JIT /Repetitive in-
cludes strong analytic capabilities. A production inquiry presents both cur-
rent production status and past history. The history provides current day,
month to date, and year to date results, as well as calculations of maximum
and average production results per hour. A purchase/production plan report
shows current on-hand quantity and scheduled receipts by planning period.
A cumulative production report shows production status information by item
96 Enterprise Resource Planning
l
I
which includes quantity ordered, received, remaining and due, as well as I
quantity allocated and year to date receipts. A downtime analysis report
highlights all causes of downtime by reason code. A quality control/reject
analysis report tracks all rejections by reason code. A yield analysis by op-
I
~

eration identifies where loss in productivity is occurring. A cumulative pur-

chasing report shows total procurement needs by item, effectively displaying
daily delivery performance and summed delivery results. An item allocation
report provides details regarding on-hand and allocation status for child
items, including lot number and lot tracing status for lot controlled items. A
JIT work list compares the production plan to the capacity plan for rate-
based items. This tool quickly identifies discrepancies based upon actual
performance, so that production rates and/ or daily ·output goals can be
adjusted proactively and monitored on a timely basis. Reports covering em-
ployee efficiency and detailed cost by item are also provided together with J .rt
tracing status for lot controlled items.

Er Cost Management

With competition increasing the pressure on margins, a business needs ac-

curate and detailed manufacturing cost reporting for effective business man-
agement. ERP packages provide extensive cost informatiort at several levels
that helps businesses identify cost drivers and reduce product costs. They
support multiple inventory valuation methods, so that you can choose the
costing method that best reflects your company's. business. You can choose
standard, LIFO (Last in First Out), FIFO (First in First Out), moving average
unit, or lot costing method and costing methods can be assigned by item. To
reduce administrative overhead, prevent input errors and provide faster and
more accurate information for planning, these systems provide detailed
records of time and materials data on the shop floor. For example, many
systems have features that let your company compare estimates and produc-
tion costs for different work centres, machines, employees and order .quan-
tities while monitoring overtime, indirect hours, subcontracted jobs and other
costs. Moreover, to provide even more accurate production and inventory
planning, these systems can track material usage for each job. And, if the
activity is associated with a project, project information is automatically
updated. Many vendors also support Activity Based Costing (ABC)with activ-
ity visibility by cost object as well as costs for user-defined groupings, such
as departments. There will be provisions that allow employees to report non-
production activities such as maintenance, holidays and illnesses. Manufactur-
ing system provides extensive information about production costs at several
 ERP Modules 97

levels, which gives you the visibility that you need to identify cost drivers and
reduce product costs.

Er Engineering Data Management

The first step to shorter product development cycles is increased efficiency in

design and development activities. Engineering Data Management is designed
to help your company trim data transfer time, reduce errors and increase
design productivity by providing an automated link between engineering and
production information. Most packages allow a smooth integration, with popu-
lar CAD packages, to simplify the exchange of information about drawings,
items, BOMs and routings.

El Engineering Change Control

By using Engineering Change Control, businesses can gain effective control

over engineering change orders. Your company can define the authorisation
steps for approving and implementing an Engineering Change Order. When
these steps are completed, the system automatically implements the change
in the production database.

Er Configuration Management
The Configuration Management dramatically reduces order cycle time by
eliminating the lengthy engineering review, typically associated with deter-
mining feasibility and the costs associated with the configured end item. This
reduction is achieved by creating a flexible user-defined knowledge base that
is accessed by a powerful analytic engine.
The knowledge base contains the sales and engineering expertise of the
organization. Product attributes and variables, such as height, width, or
cubic pounds of pressure, are entered in the knowledge base in the form of
an option matrix. The knowledge in the option matrix structure can also be
augmented by user-defined calculations, such as Height x Width = Area and
by Boolean rules. Boolean rules allow definition of complex product relation-
ships. For example, 'If refrigeration and insulation are chosen under trailer
options and the total area is greater than 120 feet, then double axle must be
chosen under axle options'. The analytic engine interprets the knowledge
base in conjunction with user selections, to ensure that the customer-speci-
fied product can be built and sold. As a result, the order entry process is a
98 Enterprise Resource Planning

dynamic conversation between the order taker and the customer that culmi-
nates with a fully priced and costed product on the sales order, as well as
the related manufacturing detail necessary to move the order directly into
production.
The process starts with an attribute master containing configuration re-
lated questions and answers. Attributes are the building blocks of a configu-
ration structure. The configuration structure categorises and sequences at-
tributes to create a flow of questions and possible answers, during the entry
of sales orders for configured products.

