Study of finance module of erp ; vipul

1. STUDY OF FINANCE MODULE OF ERP
A PROJECT REPORT
At
Lear Automotive India Pvt. Ltd.
Submitted by
Vipul Patel

2. AES POST GRADUATE INSTITUTE OF
BUSINESS MANAGEMENT
AHMEDABAD.
May-June 2007
TABLE OF CONTENTS
Preface 4
Acknowledgement 5
Executive summary 6
Indian Automotive industry 8
Introduction of the company 10
Accounts Receivables
 Introduction 18
 Issuing DR/CR memos 19
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3.  Processing Payments
21
 Aging Reports 21
Accounts Payables
 Introduction 23
 Accounts Payable Flow 25
 Processing Payments 25
 Batch control 27
 AP Payment flow 30
 Variance Calculation 31
 Aging Reports 32
19
Inventory Control
 Work In Progress 34
 ABC Status 35
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4.  Inventory Valuation Reports 36
 Understanding Kanban 39
References 43
PREFACE
4

5. Training is for development and enhancement of
knowledge in particular field. It can never be possible to make a mark in today’s
competitive era only with the
theoretical knowledge when industries in India are developing at global pace.
Hence, In addition to theoretical studies and group discussions practical training
is of great importance for MBA students to give them real life experience of the
classroom teaching.
With a view to expand the boundaries of thinking, I have undergone the summer
training at Lear Automotive India Pvt. Ltd. It had been a great experience to be
part of Synergy and gather knowledge regarding the project topic “STUDY OF
FINANCE MODULE OF ERP”
ACKNOWLEDGEMENTS
At the outset, I would like to take this opportunity to express my deep gratitude
to Mr. Dilip Parikh, Finance Manager, Lear Automotive India Pvt. Ltd., for
allowing me to work under his guidance, thereby, giving me an opportunity to
5

6. gain knowledge and skills from his vast experience as
finance manager.
I am also grateful to Mr. Shital Vyas, Assistant Finance Manager, without whose
help, guidance, valuable inputs and constant monitoring, my learning would have
been incomplete. Although I received regular inputs from Mr. Parikh, it was Mr.
Shital Vyas with whom I interacted on a day-to-day basis and have spent major
tenure of my training and have gained a lot from his experience.
I am also sincerely thankful to my faculty guides, Mr. Mayank Joshipura for his
guidance and valuable suggestions prior to and during the entire course of
training.
My acknowledgement would be incomplete if I do not extend my sincere thanks
to all the executives & staff of Lear Automotive India Pvt. Ltd., especially, Mr.
Akash Shah, Mr. Hiren Parikh and Mr. Amit Patel for their assistance and
support to prepare my report.
EXECUTIVE SUMMARY
ERP (Enterprise Resource Planning) is software that organizes and manages a
company’s business processes by sharing information across functional areas. It
transforms transactional data like sales in to useful information that support
business decisions in other parts of company such as manufacturing, inventory,
procurement, invoicing, distribution and accounting. In addition to providing all
back office functions ERP connects with supply chain and customer management
applications, helping business share information both inside and outside
company.
6

7. With ERP companies could integrate their accounting,
sales, distribution, manufacturing, planning, purchasing, human resource and
other transactions in to one application. ERP modules generally grouped in to
four they are
Finance and Accounting
Sales and Marketing
Production and Material management
Human Resource
Finance module comprises financial accounting, Investment management, Cost
control, Treasury management, Asset management and Enterprise controlling. It
further includes Cost centers, Profit centers, Activity based costing, Capital
Budgeting and Profitability analysis. The finance provides consistent financial
data that is updated regularly that links operational results with the financial
effects of those results. For every physical transaction, the financial result is
shown. It connects processes that belong together, giving every employee fast,
convenient access to the information required for their jobs. Despite of having
many benefits of ERP there are various limitations of implementing it.
 Customization of the ERP software is limited.
 Re-engineering of business processes to fit the "industry standard"
prescribed by the ERP system may lead to a loss of competitive
advantage.
 ERP systems can be very expensive to install often ranging from $40,000
to$500,000,000 for multinational companies.
 ERP vendors can charge sums of money for annual license renewal that is
unrelated to the size of the company using the ERP or its profitability.
 ERPs are often seen as too rigid and too difficult to adapt to the specific
workflow and business process of some companies—this is cited as one
of the main causes of their failure.
7

