A single source of information
Managing contracts and procurement for manufacturers can be an inherently risky and time-consuming process if not seamlessly integrated within your ERP system.
If a manufacturing company uses contracts for raw materials or commodities, for example grains and cereals, metals and bulk chemicals, then their enterprise resource planning (ERP) solution is most likely failing due to the lack of visibility between the production floor and the procurement office.
Astonishingly, it is still common to have such contracts handled ‘off system’, or not integrated into the full supply chain of the ERP solution. In order to request material, production demand reports are passed to procurement, often manually, to request the products that are needed. There is simply too much at stake to use a process that is so time consuming and riddled with potential for error.
Also, key stakeholders from production, sales, finance and procurement have no clear visibility and therefore no ability to quickly respond if either the supply or demand of a required raw material or commodity changes.
Contracts are an integral part of a manufacturing company’s life, and cover pricing terms, delivery and quality specifications with associated pricing. All aspects of contracts need to be tracked to ensure that the material is available to meet production demand, on time and within specified quality ranges.
As part of a company’s risk strategy, they may decide to hedge their physical contracts with exchange traded derivative contracts. Here, we have yet another set of data that has to be maintained manually as risk management is not usually available in a standard ERP solution. This is particularly ironic – one of the main reasons for having contracts in the first place is to help manage and minimise risk. If they are not seamlessly integrated into the ERP system, then information related to them can be lost and mistakes are more likely to be made.
Manufacturing companies strive to achieve maximum profit levels while providing their customers with quality products and first-class service. The loss of a single sales contract due to poor or delayed material supply can have devastating consequences. Manufacturers who use materials with a high turnover or short to medium-term shelf-life need to foresee and react quickly to changes in supply and demand in order to maintain expected production levels and protect profits.
The ideal situation is for manufacturers to have an ERP solution that offers deep integration between all relevant facets of the procurement and production process, including commodity procurement, contracts and risk management. The right solution will offer a single source of information that all managers and stakeholders can access and respond to in real time.
For those manufacturers considering the move to a more comprehensive and agile ERP solution, make sure you ask the right questions. The company you select for your ERP implementation should offer a deeply integrated solution, not just a set of bolt-on standalone systems with partially interfaced data. When done right, implementing a new, modern ERP system is a valuable opportunity to take your company to the next level in efficiency and stability.
Download our white paper for more information on Commodity Trading.
This article has been published in Microsoft's PRIME magazine, Summer edition (northern hemisphere), 2012. Read the article in PRIME Magazine.
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The word ‘Kanban’, is a Japanese word meaning ‘card’. A Kanban ‘card’ is a visual indicator that a material, ingredient or component used in manufacturing has, or is about to run out.
Just as the sticker telling us there are only two meters left on the roll of plastic kitchen wrap indicates that it is time to buy more plastic wrap, Kanban tags allow manufacturers to be alerted to the imminent depletion of a material, ingredient or component required for production.
As materials are ordered only when there is a need for them, we reduce the storage requirements and wastes associated with obsolete components of dropped product lines, and offer the ability to react, with agility, to changes in demand. This creates a ‘Lean’, (more efficient and less wasteful) manufacturing process.
Lean Manufacturing allows manufacturers to take advantage of these ‘pull based’ principles with the use of the ‘Kanban Schedule’, which specifies the material’s priority and allows the appropriate timeframe for material’s supply so as not to affect production.
Although the basic principles of Lean Manufacturing and ‘Kanban’ processes are quite simple to understand, the average manufacturing plant – with many components, ingredients, parts etc. even within a single product line – can have quite extensive and complex requirements which require a streamlined, reliable and efficient solution.
Microsoft Dynamics AX provides extensive capabilities to support Lean Manufacturing. The Kanban Schedule offers up to date information on the availability of materials over time, so the operator always has a clear view of inventory at hand and can anticipate production requirements.
For more information on Lean Manufacturing, Kanban and pull based manufacturing, please download the whitepaper.