D Serialisation/Lot Control
Many systems will provide the facility for the designation of raw material lots
and the serialisation of component parts made from those lots. ':. n is
serialisation is applicable to commercial aviation, defense industry suppliers
and capital equipment manufacturers who provide service over the life of
their products on an individual unit by unit basis. Examples include heavy
machinery, off road equipment and highway tractor /trailers. Manufacturers
who use lot control often, must allocate production prior to its completion.
The lot control system provides for the pre-allocation of lot numbers. This
feature is available throughout the product offering and includes MRP, shop
floor control, order processing and JIT. Many systems allow production or-
ders to be pre-assigned with lot numbers for the parent item. When the shop
order is released, the lot master record will be created and allocations to
higher level parents will be permitted. The manual pre-allocation of pre-
assigned lots is possible for both customer orders and shop orders with
visibility to planned and actual production, as well as existing inventory.

E) Tooling
For many manufacturers, ensuring that proper tooling is available is just as
critical to production schedules as the availability of material. The ERP sys-
tems extends capacity and inventory management to include these valuable
resources. These systems help to ensure that tools and materials arrive
together at scheduled operations by storing tools in inventory and planning
and allocating the required tools as part of the production order. They also
provide visibility of tool use, calculate the remaining useful life of a tool and
automatically route tools for maintenance, based on usage.
 ERP Modules 99

HUMAN RESOURCES

Er Introduction
Human resources management is an essential factor of any successful busi-
ness. The competitive environment of the next millennium, with 'its economic
and technological challenges, will affect the HR department in the /~ame way
it will all the other areas of your enterprise. In short, HR mana~ers must
continually review and optimise their business processes. The HR modules of
most ERP systems have a set of rich features- and will integrate seamlessly
with the other modules and are thus, invaluable aids in improving produc-
tivity. They offer company-wide solutions for HR departments and make it
possible for other departments to access specific employee data.
A human resource management system has to be adaptable to company-
specific requirements, and should constantly grow with increasing HR
requirements. It should cover all the functions required in business prac-
tices. It should be flexible enough to allow you to optimise your business
processes by tailoring the ERP solution to suit your organization's needs.
Today, many businesses cross boundaries. The system should support the
organization's inter~~~ional needs with country-specific versions of the HR
components. Apart from languages, . currencies and legal,~ requirements, ac-
counting systems often vary from country to country as well,' making this a
vital feature. A flexible structure enables quick and easy customisation of the
system to suit your requirements. When you log on in a particular language,
screens, messages and documents appear in the language you specify. You
then have access to the system's complete functionality.
The different ERP systems offer many different subsystems under the HR
umbrella. Listed below are some of the most common subsystems. Here
again, the idea is not to be comprehensive but to give you an idea about the
options available. The various subsystems under the HR module are:
D Personnel Management (HR master data, Personnel administration, In-
formation systems, Recruitment, Travel management, Benefits admin-
istration, Salary administration)
D Organizational Management (Organizational structure, Staffing sched-
ules, Job descriptions, Planning scenarios, Personnel cost planning)
D Payroll Accounting (Gross/net accounting, History function, Dialog
capability, Multi-currency capability, International solutions)
IOJ)~. . c. ·,:-:;:.{Enterprise Resource Planning
~,F:<:·
.-·::·:_,-'
D Time .Manaqemeni (Shift planning, Work schedules, Time recording,
Absence determination)
D Personnel Development (Career and succession planning, Profile com-
parisons, Qualifications assessments, Additional training determina-
tion, Training and event management)

Er Personnel Management

Personnel management includes· numerous software components, which al-

low you to deal with human resources tasks more quickly, accurately and
efficiently. You can use these components not only as part of the company-
wide ERP solution, but also as stand-alone systems.

Personnel Administration
Information is no longer owned by specific departments, but is shared by
multiple entities across an organization. This eliminates duplicate entries,
reduces the chance for error and improves data accuracy. The HR modules
provide a global, fully integrated data structure for the enterprise,_ without
compromising your control over individual segments of the operations.

Employee Master Data

Human Resource module has a centralised database with integration to
multiple components for processing employee information. The system pro-
vides tools to save time and help you tailor the system to fit your needs. The
HR module contains features for storing any desired information about your
employees. Most systems have the facility to scan the original documents for
optical storage. The HR Information System displays graphical information
such as organization charts or employee data. The system can produce charts
and reports-both standard and customer-defined.