8.  Systems can be difficult to use and are too
restrictive and do not allow much flexibility in its implementation and
usage.
 Resistance in sharing sensitive internal information between departments
can reduce the effectiveness of the software.
Knowing the level of sophistication needed for a business is the key to effective
implementation of ERP. There are various vendors available in the market such
as SAP America, Peoplesoft, Inc., Oracle Corp., i2 technologies and QAD. The
Lear Automotive India Pvt. Ltd. Have QAD based ERP which offers MFG/PRO
and eQ software to companies. Instead of deploying a single system to manage
all of a company’s plants, it tailors its software to individual plants, and then
links them with corporate financial, distribution and support function. QAD is
known for both its ease of implementation and ease of use.
Indian automotive industry
The Indian automotive industry has flourished like never before in the recent
years. This extra-ordinary growth that the Indian automotive industry has
witnessed is a result of a two major factors namely, the improvement in the living
standards of the middle class, and an increase in their disposable incomes.
Moreover, the liberalization steps, such as, relaxation of the foreign exchange
and equity regulations, reduction of tariffs on imports, and refining the banking
policies, initiated by the Government of India, have played an equally important
role in bringing the Indian Automotive industry to great heights. It is estimated
that the sale of passenger cars have tripled compared to their sale in the last five
years. Thus, the sale of cars has reached a figure of 1 million users and is
expected to increase further. It's also to be noted that the demand for luxurious
8

9. models, SUVs, and mini-cars for family owners, have
shot up, largely due to increase in the consumer's buying capacity. The increased
demand for Indian automobiles has resulted in a large number of multi-national
auto companies, especially from Japan, U. S. A., and Europe, entering the Indian
market and working in collaboration with the Indian firms. Also, the
institutionalization of automobile finance has further paved the way to sustain a
long-term high growth for the industry.
The initial years of the industry were characterized by unfavorable government
policies. The real big change as we see in the industry today, started to take place
with the liberalization policies that the government initiated in the 1991. The
liberalization policies had a salutary impact on the Indian economy and the
automobile industry in particular.
The automobile industry in the country is one of the key sectors of the economy
in terms of the employment opportunities that it offers. The industry directly
employs close to around 0.2 million people and indirectly employs around 10
million people. The prospects of the industry also has a bearing on the auto-component
industry which is also a major sector in the Indian economy directly
employing 0.25 million people.
All is not well with the automobile industry the world over currently with the
slowdown that has gripped most of the major economies of the world. The gap
between the manufacturing capacity volume and the assembly volume is growing
by the day and has the worried the manufacturers. This state of affairs has
triggered a lot of cutthroat competition and consolidation in the industry. Cost
reduction initiatives have come to be the in thing in the global industry today.
Towards this direction, many automobile factories are being closed down.
The Indian automobile industry is a stark contrast to the global industry due to
many of the characteristics, which are peculiar to India. The Indian automobile
industry is very small in comparison to the global industry. Except for two
9

10. wheelers and tractors segments, the Indian industry
cannot boast of big volumes vis-à-vis global numbers. The automotive Industry
in India is now working in terms of the dynamics of an open market. Many joint
ventures have been set up in India with foreign collaboration, both technical and
financial with leading global manufacturers. Also a very large number of joint
ventures have been set up in the auto-components sector and the pace is expected
to pick up even further. The Government of India is keen to provide a suitable
economic and business environment conducive to the success of the established
and prospective foreign partnership ventures.
Indian Automobile sector is high on growth trajectory. And is expected to touch
10 million marks of which Commercial Vehicle Segment will contribute
maximum. To tap this large opportunity, Indian automobile companies and global
automotive giants have announced huge expansion plans.
The market research report provides a detailed analysis of competition in the
industry, the future prospects, opportunities and roadblocks in the growth of the
Auto sector.
Introduction of the company
Lear Corporation
Headquarter
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11. 21557 Telegraph Road
Southfield, Michigan 48034-4248
U.S.A.
Statistics:
Public Company
Incorporated: 1917 as American Metal Products Company
Employees: 120,000
Sales: $17.8 billion (2006)
Stock Exchanges: New York
Ticker Symbol: LEA
Annual Income Statements (LEA)
All amounts in millions of US Dollars except share amounts
Year Revenue Gross
Profit
Operating
Income
Total Net
Income
Dec 06 17,838.9 927.7 (357.9) (707.5)
Dec 05 17,089.2 736.0 (907.4) (1,381.5)
Dec 04 16,960.0 1,402.1 768.4 422.2
1-Year Sales Growth 4.4% (2006)
WORLDWIDE MANUFACTURING PROCESSES
The company offers numerous manufacturing processes on a worldwide basis,
including:
Seating:
 DuraBond
 Cut and Sew
Seat Systems:
 Metal Stampings
 Frames
 Wire
11

