The document discusses best practices for small and medium enterprises (SMEs) to manage their businesses without expensive ERP systems. It first provides an overview of SMEs in India, noting they are an important part of the economy. However, SMEs face both internal issues like limited capital and skills, and external issues like competition and funding shortages. As a result, many SMEs lack optimal processes and best practices. The document then presents a case study of managing purchases without ERP. It recommends classifying items into A, B, C categories based on value and analyzing ordering techniques for each. Data collection and management reporting is also important to monitor business parameters without expensive software.

1. Best Practices for SMEs
“Managing your business without expensive ERPs”
HASH MANAGEMENT SERVICES LLP
CHENNAI
www.businessense.in

2. Contents
 Introduction to Hash Management Services LLP
 SMEs in India – An Overview
 Issues facing SMEs
 How to manage the business without expensive ERPs
 Case Study - Purchase function in an SME

3. Introduction to Hash Management Services LLP
 Hash Management Services LLP works with manufacturing companies in the areas of Productivity
improvements, Inventory and Purchase Optimization, and Supply Chain Re-Engineering
 Our areas of expertise are Lean Manufacturing Implementation covering 5S and other tools, Supply
Chain Management, Market Assessment and Detailed Project reports
 Working on innovative ways to serve clients in the SME sector – through online training programs and
niche applications to monitor the businesses
 More than 50 companies in the last 6 years across the following sectors:
 Auto Ancillaries
 Leather and Footwear Manufacturing
 Pumps
 Castings and Forgings
 Fabrication
 Electronic Components Manufacturing
 Medical Equipment Manufacturing
 Heavy Engineering www.hashllp.com
 Light Engineering www.businessense.in

4. Contents
 Introduction to Hash Management Services LLP
 SMEs in India – An Overview
 Issues facing SMEs
 How to manage the business without expensive ERPs
 Case Study - Purchase function in an SME

5. Introduction to SMEs in India
 SME sector of India is considered as the backbone of economy
contributing to 45% of the industrial output
 Around 30 million SMEs in India
 Growth rate of 8% per year
 Approximately 40% of India’s exports
 Employ 60 million people
 Create 1.3 million jobs every year
 Produce more than 8000 quality products for the Indian and
international markets
Source: Website of Small & Medium Business Development Chamber of India, Europe-India SME Business Council

6. Contents
 Introduction to Hash Management Services LLP
 SMEs in India – An Overview
 Issues facing SMEs
 How to manage the business without expensive ERPs
 Case Study - Purchase function in an SME

7. Issues facing SMEs - Internal
 Sub-optimal scale of operation
 Supply chain inefficiencies
 Limited capital and knowledge
 Non-availability of suitable technology
 Ineffective marketing strategy
 Identification of new markets
 Constraints on modernization & expansions
 Non availability of highly skilled labour at affordable cost
Source: Website of Small & Medium Business Development Chamber of India

8. Issues facing SMEs - External
 Increasing domestic and global competition
 Fund shortages - absence of adequate and timely banking finance
 Turbulent and uncertain market scenario
 Shortage in Skill Development Centers
Industry Specific – Leather and Footwear
 Pollution related requirements
 Labor oriented – Absenteeism / Attrition
Source: Website of Small & Medium Business Development Chamber of India

9. Results of these issues
Lack of
Best Vicious
Practices Cycle
Internal External
Issues Issues

10. Lack of Best Practices
 Lack of Process Oriented approach
 Lack of a robust planning process
 No Systematic data collection
 Lack of analysis of data
 Lack of visibility in critical business parameters
 MIS Reports – not presented to the senior management on time
 Lack of awareness of the best practices

11. Contents
 Introduction to Hash Management Services LLP
 SMEs in India – An Overview
 Issues facing SMEs
 How to manage the business without expensive ERPs
 Case Study - Purchase function in an SME

12. Is ERP a solution to all these issues?
 Many think ERP is the magic pill which would solve all these issues !
 But, what goes in, comes out
 ERP readiness is not assessed in many cases
 Many instances of poor implementations
 People use reports / data from various sources even after implementing
ERP
Organization should be very clear on their business requirements
before implementing ERP

13. How to manage the business with out ERPs
 Understanding how each department/function interacts with other in
an organization
 Understanding the important parameters that one should monitor on a
regular basis
 Ensuring data collection and analysis – MIS Reports
 Training the staff and employees on the basics of operations
management

14. Contents
 Introduction to Hash Management Services LLP
 SMEs in India – An Overview
 Issues facing SMEs
 How to manage the business without expensive ERPs
 Case Study – Purchase function in an SME

15. Current Situation - Purchase
 Buying materials as and when required
 ABC Classification not done
 No specific ordering techniques for different types of materials
 No systematic planning process
 No documented Vendor Management Processes
 Telephone based ordering – no documentation
 High value items are purchased in large quantities
 In some cases we found nearly 3 months of stock holding

16. 3 Steps to manage Purchase Function
 ABC Analysis
 Ordering Techniques based on the analysis
 Data Collection and MIS Reports

17. ABC Classification
 Pareto Analysis / 80-20 rule
 20% of the items would constitute 80% of the value
 Few other examples:
 20% of the causes results in 80% of the defects
 20% of the population controls 80% of the wealth
Items Value
80%
20%