Recruitment Management
This function helps in hiring the right people with the right skills. Reducing
the cost of recruiting and hiring new employees is a challenge for the HR
professional, who is responsible for placing people in the right job, at the
right time, and with the right skills and education. These requirements are
fulfilled only through effective automation of the entire recruitment process.
The recruitment component is designed to help meet every facet of this
challenge. This component includes processes for managing open positions/
requisitions, applicant screening, .selection and hiring, correspondence, re-
porting and cost analysis.
 ERP Modules

Effective management of the organization's job openings e ps the HR re-

cruiters, managers, and also, interested candidates. The HR Recruitment
component allows direct access to data stored in other components of HR
including Personnel Administration, Payroll and Personnel Planning. These
links eliminate duplication of data entry and improve your productivity. Some
examples of shared data related to job openings include position open date,
location and reporting specifics, job descriptions, and skills and education
requirements. This information can be used for both internal job postings
and external advertisements in newspapers, magazines, colleges or recruit-
ment firms.
You match employee and applicant qualifications with the requirements of
the job to select candidates. HR Recruitment interfaces directly with word
processing packages to generate standard applicant letters. In some systems
there is even the facility to send e-mail messages.
Many systems provide tools to analyse costs incurred during advertising
and interviewing for each open position. With the HR Recruitment compo-
nent, you can efficiently and effectively manage your job openings, your
applications and applicant data, costs and the hiring process. Once a selec-
tion has been made and an applicant has been hired, the data Pathered
during the recruitment process becomes new hire information. Duplicate
data entry is eliminated along with the possible introduction of errors if the
data- had been re-entered.

Travel Management
This module helps you in processing the travel expenses effortlessly, in sev-
eral currencies and formats. HR Travel Management allows you to process a
business trip from start to finish-from the initial travel request right through
to posting in Financial Accounting and Controlling. This includes any subse-
quent corrections and all retroactive accounting requirements. Integration
with the other· modules ensures correct posting, taxation and payment of trip
costs. Travel data can be entered by the person traveling, or by a secretary
or by the relevant department, either before or after the trip. The entry of a travel
request automatically generates a workflowthat makes the administrator's work
much easier. Business-, employee-, and country-specific trip provisions can
be implemented via system settings. Travel Management automatically calcu-
lates the tax. It also automatically processes credit card transactions for a
particular trip. The receipts can be entered in any currency and include
supplementary receipt information. An optical archive is available for the long-
term archiving of travel receipts. Travel costs can be divided into different
 1
j
102 Enterprise Resource Planning I
.1
levels (employee, trip destination and receipt). Expenses can be posted to ·~ a
lI
numerous account assignment objects, for example, cost centre, order, ;~
e
project, or cost object. You reimburse costs incurred during a trip through I t
.g

payroll accounting, accounts payable accounting, or by data medium ex- c

change. In addition, Travel Management provides multiple report formats.
You can enter receipts in any currency and then print reports in your native
s
currency. Travel Expense Accounting provides you with self-explanatory 1
forms, statements and an electronic approval process to improve communi- E

cations and reduce unnecessary calls to the HR department.

'\
Benefits Administration
This system brings flexibility and power to your benefits. program. As orga-
nizations continue to grow, as laws change and employee requirements ex-
pand, you need a flexible system. to satisfy all your requirements. The Ben-
efits Administration component provides you with the capabilities and flex-
ibility to effectively manage benefits programs for diverse employee popula-
tions. Benefits Administration uses a hierarchical structure that gives you ·
the ability and flexibility to add new programs at any time. This system can
maintain an unlimited number of benefits types and individual plans that are
offered to the employees. With Benefits Administration you can establish
benefits groups based on specific employee demographics. A company needs
options for enrolling employees in benefits programs. This module furnishes
you with real-time processing, allowing you to prepare employee specific
enrollment forms, using any and all employee data. Using the Benefits Ad-
ministration component, you can define eligibility groups and rules based on
a wide range of factors. You can determine the variables, rules and cost
formulas for each benefits plan. You can design the types of benefits plans
that best fit your employee demographics. You determine the options to offer
employees and the Benefits Administration component provides the frame-
work to administer them efficiently. The costs associated with each benefits
plan option are automatically calculated to ensure consistent and accurate
reports.
With the Benefits Administration feature, you can maintain an unlimited
amount of savings plans for your employees to consider. The Benefits Admin-
istration component gives you the capability- to maintain both deferred and
non-deferred options, as well as employer-matched and unmatched contribu-
tions. The component tracks employee changes and investment histories.
These systems have powerful querying and reporting features that can pro-
vide you with standard reports, to assist you in administering your programs
 ERP Modules 103

and help you respond to requests quickly, accurately and confidently. The
employees can also have direct access to their individual benefits informa-
tion, eliminating many time consuming questions that the HR staff would
otherwise have addressed every day.

Salary Administration
This function helps you in simplifying the process of rewarding your employ-
ees. Administration of salaries is an ongoing process within your human
resources department. It is particularly important during the review process,
when your goal is to justly reward good performance. The Salary Administra-
tion rnodule assists you in the salary review process by taking into account
standard salary changes within the company, as well as individual compen-
sation exceptions.

