Why should enterprises implement ERP?

The premise for any enterprise to be stronger and bigger is to first manage the basic management of the enterprise through ERP, that is, to manage the enterprise's resources and manage the enterprise's financial resources.

　Why should enterprises implement ERP?

This is a question we have been proposing and many people are answering. Some people say it is to improve management efficiency, some say it is to reduce inventory while reducing production shortage, some say it is to do a good job of planning management, some say it is to do a good job of cost accounting ......

These statements are true, but they are not specific enough. They have a sense of "virtual". My opinion is that the purpose of implementing ERP is to do a good job in enterprise basic management. Many enterprise management problems can be attributed to the fact that basic management is not well done. This is like a tall building. If the foundation is not strong, what will happen? You can imagine. Therefore, it is important for enterprises to innovate products, services, marketing, and production equipment. However, if basic management is not done well, so can all these innovations achieve what we want? The answer is very difficult. In the past, there were many enterprises that used to be busy, but they closed down in a few years. Why? Not because their products are not good enough, there are not enough customers, or because their devices are not advanced enough, but because of what? Most of the time, it is because their basic management work is not well done.

What is basic management not doing well? To explain in one sentence, we did not manage our resources well, nor managed our finances well. Management refers to the enterprise's things, especially the enterprise's raw materials, semi-finished products and finished products. Management is responsible for the enterprise's financial resources, mainly including the enterprise's historical accounts and cost accounting, right? If we do not manage the items properly, it will lead to inventory backlog and production shortage. If we do not manage the resources well, we will have problems with our current account and cost accounting. What kind of negative effects will be brought to enterprises if things are not well managed and financial resources are not well handled? You must know better than me. In a manual environment, can we do these two things well? The answer is very difficult.

First, we use a model to analyze why we cannot manage things in a manual environment.

In order to facilitate analysis, we need to borrow the four quantities of materials in ERP. We know that any material from upstream suppliers, through our enterprises, and then to the customer needs to go through many links. How does ERP manage the materials in different links? It mainly involves four quantities, namely hand volume, in-transit volume, allocation volume, and availability.

The number of items in hand is the number of items in the warehouse now, and the amount in transit is the number of orders that have been placed but have not been placed into the warehouse. For raw materials, the number of raw materials that have been purchased but have not yet arrived. For semi-finished products and finished products, the production order has been issued, but the number of finished products has not yet been completed during the production process;

The allocation quantity is the number of orders that have been issued but have not been released. For finished products, the sales contract has been signed, but there is no delivery amount. For raw materials and semi-finished products, a production order has been allocated, but the number of raw materials in the workshop has not yet been obtained;

However, the available amount is the amount that can be allocated to the next order without a specific purpose. This is a calculated amount. The available amount is the amount in hand + the amount in transit-the amount allocated.

We cannot manage the four quantities of materials. For example, if there are too many quantities in hand, there is a backlog of inventory. If the available amount is less than zero, production shortage or sales shortage, right? There are many reasons why we cannot manage the quantity of materials, but our plan is not well done.

In a manual environment, how do we plan? One of the most common methods is the layer-by-layer decomposition method, which is to calculate the gross demand and net demand from the top layer to the bottom layer according to the material list level.

The following is an example of two material lists. Although simple, the problem is explained.

Note that raw material B1 is a shared item.

Next, let's take a look at the Computing Principle of the layer-by-layer decomposition method. Let's look at the following table. Assuming that the gross demand for product A is 10, we are now planning its procurement plan and production plan.

In this table, the data in the left column is from the item list of product A, and the data in the inventory column is from the inventory account. The gross demand and net demand need to be calculated.

The first step is because a's gross demand is 10, and its existing inventory is 0, so its net demand is 10;

Next, we need to calculate the gross demand and net demand for Layer 1 materials. This is calculated based on the quantity relationship defined in the material list, because the net demand of A is 10, therefore, the gross demand for A1, B, and C1 is 10, 20, and 10 respectively, and then the gross demand minus the existing inventory quantity will get their net demand. If the existing inventory is larger than the gross demand, there is no net demand, for example, there is no net demand for raw material C1.

The calculation method is the same for the gross and net requirements of Layer 4 materials.

This is how we calculate the raw material at the bottom layer step by step. Finally, if there is a net demand for raw materials, this quantity is the main basis for our procurement plan. Therefore, it is clear what to purchase and how much to purchase. Production Plans for semi-finished products and finished products are also released.