18. ABC Classification
 In any organization, the raw materials form about
60~65% of the Cost of Goods Sold (COGS).
COGS:
All Raw Materials – 60~65%
Labor Cost – 7~8%
Power & utiities – 8~10%
.
.
.
_______________________
Total – 100%

19. ABC Classification
 While analyzing the raw materials it would be clear that the top 20% of
the items would constitute about 80% of the purchase value. Next
30~40% items would constitute about 15% of the purchase value.
Remaining 50% of the items constitute 5% of the purchase value.
Few Items = More consumption in value
A Category
B Category
More Items = Low consumption in value C Category

20. 3 Steps to manage Purchase Function
 ABC Analysis
 Ordering Techniques based on the analysis
 Data Collection and MIS Reports

21. Ordering Techniques
Category Characteristics Ordering Techniques Reason
For items whose
Scheduled Shipments /
consumption is
Standard Order Quantity
Very High Value. Need regular through-out
(SOQ)
A to monitor the season
continuously For items whose
Re-Order level consumption do
not follow a pattern
Moderate Value –
Order based on the
B Moderate Impact on Re-Order level
Re-Order level
the Inventory Holding
Low Value – No major
Do not focus more on
C impact on the MinMax / Two Bin System
the C Category items
Inventory Holding Cost

22. Scheduled Shipments / Standard Order Quantity
 Few items in the A category whose consumption does not vary across months can be
ordered with a single purchase order asking the supplier to deliver the items as per
the schedule the company gives the supplier.
 Average consumption of an item is around 1200 kgs per month and there is no
major variation in consumption predicted for the next 3 months. In this case the
item need not be bought in bulk and stored.
 Instead the item can be ordered once for 3 months and can be asked to scheduled
such that it reaches the factory every week
Quantity in Kgs Week 1 Week 2 Week 3 Week 4
October 300 300 300 300
November 300 300 300 300
December 300 300 300 300
January 300 300 300 300

23. Re-Order Level
Material Material Material
Arrival Arrival Arrival
Re-Order
Point
consumption
Lead time
Averge Monthly consumption in kgs - A 900
-360 kgs
Average Per day consumption in kgs - B=A/25 36
Stock
holding
Lead time in days - C 10
Leadtime Quantity in kgs - D=C*B 360
Safety Stock in days - E=C*25% 2.5
Safety Stock Quantity in kgs - F=E*B 90
Day 1 Day 10
Re-Order Level in kgs - G=D+F 450
Safety Stock – 90 kgs Re-Order Quantity - D 360

24. Two Bin System – For C Class Items
Both the bins are full
Stage 1 FULL FULL
300kgs 300kgs Do not order. Wait till one bin
becomes empty
One Bin is empty. Order 600 kgs.
EMPTY FULL (By the time the materials arrive
Stage 2
0 kg 300kgs the second bin also nears empty
level)
Both the bins are full
FULL FULL
Stage 3
300kgs 300kgs Do not order. Wait till one bin
becomes empty

25. Benefits of the Ordering techniques
Before
 All the three methods of ordering the Implementation
materials require close coordination 25~30% reduction
in inventory
with the Stores.
 Effective use of these three methods
After
of ordering would bring down the Implementation
inventory by around 25~30% of the
current levels (from our past
experience in various firms across
industries)

26. 3 Steps to manage Purchase Function
 ABC Analysis
 Ordering Techniques based on the analysis
 Data Collection and MIS Reports

27. MIS Reports
Type Report Name Key Parameters Frequency Questions to ask
Monthly Purchase Monthly Is there a significant increase in the purchase value compared to the last month
Monthly
report Purchase value If yes, what are the major items contributing to this increase ?
Absolute
Reports
Pending Order Pending Orders Updated How many POs are pending daily. Is the trend increasing ? What are the items
Report Report Daily present more than the lead time?
No of stock-outs
in a month
No of times A
Class items What is the trend of number of stock-outs? What are the items contributing to the
exceeding the stock outs? Are these items frequently figuring in this list? How to avoid this in
respective the future?
stock-Out report Monthly
leadtime How many times the lead time has exceeded ? By how many days? Is this
No of times safety happening for the same item? Same supplier? Is this time to update the lead times
Variance stock is reached ?
Reports for items under
ROL ordering
system
Quality issues in What is the Pareto of the quality issues in the incoming materials ? What is the
Incoming Quality
the incoming Monthly trend ? Is it for the same item / from same supplier? What is the time taken by the
Report
materials supplier to rectify/send new materials ? How to avoid this in the future ?
How many of the price revisions happened for A & B category items ? what is the
Price Change Report Price changes Monthly impact of the price change in our costing? How to minimize the effect? Is the
relevant departments(accounts/bill passing) aware of the price change ?

28. How to follow these 3 steps regularly?
 Training the staff on the basics of each function
 Continuously monitor the key parameters
 Make this a culture of your organization

29. Best Practices for SMEs
“Managing your business without expensive ERPs”
HASH MANAGEMENT SERVICES LLP
CHENNAI
www.businessense.in