Er Organizational Management
This module will assist you in maintaining an accurate picture of your
organization's structure, no matter how fast it changes. In many cases,
graphical environments make it easy to review any moves, additions, or
changes in employee positions. You can also· create multiple simulations for
the organization, as you explore your options for making adjustments in
personnel. Planning features designed to assist you include graphical orga-
nization charts; staffing schedules. by headcount, percentage and working
hours; joh and work centre descriptions and job tasks and descriptions.
Personnel costing is a strategic success factor for every company. Accu-
rately forecasting personnel costs provides your management team with a.
more complete cost picture to assist them in making informed decisions. The
Personnel Cost Planning functions en~ble you to perform cost comparisons
between target and actual personnel costs and create cost previews. You can
forecast wages, salaries and other cost elements for open and filled positions,
based on simulated, planned, or actual payroll figures.

Payroll Accounting
The Payroll Accounting system can fulfill the payroll requirements and pro-
vide you with the flexibility to respond to your changing needs. Payroll Ac-
counting should address payroll functions from a global point-of-view. You
should be able to centralise your payroll processing, or decentralise the data
based on country or legal entities. Most Payroll Accounting systems give you
the options and capabilities to establish business rules --Withoutmodifying the
104 Enterprise Resource Planning

existing payroll. Many systems have the features to remind you when trans-
actions are due for processing. When the process is completed, a built-in
audit trail date stamps the record for future reference. The system automati-
cally creates a history record for every payroll transaction. With Payroll Ac-
counting, you have the ability to tailor the system to your organization's
requirements. When policy or legislative changes occur, you can adapt the
system. The system maintains information on employees in a master file
shared with all other modules. Whether your business operates solely in one
country or has expanded to international locations, most ERP vendors have
incorporated features that will satisfy your requirements. With country-spe-
cific versions of Payroll Accounting, you can fulfill language, currency and
regulatory requirements.

Er Time Management

This module assists you in simplifying the administration and evaluation of

time data. Time Management is a powerful tool that helps you administer and
evaluate data related to the time your employees spend working. This com-
ponent can simplify your efforts irrespective of whether the organization uses
centralised or decentralised data to determine employee working hours. Time
Management manages work schedules efficiently and effectively by automat-
ing schedule generation and allowing flexible definition of time models and
schedules per location and organization level. With Time Management, you
can set flexible working hours and process work notices as times are re-
corded. Individual and group piecework calculation for employee incentive
wages is also available through the incentive wages feature. The Time Evalua-
tion component allows daily processing of employee time data. It is a flexible
tool designed to handle complicated evaluation rules to fulfill regulatory re-
quirements and determine overtime and other time-related data. The Time
Evaluation component stores your organizations' business rules and auto-
matically validates hours worked and wage types. The results of time evalu-
ation can be shown on a time sheet that provides a detailed overview of daily
balances and time wage types. Most packages provide a review feature that
will provide all necessary information and tools to review and maintain em-
ployee time data.

Shift Planning
Shift planning module helps you to plan your workforce requirements quickly
and accurately. You are able to arrange a target plan that can be drafted for
any given period. You can plan your shifts according to your requirements,
.,
ERP Modules 105

taking into consideration all criteria, including absences due to leave or

sickness, and employee requests for time off. Shift Planning keeps you in-
formed at all times of any staff excess or deficit; a convenient planning board
is provided to guide you when entering and copying shifts for any designated
period of time. Furthermore, you can check the plans at any time against
rules governing employees' working time, for example, to detect non-compli-
ance with relevant legislation. All time data relating to your employees is
centrally administered. This means that not just the planned working time
but also short-term changes to your shift plan brought about by, for example,
sickness or over-time are relayed directly to the Time Management compo-
nent. Another advantage of Shift Planning is that it enables you to tempo-
rarily assign an employee or employees to another organizational unit where
they are needed, allowing for a temporary change of cost centre.

Personnel Development
This function helps in selecting the best people and enhancing careers more
effectively. The system provides advanced tools to automate the labour-inten-
sive process of matching internal job requirements to qualified candidates.
You Can profile predefined tasks and prerequisites of each position in your
organization. Additionally, you can profile the'.qualifications of employees and
external candidates under consideration for each position. A comparison of
the qualifications and profiles, assists you in. selecting individuals for further
consideration. Effective personnel development planning ensures that the
I goals of the organization and the goals of the employee are in harmony. The

I
benefits of such planning include improvements in employee performance,
employee potential, staff quality, working climate and employee morale. A
good system should provide organizations with a method of modeling suitable
career opportunities for employees within the company. Also, there should be
features to determine the areas in which employees need further training.
Once this is established, you can then draw up individual plans for further
education.

