Current ERP systems
evolved as a
result of three things (1) the advancement of hardware and software
technology (computing power, memory, and communications) needed to
support the system,
(2) the development of a vision of integrated
information systems, and (3) the reengineering of companies to shift
from a functional focus to a business process focus. (p.19)
The concept of an integrated
information system took shape on the factory floor. Manufacturing
software developed during the 1960s and 1970s, evolving from simple
inventory-
tracking systems to material requirements planning (MRP)
software. (p.20)
The functional business model illustrates the concept of
silos of
information, which limit the exchange of information
between the lower operating levels. (p.22)
In a process-oriented company,
the flow of information and management activity is
“horizontal”
across functions, in line with the flow of materials and products.
This horizontal flow promotes flexibility and rapid decision making.
(p.23)
Any large software implementation
is challenging—and ERP systems are no exception.
There are
countless examples of large implementations failing, and it’s easy
to understand why. Many different departments are involved, as are
many users of the system, programmers, systems analysts, and other
personnel. Without top management commitment,
large projects are
doomed to fail. (p.30)
ERP packages imply, by their
design, a certain way of doing business, and they require users
to
follow that way of doing business. Some of a business’s
operations, and some segments of its operations, might not be a good
match with the constraints inherent in ERP.
Therefore, it is
imperative for a business to analyze its own business strategy,
organization, culture, and operation before choosing an ERP
approach. (p.34)
Sometimes, a company is not ready
for ERP. In many cases, ERP implementation difficulties result when
management does not fully understand its current business processes
and cannot make implementation decisions in a timely manner. (p.35)
Usually, a bumpy rollout and low
ROI are caused by people problems and misguided
expectations, not
computer malfunctions. ...
Many ERP implementation experts stress
the importance of proper education and training for both employees
and managers. Most people will naturally resist changing the way
they do their jobs. Many analysts have noted that active top
management support is crucial for successful acceptance and
implementation of such company-wide changes. (p.37)
When customers place an order,
they usually ask for a delivery date. To get a shipping date, the
in-office clerk must contact the warehouse supervisor and ask
whether the
customer’s order can be shipped from inventory, or
whether shipping will be delayed until
a future production run is
delivered to the warehouse. (p.51)
Next, the
clerk checks the
customer’s credit status.
...
The form
goes to Accounting,
where accountants perform the credit check and then return the
credit-check form showing the customer’s credit limit.
(p.51)
The program adjusts inventory
level figures on a daily basis, using production records (showing
what has been added to the warehouse), packing lists (showing what
has been shipped from
the warehouse), and any additional sources of
data (such as shipping cases that have been
opened to pull display
boxes). Each month the warehouse staff conducts a physical
inventory count to compare the actual inventory on hand with what
the inventory records
in the PC database show. (p.52)
In other
situations, the
customer may want a partial shipment consisting of whatever is on
hand,
with the rest shipped when it becomes available, which is
known as a backorder. Or, the customer might prefer to take the
goods on hand, cancel the balance of the order, and place
a new
order later. (p.52)
The
Accounting department loads
the data into the PC-based accounting program; then, clerks
manually make adjustments for partial shipments and any other
changes that have
occurred during the order process. (p.53)
When the SAP ERP system is
instructed to save a sales order, it performs inventory
sourcing—that is, it carries out checks to ensure that the
customer’s sales order can be
delivered on the requested delivery
date.
When
the sales order is ready to
be processed by the warehouse, a delivery document will be
created
with its own unique document number, which the system will link to
the sales order
document. Finally, when the bill (invoice) is
prepared for the customer, the bill’s unique
number (called the
invoice number) will be created and related to all the other
numbers
associated with the sales order. (p.61)
With the goal of providing “a
single face to the customer,” the basic principle behind
CRM is
that any employee in contact with the customer should have access to
all information about past interactions with the customer. (p.65)
The goal of production planning
is to schedule production economically, so that the
company can
ship goods to customers by the promised delivery dates in the most
cost-
efficient manner. (p.78)
Production planners are employees
who interact with the inventory system and the
sales forecast to
figure out how much to produce. They follow three important
principles:
Work from a sales forecast and
current inventory levels to create an “aggregate” (“combined”)
production plan for all products. Aggregate production
plans help
to simplify the planning process in two ways: First, plans are
made
for groups of related products rather than for individual
products. Second, the
time increment used in planning is
frequently a month or a quarter, while the
production plans that
will actually be executed operate on a daily or weekly
basis.
