MM/U5 Topic 7 ERP in Materials Management
Role of ERP in Material Management
An ERP software has over the years proved to be an extremely beneficial and effective tool when it comes to handling different functions and departments within a manufacturing business. Majority of such businesses, irrespective of their size, use an ERP system to manage their processes, streamline their operations, and enhance their profitability. An ERP software gives them access to real-time accurate data, and helps them monitor the effectiveness of employees working on the shop floor, so that they can make much-informed and timely decisions, increase company output, and make the organization more efficient at the same time.
An ERP software also takes care of another vital area of any manufacturing business – supply-chain management. It oversees and manages the flow of raw materials, the inventory in use, or the final product from the point of origin to the point of consumption. A smooth supply chain is the lifeline of a manufacturing business, and quite naturally, any hurdle in the supply chain can affect the business adversely. For example- non-availability of raw materials, which either run out or are not replenished in a timely manner, can hamper the production process. That’s where material management, a subpart of the supply-chain, gains significance.
What is material management?
For a manufacturing business to function smoothly, it requires an uninterrupted flow of materials, or the physical items such as raw materials, components, parts, etc. required for producing goods. In today’s business scenario, where demand often exceeds supply, the significance of materials to efficient manufacturing operations is increasing more than ever. Every business needs raw materials in abundance, and thus looks to purchase, and store enough stocks of materials for immediate as well as long-term requirements.
Material management is thus an integral function of any manufacturing business. It can be defined as a set of processes that include activities of acquiring various types of materials, controlling their storage, and managing their flow and supply to different places in the right quantity at right place and time.
Why is it so important?
Manufacturing businesses face a lot of challenges pertaining to the effective management of materials. The biggest of them all is the prospect of not being able to honor the agreement with the customer to supply the product at the agreed time. A failure in doing so can have disastrous effects on the business, as the disgruntled client may switch to a new supplier entirely or ask for heavy discounts in the future.
Another major concern is the wastage of money invested in excessive or unused material stock as well as incurred on the warehouse rent for the same. These are nothing but dead funds, and can be recovered only when the final product is being sold, something which is uncertain. The repercussions of such a situation can be felt when there is a sudden demand/trend change, and stock no longer holds any value.
That’s precisely why you need a material management system in place, which can help you with inventory optimization & control, cost reduction, and even operations optimization.
Role of ERP
An ERP software plays a crucial role in material management. To begin with, it ensures that the production operations are planned & scheduled in such a way that only the bare minimum inventory is used. It makes it possible by integrating the warehouse with production and delivery schedules, which means the manufacturers know how much inventory is in stock, and use only as much material as required without wasting any.
Also an ERP’s planning module helps ensure that there is enough component available for production, and the finished goods are ready and shipped to the customer on time. All of it is interconnected, as by determining how much finished goods will be available in the future, manufacturers can better plan sales, purchasing activities and delivery schedules.
Moving ahead, ERP material requirement planning software also facilitates the more efficient use of working capital, and thus makes cost reduction possible. By not having extra inventory, companies can make substantial savings on over inventory and also on rental costs. They can use the liquid capital they save judiciously, for tasks such as expansion of operations, or additional marketing campaigns.
Then there are other roles too that an ERP can play in material management. It can help with material valuation, which in turn can help determine the material price that has to be recorded for financial accounting. For all those manufacturing businesses which operate on a large scale and from multiple locations, an ERP materials requirements planning software is a boon, as it meets their needs with multi-location inventory tracking and details. Moreover, its warehouse management functionality allows receiving inventory at the warehouse and stored into bins, which facilitates easy picking during the order fulfillment process.
ERP also enables the grouping, scanning, and tagging of inventory into the system for any future reference, besides making the process of inventory replenishment more agile. It also comes with lot-tracing capability, which allows the manufacturers to trace and track. The manufacturers can maintain and manage the details about the raw materials lot/serial number wise, and the supplier, grower etc. from whom the material was sourced. Any raw material can be easily tracked down in case of non-conformity.
What should your material requirement planning software be like?
An ideal ERP acts as a material requirement planning software, bringing to the system numerous benefits such as better material control, inventory optimization, increased material quality, cost reduction, improved handling of materials, timely availability of materials in right quantity, enhanced productivity, improved relationship with the suppliers, and better cash flow management, among others.
One such materials requirements planning software is BatchMaster ERP. It includes not only material requirements planning features like inventory and supply chain management, but also cost control, and equipment capacity planning. This makes it a one-stop solution for the process manufacturers to run their manufacturing business efficiently.