Training and Event Management

Every successful organization should plan the training and events, faster
than ever before. A good HR system will have features to assist you with
planning, managing and analysing your scheduled seminars, training courses
and business events. Detailed information for each of the events is main-
tained to facilitate production of event catalogs and schedules. There should
be tools to maintain information on the internal or external organizers of each
event, as well as details such as prerequisites, objectives, content, time
106 Enterprise Resource Planning

schedule, prices, capacity, locations, attendee billing information and bud-

gets. Resources such as instructors, rooms, equipment and course materials
can be automatically suggested, saving you a great deal of data entry time.
On completion of a training course, appraisal forms can be automatically
issued. Appraisals can be carried out for instructors, attendees, business
events and training courses. There will be features for providing the training
coordinator with reports on event data, ranging from catering requirements
to registrant qualifications for each business event. The reporting feature
provides measurements of education and training performance.

PLANT MAINTENANCE

Er Introduction
The achievement of world class performance demands delivery of quality
products expeditiously and economically. Organizations simply cannot
achieve excellence with unreliable equipment. The attitude towards mainte-
nance management has changed as a result of quick response manufactur-
ing, Just-in-Time reduction of work in process inventory and the elimination
of wasteful manufacturing practices. Machine breakdown and idle time for
repair was once an accepted practice. Times have changed. Today when a
machine breaks down, it can shut down the production line, and the
customer's entire plant. The Preventive Maintenance module provides an
integrated solution for supporting the operational needs of an enterprise-wide
system. The Plant Maintenance module includes an entire family of products
covering all aspects of plant/ equipment maintenance and becomes integral to
the achievement of process improvement. The major subsystems of a Plant
Maintenance module are:
• Preventive Maintenance Control
• Equipment Tracking
• Component Tracking
• Plant Maintenance Calibration Tracking
• Plant Maintenance Warranty Claims Tracking

ET Preventive Maintenance Control

Preventive Maintenance Control provides planning, scheduling and control of
facilities and equipment. Equipment lubrication, component replacement and
safety inspection can be planned scheduled, and monitored. Maintenance
 ERP Modules 107

tasks can be tracked for each machine, or piece of equipment, by two user-
defined modes, as well as calendar day frequency. These modes could include
tracking by hours of operation, units of production produced, gallons of fuel
consumed, or the number of days in operation since the last service interval.
Preventive Maintenance Control enables organizations to lower repair costs
by avoiding downtime, machine breakage and process variability. Companies
achieve higher machine utilisation and improved machine reliability and tol-
erance control, along with higher production yields.

Er Equipment Tracking
Equipment is an asset that needs to be monitored and protected. In many
. I

situations, equipment maintenance costs constitute the single largest con-

trollable expenditure of an organization. All facets of plant location history
and utilisation history are described and tracked. This history includes ac-
quisition and disposition information and associations between different
pieces of equipment to pinpoint operational dependencies. Running totals for
operation units to date (miles, hours, days, units of production, etc.) are also
provided. Each piece of equipment is defined by a model ~nd serial number.
User-defined data sheets can be developed which allow for the grouping of
user dat-a into formats that can be linked to equipment records. All of this
information can be used to create equipment specifications, which provide
detailed information for technical specialists working in equipment opera-
tions, maintenance and transportation control.

~ Component Tracking
Components are, typically, subsets of larger equipment and deserve the same
amount of cost controlling scrutiny. Component tracking enables equipment
managers to identify components with chronic repair problems. They can
determine whether a repair or replacement should be covered by warranty.
Planning component replacements, rather than waiting for component fail-
ures to occur, reduces unscheduled equipment downtime. Component track-
ing includes repair/ exchange history and component service life.

Ev Plant Maintenance Calibration Tracking

I Plant Maintenance Calibration Tracking allows organizations to leverage their
investment in the Plant Maintenance module by providing for the tracking of.
I equipment calibration in support of 180)9000 requirements. · .

j
108 Enterprise Resource Planning

E) Plant Maintenance Warranty Claims Tracking

Plant Maintenance Warranty Claims Tracking is an administrative system
designed to provide control of all items covered by manufacturer and vendor
warranties. It enables plant management to recover all of the warranty; re-
imbursements to which they are entitled but have not been able to recover
in the past. Features include the ability to establish the type and length of
warranty, for example, elapsed day, months, mileage stipulation, or operating
units. A complete history is performed for each item covered by the warranty,
and complete information regarding the warranty service provider is gener-
ated.

QUALITY MANAGEMENT

D Introduction
The ISO 9000 series of standards defines the functions of quality manage-
ment and the elements of a quality management system. The functions in the
Quality Management module support the essential elements of such a sys-
tem. The other integrated modules in the system complement this function-
ality. The ISO standards require that quality management systems penetrate
all processes within an organization. The task priorities, according to the
quality loop, shift from production (implementation phase) to production plan-
ning and product development (planning phase), to procurement and sales
and distribution, as well as into the entire usage phase. In the area of
production, quality assurance is no longer viewed in terms of inspection and
the elimination of defects alone. Instead, the production process itself be-
comes the focus of attention.