Next we will focus on the analysis of the problems in this computing model, because these problems cause problems in our procurement plan and production plan. First, material coding problems. This is a big problem. There are three main cases: the first case is a code multiple objects, that is, a Code corresponds to multiple materials. The second case is a thing with multiple codes. For example, for the same material, there are different codes and different names in different departments. In this case, it will often lead to procurement by the purchasing department not what the production department wants. The third case is that there is no code. If materials are not encoded, their quantity is hard to be reflected in the inventory account. When calculating the demand, it is easy to cause excessive procurement or production. Therefore, to manage materials properly, an enterprise must first code the materials; Second, the bill of materials is incorrect. If there is more, less, or wrong material in the material list, we will only get the wrong plan when calculating the demand; Third, the inventory quantity problem. If there is a problem with this quantity, the calculation result will certainly be faulty; Fourth, the problem of materials in transit and allocation. This is also a big problem. In a non-ERP environment, the inventory in the third column is actually in hand. If a raw material has a transit volume, then the procurement based on the net demand calculated in the table will lead to repeated purchases, if there is a allocation amount, it will lead to production shortage, right? Therefore, in order to make a plan, we must maintain the available quantity of each material. Unfortunately, in a manual environment, we cannot maintain the availability of each material. For example, let's take a look at the following table, which we call it the four scales of materials. If we want to maintain the available quantity of raw material A1, we must maintain this table. What should we do if we want to maintain this table well? First, we need to maintain the raw material A1 in hand, which is the basis. Our inventory check is to check the amount in hand. Then, once a purchase order is placed, the amount in transit and the amount available will be updated; once the Warehouse is delivered, the amount in hand and the amount in transit will be updated; if this raw material A1 is used when a production order is placed, it is necessary to update its distribution volume and available amount; after the production, it is necessary to update its hand volume and allocation volume, right? We can maintain the availability of A1. The same is true for semi-finished products and finished products of enterprises. In a manual environment, is it possible for us to maintain such a table for every material in the Enterprise? The answer is impossible. Because the manual processing capability is too limited. There is no usable data, so we cannot do a good job of planning. Next, the fifth question is the shared parts. When we use this model to calculate the procurement requirements of product A and then calculate the procurement requirements of product B, the existing inventory quantity of shared item B1 is easily deducted twice, right? This is the phenomenon of "one daughter and two married". If a daughter is married to two families, she will definitely fight in the future. The more shared items the enterprise has, the more materials are missing; The sixth problem of this computing model is that the order release time is not determined. If it is released early, the inventory will be overstocked if it is purchased back in advance. If it is released late, production will be prone to shortage of materials. Therefore, because of the above problems, if we purchase or produce based on the calculation results of this model, it will not lead to inventory backlog or production shortage. So in actual work, this calculation result is only the basis for our plan. What should we do when we finally determine the number of purchases or production? We will make as many purchases or production as possible. However, can the problem be solved by purchasing or producing as much as possible? The answer is no. As the inventory backlog of many enterprises is getting worse and worse, the number of production shortage does not decrease, which is the evidence. Therefore, if an enterprise wants to do a good job in planning and Material Management, it must do the following five things well. First, it should do a good job in material coding. Second, sort out the materials list. Third, maintain the available materials in hand. Fourth, maintain the available materials. Fifth, there must be a scientific calculation model. In this model, plans should be made based on the availability of materials, the inventory of semi-finished products and shared parts should be solved, and the release time of each order should be determined. If we rely on manual processing, can we do these five tasks well? It turns out that manual work is not good. So how can we do well? Only ERP is needed, because only ERP provides a complete solution to these material management problems. Let's think about how much benefit ERP can bring to the enterprise if it can help us do these things well, effectively reduce inventory and reduce production shortage! Plan Management is like this, and it is the same for historical accounts and cost management. Not to mention the cost pre-planning, in-process control, and post-event analysis, it is the cost post-event accounting. Can we do well? Facts show that it is very difficult. Historical accounting and cost management work is not good, not because of our knowledge level, but because of our limited manual processing capability and our limited ability to share data and transmit information, with ERP, we can make up for the defects in our processing capabilities, so that we can manage our resources and manage our finances. Details determine success or failure. If we cannot manage every thing of an enterprise and manage every profit of an enterprise, the lack of management details will lead to the final decline of the enterprise. The treasure of a thousand miles falls into the ant's nest. Every small detail is not done well, that is, the ant's nest of an enterprise. As the ant's nest grows bigger, it will shake the foundation of the enterprise and even damage the bank! This is why more than 60% of enterprises in developed countries use ERP to strengthen their basic management. For the management informationization of enterprises in China, it is better to have less rhetoric and less discussion on paper, and do not hesitate any more. In a down-to-earth Manner, we strive to do a good job in enterprise employee training, sort out the basic data of the enterprise, and manage the enterprise's resources through ERP earlier. Taking the enterprise's financial management well is the source for the enterprise to improve its competitiveness and obtain more profits!