Key Business Processes and an Organizing Focus for the Book

Manufacturing and distribution companies share many similarities in their supply chain activities and ERP system requirements. In addition, many manufacturers operate as a distributor, selling purchased products or coordinating replenishment across their distribution network. Many distributors also operate as a manufacturer, performing light assembly. Some companies are in the midst of switching products from purchased to manufactured, or vice versa. Therefore, an overall understanding requires consideration of both environments. The starting point for an overall understanding consists of several key business processes built on a common database, with management reporting to support decision making across the organization.

The common database defines a firms saleable products. For the purposes of this book, the common database can be viewed from the two perspectives of a distributor and a manufacturer.

Distribution Items and Purchased Material. Saleable products consist of purchased material in a distribution environment. These items are typically stocked in advance of sales orders but may be purchased to order.

Manufactured Items. A manufacturing environment also purchases material and then produces manufactured items either to stock or to order or both. The transformations from purchased material to manufactured item are minimally defined by bill of material information, with the processing steps and resource requirements optionally defined by routing information.

Six business processes can be identified for supply chain management in manufacturing and distribution environments. Three of these business processes revolve around sales orders, purchase orders, and production orders.

Sales Order Processing. The sales order process typically starts with sales order entry and finishes with shipment and customer invoices. It requires definition of customers, and involves related activities such as quotes and customer returns and the larger context of managing customer relationships.

Purchase Order Processing. The purchase order process typically starts with purchase order entry and finishes with receipts and vendor invoices. It requires definition of vendors , and involves related activities such as quotes and vendor returns and the larger context of managing vendor relationships. Coordination of purchasing activity focuses on suggested actions to replenish inventory or meet demand.

Production Order Processing. The production order process starts with creation of the production order and finishes with a completed product. Co-ordination of production activity focuses on production schedules by work center and suggested actions to replenish inventory or meet demand.

There are three additional business processes involving multisite operation, warehouse management, and sales and operations planning.

Multisite Operation. Some multisite operations involve transfer orders between locations. Starting with the creation of a transfer order, this involves shipping and receiving activities at the ship-from and ship-to locations. Multisite operations may also impact the other processes for sales orders, purchase orders, and production orders. For example, a sales order may identify line items with shipments from different locations with no requirement for a transfer order.

Warehouse Management. Warehouse management involves inbound and outbound shipments in support of the four above-mentioned business processes. For example, warehouse management involves receiving and put-away for purchase orders, and picking and shipment for sales orders. It also involves handling internal inventory movements and cycle counting. These activities taken as a group represent a key business process.

Sales and Operations Planning. One of the most critical business processes involves running the company from the top. This business process requires balancing sales demand against the ability of operations to supply product, and it is commonly termed the sales and operations planning (S&OP) process. It starts with the definition of all demands for the firms products, and formulates S&OP game plans that drive supply chain activities to meet those demands. The nature of each game plan depends on the environment. An S&OP game plan can be expressed as master schedules for stocked items and/or finishing schedules for make-to-order items.

This simple mental framework provides an organizing focus for further explanation. The following chapters cover the common database information about purchased and manufactured items and the above-mentioned six business processes. Many firms conduct business as a single-site operation so that the chapter on multisite operations may not apply.

This format enables readers to focus on just distribution or manufacturing, and just single-site or multisite operations. For example, a single-site distributor can focus on the database for distribution items (Chapter 2) and their key business processes for planning, sales, purchasing, and inventory (Chapters 4, 5, 6, and 7). A single-site manufacturer can focus on the database for purchased material (Chapter 2) and manufactured items (Chapter 3), the basic business processes (Chapters 4 though 7), and the additional business processes involving production (Chapter 8). Chapter 9 covers the incremental information about multisite operations for both distribution and manufacturing environments, while Chapter 10 summarizes the design factors shaping system usage.

Each chapter provides a basic overview of critical information and variations in business processes supported by standardized functionality. Each chapter also includes an executive summary and case studies that highlight use of standardized and customized functionality.