D CAQ and CIQ

Just as the requirements for quality management systems have changed as
a result of the ISO 9000 standards, the term Computer-Aided Quality Man-
agement (CAQ)must also beredefined. Computer-Integrated Quality Manage-
ment (CIQ) is a more appropriate term because an isolated CAQ system
cannot carry out the comprehensive tasks of a quality management system.
The ERP system takes this into consideration by integrating the quality
management functions into the affected applications themselves (for example,
procurement, warehouse management, production and sales/distribution),
 ERP Modules 109

instead of delegating them to isolated CAQ systems. As a result of this ap-

proach, the processes described in the quality manual can be implemented
and automated in the electronic data processing (EDP) system.
The representation of the elements of a quality management system within
the ERP system is not only the responsibility of the Quality Management
module. Instead, the. ERP system must be considered as a whole, in which
all integrated modules contribute their part. Within the framework of the
system, for example, the Human Resources module handles personnel-re-
lated matters, the Controlling module handles the management of quality-
related costs and the Plant Maintenance module handles the monitoring of
test equipment. As a part of the Logistics application, the Quality Manage-
ment module handles the traditional tasks of quality planning, quality in-
spection and quality control. For example, it supports quality management in
procurement, product verification, quality documentation and in the process-
ing of problems.
The Quality Management module's internal functions do not directly inter-
act with the data or processes of other modules.

~· Quality Management Module-Functions

The Quality Management module fulfills the following functions:
D Quality Planning (Management of basic data for quality planning and
inspection planning, Material specifications, Inspection planning)
D Quality Inspection (Trigger inspections, Inspection processing with in-
spection plan selection and sample calculation, Print shop papers for
sampling and inspection, Record results and defects, Make the usage
decision and trigger follow-up actions)
D Quality Control (Dynamic sample determination on the basis of the
quality level. history, Application of statistical process control tech-
niques using quality control charts, Quality scores for inspection lots,
Quality notifications for processing internal or external problems and
initiating corrective action to correct the problems, Inspection lot pro-
cessing and problem processing, Quality Management Information Sys-
tem for inspections and inspection results and quality notifications)

Et- Computer Integrated Quality Management (CIQ)

The integration of Quality Management in the ERP systems provides consid-
erable advantages because only an integrated system can support all the
110 Enterprise Resource Planning

elements of a quality management system, according to ISO 9000. The inte-

gration allows the quality management functions to influence all processes
within a company, thereby affecting all phases of a product's life cycle.
The Quality Management module uses the system's integration to link the
tasks of quality management with those of the other applications, such as
materials management, production, sales/distribution and cost accounting.
An inspection that is triggered automatically upon goods receipt is an ex-
ample of this. The Quality Management module is integrated with the master
data and processes of the following applications:
• Materials management (purchasing, inventory management, warehouse
management, material requirements planning)
• Production (work scheduling, shop floor control)
• Sales and distribution (delivery, creation of quality certificates)
The Quality Management module supports the exchange of data with other
applications in order to prevent related data from being recorded and stored
redundantly. For example, the information provided by a goods receipt post-
ing relating to the material, vendor and lot size is automatically transferred
to the inspection lot data record when an inspection is triggered.

MATERIALS MANAGEMENT

~ Introduction
The Materials Management module optimises all purchasing processes with
workflow-driven processing functions, enables automated supplier evalua-
tion, lowers procurement and warehousing costs with accurate inventory and
warehouse management and integrates invoice verification. The main mod-
ules of the Materials Management module are:
• Pre-purchasing Activities
• Purchasing
• Vendor Evaluation
• Inventory Management
• Invoice Verification and Material Inspection

~ Pre-purchasing Activities
This system supports the complete cycle of bid invitation, award of contract
and acceptance of services. The pre-purchasing activities include maintaining
 ERP Modules 111 .

Requirements
Calculation

Requisition for
Quotations

Vendor Ratings

Quotation Evaluation

Vendor Selection

Contracts

);> Fig. 5.9 The pre-purchasing activities module

a service master database, in which the descriptions of all services that are
to be procured can be stored. The system also keeps a separate set of service
specifications that can be created for each concrete procurement project or
proposed procurement in the purchasing document. Sets of service specifi-
cations may include, both items with services and items with materials.
When creating such specifications, the user does not have to list individual
services manuaily. Instead, the data is simply copied from the master data.
Use of this technique means that data only has to be entered once. The
manual entry effort is reduced to a minimum.
There are two ways of entering service specifications-planned and un-
planned. Planned service specifications mean that service whose precise
nature and intended scope are already known at the beginning of a procure-
ment project. At the time they are requested for, they are either entered with
the aid of a service master record, or set out in service specifications as short
or long texts. Prices and quantities are stipulated in both cases. A procure-
ment project may constitute or include a number of individual services,
112 Enterprise Resource Planning