12.  Mechanisms
Electronics Assembly:
 Wave, Re Flow and Selective Solder
 Automated Printed Circuit Board & Junction Box Assembly
 Automated 3-D Solder paste Inspection
 PCB Cleanliness Inspection
 Automated Optical Inspection (AOI) of PCBA
 Automated PCB Singulation
 Automated Odd-form component Placement
 Pin in Paste Through Hole Soldering
Mechatronics & Switch Assembly:
 Ultrasonic and Resistance Welding
 Aqueous Washing
 Spring Winding
 Coil Winding
 Automated End-of-Line Testing
 Laser Etching
 Automated Packing
 Automated PCB Encapsulation
 Automated Heat Staking
 High Speed Terminal Insertion
 Automated Fuse/Relay Insertion
 Automatic Spray Grease Application
Glass Reinforced Urethane:
 SRIM
 RRIM
Foam Molding:
 Urethane
 Polypropylene
 Foam in Place
 Fabric Foam
Wire Assembly:
 Automated Cut, Strip and Terminate
 Ultrasonic and Resistance Welding
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13.  Over Molding
 Wire Bonding
 Automated End-of-Line Testing
Fabrication:
 Insert Molding
 Paint and Laser Etch
 Pad Printing
 Progressive Die Stamping
 Vision Inspection
KEY FACTS ABOUT LEAR CORPORATION
 Headquartered in Southfield, Mich., Lear Corporation is one of the
world's largest suppliers of automotive interior systems and components.
Lear provides complete seat systems, electronic products and electrical
distribution systems and other interior products
 1917: Based in Detroit, American Metal Products Company is founded
by Frederick Matthai as a maker of steel seat frames, with its first major
customers being General Motors Corporation and Ford Motor Company.
 1966: Conglomerate Lear Siegler, Inc. acquires American Metal, which is
later renamed the Automotive Group.
 Acquired Automotive Industries, Inc. in August 1995 and Masland
Corporation in July 1996 to become the worlds leading independent
supplier of fully integrated automotive interior systems.
 Added electronics and electrical distribution systems capabilities through
the acquisition of United Technologies Automotive in May 1999.
 Acquired Grote & Hartmann in July 2004 to further grow its electronics
and electrical distribution systems business.
 Employs a diverse team of 120,000 employees at 286 locations in 34
countries.
 Is a Fortune 500 company publicly traded on the New York Stock
Exchange (NYSE:LEA).
13

14.  Has reported sales growth from $160 million in
1983 to $17.8 billion in annual net sales for 2006.
 Ranks #130 among the Fortune 500.
 Sells to automakers such as Ford and GM, BMW, DaimlerChrysler, Fiat,
Toyota, and Volkswagen. The US is Lear's largest market.
GLOBAL PRESENCE
Lear Corporation has operations in the following countries:
Argentina Austria Belgium Brazil Canada
China Czech Republic France Germany Honduras
Hungary India Italy Japan Mexico
Morocco Netherlands Philippines Poland Portugal
Romania Russia Singapore Slovakia South Africa
South Korea Spain Sweden Thailand Tunisia
Turkey United Kingdom United States Venezuela
Lear Automotive India Pvt. Ltd.
14

