Chapter 9 Process Integration Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Learning Objectives Define process integration, and explain why this concept is fundamental to modern business operations. Explain how the procurement, fulfillment, and IWM processes interact when a company fills a customer order for trading goods. Indentify and discuss the various integration points among the procurement, fulfillment, production, and warehouse management processes. Analyze the financial and material impacts of the various steps in the integrated processes. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Background Thus far the book has covered the following key processes: Financial accounting Procurement Fulfillment Production Inventory and warehouse management Material planning Each of these processes has triggers, data, tasks, and outcomes Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Background Chapter 1 introduced the concept of process integration Various processes are interdependent Steps in one process frequently impact steps in other processes This chapter approaches the same processes discussed in the previous chapters but from an integrative perspective. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Integrated Business Processes Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Background Production strategies Procurement strategy Make-to-stock Make-to-order Procurement strategy Procure-to-stock Procure-to-order Fulfillment strategy Sell-from-stock Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Background Make-to-stock, procure-to-stock, and sell-from-stock strategies use inventory as a buffer between processes to de-couple them or make them less dependent on one another. To illustrate integration among processes, the scenarios will no longer assume that there is a sufficient inventory of raw materials for production or of finished goods for fulfillment. The discussion will focus on the make-to-order and procure-to- order strategies. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Background Two scenarios are presented Scenario one - Filling a customer order for trading goods Procurement, fulfillment, IWM Scenario two – Filling a customer order for finished goods Procurement, fulfillment, production, IWM Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Procurement, Fulfillment, and IWM Processes Rocky Mountain Bikes (RMB), a GBI customer, has ordered 800 t-shirts (SHRT1000) from GBI GBI will ship the t-shirts from its San Diego plant, which is warehouse management enabled Assumptions The San Diego plant has 200 t-shirts in stock valued at a moving average price of $15.43 each The Miami plant has 1,500 t-shirts in stock valued at a moving average price of $15.25 each GBI can purchase t-shirts from Spy Gear at $14.95 each Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Procurement, Fulfillment, and IWM Processes Assumptions (continued) RMB has sent GBI a purchase order (PO) for 800 t-shirts GBI sells t-shirts for $30 each Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Plant Stock Valuation – Start of the Process Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Account Balance - Start of the Process Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 9.1 Review Financials and Inventory (Plant, Storage Location, and Bin Stock and Value) Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 9.2 Create Two Customer Orders Review creation of two customer orders Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Procurement, Fulfillment, and Warehouse Management Processes Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Fulfillment Process - Initial Steps The fulfillment process is triggered by a customer purchase order. Fulfillment continues with the next step, which is sales order processing. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Fulfillment Process – Initial Steps Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Procurement Process – Initial Steps A shortage of materials creates a requirement for GBI to purchase trading goods, which triggers the procurement process. Two options for procurement: Internally Externally Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Procurement Process – Initial Steps Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 9.3 Create Two Requisitions and POs to Fill Customer Orders Review the creation of two requisitions and POs Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Procurement Process – Internal Procurement San Diego plant can procure the t-shirts from the Miami plant STO processing has several options Select STO without delivery document Goods issue Material impact Financial impact Valuation impact Goods receipt Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Procurement Process – Internal Procurement Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Material and FI Documents at GI for STO Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Plant Stock Valuation at GI for STO Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Account Balances at GI for STO Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Material and FI Documents at GR for STO Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Plant Stock Valuation at GR for STO Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 9.4 Internal Procurement for First PO Review internal procurement for first PO Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Procurement Process – External Procurement GBI sends a purchase order for 1,000 t-shirts to Spy Gear. Followed by: Goods receipt Invoice receipt Payment Impacts Material impact FI impact Plant stock valuation Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Procurement Process – External Procurement Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Material and FI Documents at GR for PO Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Plant Stock Valuation at GR for PO Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Account Balances at GR for PO Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Account Balances after Procurement Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 9.5 External Procurement for Second PO Review external procurement for second PO Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Warehouse Management Steps Related to Procurement San Diego plant is WM enabled WM steps: TR/TO No material or FI documents Magal and Word | Integrated Business Processes with ERP Systems | © 2011

WM Steps Related to Procurement Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 9.6 WM Steps for Goods Receipt for PO Review WM steps for goods receipt for PO Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Fulfillment Process - Shipping Create delivery WM steps for picking Goods issue Invoice Payment Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Fulfillment Process - Shipping Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 9.7 Create Delivery for PO Review create delivery for PO Magal and Word | Integrated Business Processes with ERP Systems | © 2011