which you initially cannot or do not wish to specify in detail (for example, the
construction of an office building). Such initial undefined services specifica-
tions are termed 'unplanned service specifications' and thus, have no de-
scriptions. They are entered in the form of money value limits. Service speci-
fications may be specified in terms of an upper limit. This allows you to
exercise a degree of cost control in such situations. You can set a value limit
at the uppermost level (for example, 5 crores for the construction of the office
building). In addition, you can set limits for individual contracts within the
project (for example, Rs 100,000 for masonry works and Rs 150,000 rupees
for electrical installations). The system checks adherence to both these sub-
limits and the overall limit. When the services have been performed, they are
recorded in entry sheets and then accepted. The accepted service entry sheet
constitutes the basis for subsequent invoice verification in the case of ser-
vices. The pre-purchasing activities are shown in Fig. 5.9.

Er Purchasing
Purchasing is a very important component of the Materials Management
module. The Materials Management module is fully integrated with other,
modules in the system. It supports all phases of materials management:
materials planning and control, purchasing, goods receiving, inventory man-
agement and invoice verification. Good communication· between all partici-
pants in the procurement process is necessary for purchasing to function
smoothly. Purchasing communicates with other modules in the system to
ensure a constant flow of information. For example, it works side by side with
the following modules:
D Cost Accounting System Orders for materials and services consumed
directly illustrate the interface to the cost accounting system. This is
because they can be assigned to a cost centre directly.
D Financial Accounting Purchasing and Accounting both maintain infor-
mation on vendors. Information on each vendor is stored in a vendor
master record, which contains both accounting and purchasing infor-
mation. The vendor master record represents the vendor account in
financial accounting. Through Purchase Order account assignment,
Purchasing can also specify which G/ L accounts are to be charged in
the financial accounting system.
D Sales and Distribution Within the framework of material requirements
planning (MRP), customer requirements from Sales can be passed on
 ERP Modules 113

to Purchasing. In addition, when creating a requisition, you can assign

it to a sales order.
Purchasing system performs tasks like procurement of materials and ser-
vices, determination of possible sources of supply for a requirement identified
by the materials planning and control system or .arising directly within a user
department, monitoring of deliveries and payments to vendors, and so on.

Er Vendor Evaluation
The vendor evaluation component has been completely integrated into the
Materials Management module. Information such as· delivery dates, prices
and quantities can be taken from purchase orders. Vendor Evaluation also
uses data from Quality Management, such as the results of incoming inspec-
tions or quality audits. It also accesses basic data in Materials Management,
such as goods receipt data from Inventory Management.
The Vendor Evaluation System supports the optimisatior; of the procure- ·
ment processes in the case of both materials and services. In the case of
procurement of materials, the system helps you select sources of supply and
facilitates the continual monitoring of existing supply relationships. It pro-
vides you with accurate information on prices, and terms of payment and
delivery. By evaluating vendors, you can improve your enterprise's competi-
tiveness. You can quickly determine and resolve any procurement problems
that may arise on the basis of detailed information and in collaboration with
the relevant vendors. In the case of procurement of services, you can check
the reliability of the vendors from which you procure services on a plant by
plant basis. You can determine whether the vendors perform the services
within the specified timeframes and appraise the quality of the work carried
out.
Most of the vendor evaluation systems offer you a point-based evaluation
system, based on certain selection criteria. Most systems have their own pre-
defined set of criteria, but will allow the user-defined criteria also. Using
these criteria, the performance of the vendors is measured and points are
given. You can determine and compare the performance of the vendors by
reference to their overall scores. The main criteria that are usually used are
price, quality, delivery; service and support, replacement of returns, lead-
times, and so on. The Vendor Evaluation System ensures that evaluation of
vendors is objective, since all vendors are assessed according to uniform
criteria and the scores are computed automatically.
114 Enterprise Resource Planning

Er Inventory Management

Inventory Management system allows you to manage your stocks on a quan-

tity and value basis, plan, enter and check any goods movements and carry
out physical inventory. In the Inventory Management system, the physical
stocks reflect all transactions resulting in a change in stock and thus, in
updated inventory levels. The user can easily obtain an overview of the cur-
rent stocks of any given material. For each material, not only are the stocks
in the warehouse shown, but also the stocks ordered but not yet delivered,
reserved for production or for a customer, and the stocks in quality inspec-
tion can be monitored. If a further subdivision by lots is required for a
material, one batch per lot is possible. These batches are then managed
individually in the stock. Special stocks from the vendor or from the cus-
tomer (for example, consignment stocks) are managed separately from the
company's own stock.
The stocks are managed not only on a quantity basis but also by value-
a prerequisite for cost accounting. With every goods movement, the following
values are updated:
• Stock value for inventory management
• Account assignment for cost accounting
• Corresponding G/L accounts for financial accounting via automatic
account assignment
Both the quantity and the value are updated automatically when entering
a goods movement. Goods movements include both 'external' movements
(goods receipts from external procurement, goods issues for sales orders) and
'internal' movements (goods receipts from production, withdrawals of material
for internal purposes, stock transfers and transfer postings). For each goods
movement a document is created which is used by the system to update
quantities . and. values and serves as a proof of goods movements. Goods
receipt/ issue slips are printed to facilitate physical movements and the
monitoring of the individual stocks in the warehouse. The adjustment be-
tween the physical stocks and the book inventories can be carried out auto-
matically.
Most inventory management systems support inventory methods like Peri-
odic inventory, Continuous inventory, Inventory sampling and Cycle counting.
In a periodic inventory, all stocks of the company are physically counted on the
balance sheet key date. In this case, every material must be counted. During
counting, the entire warehouse is usually blocked for material movements.
 ERP Modules 115