Aggregate plans should consider the available capacity in the
facility.
Break down the aggregate plan
into more specific production plans for individual products and
smaller time intervals.
Use the production plan to
determine raw material requirements.
(p.82)
One simple forecasting technique
is to use a prior period’s sales and then adjust those
figures
for current conditions. (p.85)
A sales and operations plan is
developed from a sales forecast and determines how
Manufacturing
can efficiently produce enough goods to meet projected sales.
(p.86)
The demand management step of the
production planning process links the sales and
operations planning
process with the detailed scheduling and materials requirements
planning processes. The output of the demand management process is
the master produc-tion schedule (MPS), which is the production plan
for all finished goods. (p.95)
Materials requirements planning
(MRP) is the process that determines the required quantity and
timing of the production or purchase of subassemblies and raw
materials needed
to support the MPS. The MRP process answers the
questions, “What quantities of raw materials should we order so we
can meet that level of production?” and “When should these
materials be ordered?” (p.96)
A key decision in detailed
production scheduling is how long to make the production
runs for
each product. Longer production runs mean that fewer machine setups
are
required, reducing the production costs and increasing the
effective capacity of the
equipment. On the other hand, shorter
production runs can be used to lower the inventory levels for
finished products. Thus, the production run length requires a
balance
between setup costs and holding costs to minimize total
costs to the company. (p.104)
Accounting activities can
generally be classified as either financial accounting or managerial
accounting. (p.118)
Common financial statements
include balance sheets and income statements.
A balance sheet
is a
good overview of a company’s financial health at a point in time
.
The income statement, or profit and loss (P&L) statement, shows
the company’s sales,
cost of sales, and the profit or loss for a
period of time (typically a quarter or year). (p.119)
Managerial accounting deals with
determining the costs and profitability of the company’s
activities. While the information in a company’s balance sheet and
income statement shows whether a firm is making an overall profit,
the goal of managerial accounting
is to provide managers with
detailed information that allows them to determine the profitability
of a particular product, sales region, or marketing campaign.
(p.120)
A manufactured item’s cost has
three elements: the cost of raw materials, the cost of labor
employed directly in the production of the item, and all other
costs, which are commonly called overhead. Overhead costs include
factory utilities, general factory labor (such
as custodians or
security guards), managers’ salaries, storage, insurance, and
other
manufacturing-related costs. (p.128)
Materials and labor are often
called direct costs because the constituent amounts of
each in a
finished product can be estimated fairly accurately. On the other
hand, the overhead items, called indirect costs, are difficult to
associate with a specific product or a batch
of specific products.
In other words, the cause-and-effect relationship between an
overhead cost (such as the cost of heat and light) and making a
particular product (NRG-A bars)
is difficult to establish.
(p.128)
Standard costs for a product are
established by studying historical direct and indirect cost patterns
in a company and taking into account the effects of current
manufacturing changes. At the end of an accounting
period, if
actual costs differ from standard costs, adjustments to the accounts
must be made
to show the cost of inventory owned on the balance
sheet and the cost of inventory sold
on the income statement.
(p.129)
The differences between actual
costs and standard costs
are called cost variances. Note that cost
variances arise with both direct and indirect costs.
These
variances are calculated by comparing actual expenses for material,
labor, utili-ties, rent, and so on, with predicted standard costs.
(p.129)
A trend in inventory cost
accounting is toward activity-based costing (ABC). In ABC,
accountants identify activities associated with overhead cost
generation, and then keep
records on the costs and on the
activities. The activities are viewed as causes (drivers)
of the
overhead costs (p.132)
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