WM Steps Related to Fulfillment Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 9.8 WM Steps for Delivery Review WM steps for delivery Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Fulfillment Process – Concluding Steps Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Material and FI Documents for Delivery Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Plant Stock Valuation at GI for Delivery Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Account Balances after GI for Delivery Magal and Word | Integrated Business Processes with ERP Systems | © 2011

GL Account Balances after Customer Billing and Payment Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 9.9 Complete Fulfillment Review complete fulfillment Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Procurement, Fulfillment, Production, and IWM Processes Rocky Mountain Bikes (RMB) has ordered 40 Red Deluxe Touring Bikes (DXTR3000) from GBI. Assumptions The San Diego plant has 10 Red Deluxe Touring Bikes valued at a standard price of $1,400 each. The Dallas plant currently does not have any touring bikes in inventory. When it does have these bikes, the standard price is also $1,400. The Dallas plant has 200 aluminum wheel assemblies that are needed to produce touring bikes. The standard price for these wheel assemblies is $110. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Procurement, Fulfillment, Production, and IWM Processes Assumptions (continued) GBI’s vendor -- Space Bike Composites -- is able to supply all of the raw materials needed to make touring bikes. GBI purchases raw materials in lot sizes of 200. It produces bikes in lot sizes of 50. RMB has sent GBI a purchase order for 40 Red Deluxe Touring Bikes. GBI sells these bikes for $2,800 each. Bikes are produced in Dallas and shipped to San Diego via STO Magal and Word | Integrated Business Processes with ERP Systems | © 2011

BOM for Touring Bikes Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Raw Material Cost per Bike Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Plant Stock Valuation at Start of Process Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Account Balances – Start of Process Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Procurement, Fulfillment, Production, and Warehouse Management Processes Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 9.10 Review Financials and Inventory (Plant, Storage Location, and Bin Stock and Value) Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Fulfillment Process – Initial Steps This following scenario for the fulfillment process is very similar to the one that was previously discussed. RMB’s purchase order triggers the integrated process and prompts GBI to create a sales order. The ERP system performs an availability check. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Fulfillment Process – Initial Steps Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 9.11 Create a Sales Order Review create a sales order Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Inventory Management (STO) Initial Steps Availability check results in a deficit. Bikes are produced in Dallas and must be transferred to San Diego (via STO) Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Inventory Management – Initial Step Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 9.12 Create an STO Review how to create an STO Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Production Process – Initial Steps Insufficient inventory of bikes in Dallas to meet the requirements in the STO Execute the production process Insufficient raw materials to produce the bikes Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Production Process – Initial Steps Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 9.13 Create a Planned Order and a Production Order Review how to create a planned order and a production order Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Procurement Process (External) The requirement for raw materials triggers the procurement process to acquire these materials. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Procurement Process (External) Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Plant Stock Valuation after External Procurement Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Account Balances after External Procurement Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 9.14 Execute the Procurement Process Review how to execute the procurement process Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Production Process - Continued GBI has received the raw materials The production process continues Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Production Process - Continued Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Plant Stock Valuation after Production Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Account Balances after Production Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 9.15 Complete Production Review complete production Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Inventory Management - Continued Bikes are received into the Dallas plant inventory. GI for STO in Dallas GR for STO in San Diego Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Inventory Management - Continued Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Plant Stock Valuation at GI for STO Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Account Balances after a Goods Issue against an STO Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Plant Stock Valuation at GR for STO Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 9.16 Complete the GI and GR for STO Review complete GI and GR for STO Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Warehouse Management Process Related to STO Bikes arrive in the San Diego plant, which is WM enabled Complete WM steps related to GR Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Warehouse Management Steps Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 9.17 Complete WM Steps Related to STO Review complete WM steps related to STO Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Fulfillment Process - Continued The bikes are now in stock in the San Diego plant. The fulfillment process, which had been interrupted, can continue. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Fulfillment Process - Continued Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 9.18 Create a Delivery for a Sales Order Review how to create a delivery for a sales order Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Warehouse Management Process Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 9.19 Complete the WM Steps Related to the Sales Order Review how to complete the WM steps related to the sales order Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Fulfillment Process – Concluding Steps Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Plant Stock Valuation at GI for SO Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Account Balances after Fulfillment Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 9.20 Complete Fulfillment Steps Review how to complete the fulfillment steps Magal and Word | Integrated Business Processes with ERP Systems | © 2011