With the continuous inventory procedure, stocks are counted continuously

during the entire fiscal year. In this case, it is important to ensure that every
material is physically counted at least once during the year. In inventory
sampling, randomly selected stocks of the company are physically counted on
the balance sheet key date. If the variances between the result of the count
and the book inventory balance are small enough, it is presumed that the
book inventory balances for the other stocks are correct. Cycle counting is a
method of physical inventory where inventory is counted at regular intervals
within a fiscal year. These -intervals {or cycles) depend on the cycle counting
indicator set for the materials. For example, cycle counting allows fast-mov-
ing items to be counted more frequently than slow-moving items.

D Invoice Verification and Material Inspection

The Invoice Verification component is part of the Materials Management
system. It provides the· link between the Materials Management component
and the Financial Accounting, Controlling and Asset Accounting components.
Invoice Verification in Materials Management serves the following purposes:
• It completes the materials procurement process-which starts with the
purchase requisition, continues with purchasing and goods receipt and
ends with the invoice receipt
• It allows invoices that do not originate in materials procurement (for
example, services, expenses, course costs, etc.) to be processed
• It allows credit memos to be processed, either as invoice cancellations
or discounts

Invoice verification does not handle the payment or the analysis of invoices.
The information required for these processes is passed on to other depart-
ments.
Each invoice contains various items of information. To post an invoice, you
must enter this information into the system. If an invoice refers to an existing
transaction, certain items of information will already be available in the sys-
tem. The system proposes this information as default data so that you only
need to compare it and, if necessary, correct any possible variances. ·
If an invoice refers to a purchase order, for example, you only need to enter
the: number of the purchase order. The system selects the right transaction
and proposes data from the purchase order, including the vendor, material,
quantity ordered, terms of delivery. and terms of payment. You can, of course,
overwrite this default data if there are variances. You can display the purchase
116 Enterprise Resource Planning

order history to see, for example, which quantities have been delivered and
how much has already been invoiced. If there are variances between the
purchase order or goods receipt and the invoice, the system will issue a
warning on the screen. If the variances are within the preset tolerance limits,
the system will allow the invoice to be posted but will automatically block it
for payment. The invoice must then be released in a separate step. If the
variances
t,
are not within the tolerances, the system will not allow the invoice
to be posted.
When the invoice is entered, the system also finds the relevant account.
Automatic postings for sales tax, cash discount clearing and price variances
are also generated and the posting records displayed. If a balance is created,
the user is required to make .corrections, as an invoice can only be posted
if the balance equals zero. As soon as the invoice is posted; certain data, such
as the average price of the material ordered and the purchase order history
is updated in the system.
The invoice posting completes Invoice Verification. The data necessary for
the invoice to be paid is now contained in the system. The accounting depart-
ment can retrieve the data and make the appropriate payments with the aid
of the Financial Accounting component.

SUMMARY

Iri this session we have learnt:

• About the different and popular modules of an ERP package like fi-
nance, manufacturing, plant maintenance, materials mangement etc.
• About the subsystems or sub-modules of these models
• How these function together

CHECK Yous PROGRESS

1. The objective of a is company-wide control and integration of

financial information that is essential to strategic decision-making.
2. ROA stands for _
3. LIFO and FIFO are the abbreviations of and _
4. ECO stands for _

J
 ERP Modules 117

5. Tooling is a subsystem of the module.

·5; Calibration Tracking is a subsystem of the module.
7.· CAQ stands for _
8. CIQ stands for _
9. The module optimises all purchasing processes with workflow-
driven processing functions, enables automated supplier evaluation, lowers
procurement and warehousing costs with accurate inventory and warehouse
management, and integrates invoice verification.
10. is a method of physical inventory, where inventory is counted
at regular intervals within a fiscal year.

1 . What are the popular modules in an ERP system?

2. What are the various subsystems of the financial module?
3. What are the major functions of the manufacturing module?
4. How does the plant maintenance module help in achieving competitiveness?
5. What are the major functions of the materials management module?