Supply Chain Processes in a Manufacturing Company
Manish Jain | April 09,2010 12:44 pm IST
People often talk about supply chain strategies to cope-up with the ever-changing trends and expectations of market. Sometimes, we are so carried away in strategizing that we ignore the operational level processes involved in a supply chain, which results in unexpected inefficiencies in the system.
Hence, it becomes paramount for a supply chain professional, who is fresh in corporate world, to have at least a broad overview of different supply chain processes, which will further help him in aligning any supply strategy in a better fashion.
Keeping this in mind, this paper focuses upon broad processes of supply chain inside a manufacturing facility. The overall processes involved in any end-to-end supply chain, i.e., right from supplier to customer are numerous as well as complex, for the sake of brevity, and to make this paper less cumbersome for the readers, I have considered supply chain processes inside a manufacturing facility only.
1. Company has an ERP system.
2. Company follows "Make to Order" strategy, i.e., goods are manufactured when purchase order is received from customer.
Supply chain process inside a manufacturing company starts from receiving a customer purchase order, subsequently requisite raw material in desired quantity is arranged as per the production plan of manufacturing, after which it is packed and dispatched.
Following is a broad flow chart of supply chain inside a manufacturing facility: -
1). Customer Purchase Order Input in ERP System: Once the sales department gets the customer purchase order, they verify if prices, payment terms, specification of the product are as per the prior agreement with the customer. If everything is OK, then these details are entered in ERP system, which further becomes an input to production planning department as what is to be made and in what quantity. Based on this input, production planning department does the raw material planning.
Entering customer purchase order in ERP is a very critical process; since any wrong input at this stage will lead to erroneous information to production planning department, as a result erroneous raw material planning will happen resulting in procurement of raw material, which is actually not required, and due to this, inventory will start piling up, which is actually not required.
At the same time, due to wrong input in this process, right material will not be procured; hence, manufacturing will not be able to produce the finished product as a result dispatches will not happen which will further worsen the relationship with customer.
2). MRP: Material Requirement Planning is done based on the Customer Purchase Order entered by sales department in ERP system.
In this process, Bill of Material of the products for which planning is to be done is exploded to identify which raw material is required.
Net quantity of raw material to be procured is calculated after considering raw material (stock in hand + raw material quantity on order).
3). Release of Purchase Requisitions: Based on calculation during MRP, purchase requisitions are released by production planning department containing the details of part number, quantity to be procured and the dates at which a particular raw material is required in factory.
The purchase requisitions released are for further action for procurement department.
4). Release of Purchase Orders on Vendors: Based on the purchase requisitions released, procurement department sends RFQ (Request For Quotation) to the relevant vendors. The responses of RFQ are compiled, negotiated with vendors are done and best offers are identified. Subsequently, purchase orders are placed on vendors.
5). Raw Material Received in Factory: Though this process seems to be mundane, but it’s an important process. It is at this point that the raw material is inspected for quality and observed whether it is meeting the desired specifications. If this process is not followed strictly, then inferior quality raw material will get in factory which will hamper the quality of finished product.
Also a unique storage location is assigned to raw material, which enables easy identification and retrieval of raw material.
6). Manufacturing: Important thing is to manufacture the product as per the specifications but also important is to manufacture the product at the time when it is required. Hence, manufacturing needs a close coordination with production planning department to make sure that the product manufacturing date meets the date as per production plan.
7) Dispatch: After the goods are manufactured, they are inspected packed and dispatched. During dispatch it should be ensured that invoicing of finished product is happening as per the taxes and duties as agreed with customers. Also it is to ensured that all relevant document e.g. - Road permit accompanies the shipment.
Though the above processes are fairly simple to understand and follow but there are lot many operational issues which arise during executing these processes. These issues will vary from organization to organization. To have a holistic view of an organization’s supply function one has to deeply go through these processes and then only he will able to gauge what actually it require for a supply chain to deliver the best.