15. Lear also has a significant presence in the Asia Pacific region. The company's
Asia Pacific Operations, headquartered in Singapore, has facilities in Australia,
China, India, Philippines and Thailand. Lear's heritage includes a long history
serving Asia's automakers and providing superior products to meet the needs of
the Asian market. Lear is the global leader in automotive seat systems, as well
as one of the world's top three suppliers of headliners, electronics, door panels,
and flooring and acoustic systems. In the past five years, Lear's business
outside of Europe and North America has grown dramatically. For 1994, Lear
reported sales of $196.3 million in rest-of-world (ROW) markets. Lear
conducts business with most major Asia Pacific automotive manufacturers
including Honda, Mitsubishi, Nissan and Toyota in North America and Europe;
Isuzu, Mazda, Subaru and Suzuki in North America; Chang'an Automotive,
Daewoo, GM-Holden, Honda, Hyundai, Isuzu, Mahindra & Mahindra,
Mitsubishi, and Mazda in other markets. Lear also has business with PSA, Ford
and General Motors through their joint ventures in the Asia Pacific region.
In 1995, Lear opened facilities in Australia and India to provide just-in-time
seating to General Motors. In 1998, the company won a contract to design,
engineer and manufacture a total interior for Mahindra & Mahindra in India.
Lear also opened facilities to provide just-in-time seating to Mahindra on its
current vehicle platforms.
15

16. Company Perspectives:
The corporate phrase of Lear is "ADVANCE RELENTLESSLY"
The automotive industry has and will become increasingly competitive as
current markets change and others emerge around the world. Lear Corporation
is set to stay ahead of those needs by leading the fastest-growing segment in
the automotive industry.
o The company ranks first worldwide in seat systems,
o Second in flooring and acoustic systems and door panels,
o Third in headliners and electrical and electronic distribution systems,
o Seventh in instrument panels.
Although Lear relies on two clients, carmaking giants General Motors
Corporation and Ford Motor Company (and their respective affiliates),
for about 56 percent of its sales. Seventeen major acquisitions
completed between 1994 and 1999 when Lear went public.
Lear Corporation has three main business which supplies material to its
customers.
o Seating System Division
o Electronic System Division
o Interior System Division
16

17. Lear entered in to the India way back in year 1995 to provide seating to
General Motors. With the intention to grab opportunity in Indian Automobile
Industry which is supposed to be growing at a whooping pace of 14% per
annum over last five years. Presently India is the second largest two wheelers
market in the world, fourth largest commercial vehicle market in the world and
11th largest passenger car market in the world.
Legal entity: Lear Automotive India Pvt. Ltd.
Division: Asia Pacific
Regional Head office: Lear Automotive India Pvt. Ltd.
206 & 206A, Rectangle-1,
D-4, Saket District Centre, Saket,
New Delhi-110017
Regional Head: Mr. Ratindra Puri
Vice president & MD
Location:
Baroda-Halol highway
Near toll-naka, Halol
Dist: Panchmahals, Gujarat
Halol-389350
Lear Automotive India Pvt. Ltd. Provides seating material to General Motors
for their all cars under Chevrolet badges and Mahindra & Mahindra For their
recently launched Logan. Plant at its Halol facility provides materials such as
 Seat Systems
 Seat Components
 Door Panels
 Interior Trims
 Headliner
17

18. Finance module
General Ledger
Multiple Currency
Accounts Receivables
Accounts Payable
Cost Management
Cash Management
Inventory Control
18

19. Accounts Receivables
Introduction
19

20. In accounting, a receivable is any financial claim that a
business has against individuals or other organizations. Accounts Receivables
are financial claims resulting from sales transactions. When a company sells
goods or services, it has a claim on the customer for payment. That is you
actually communicate this claim to the customer on the invoice, a document
that that states what items were sold and the amount due.
Usually the customer sends the correct payment and you credit it directly to the
invoice. Some times customer pays too much or too little, qualify for cash
discounts, or pay late and incur finance charges.
MFG/PRO’s Accounts Receivable module lets you create debit/credit memos,
process payments, calculate finance charges, keep track of customer balances,
issue drafts, and send dunning letters regarding overdue accounts.
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21. Issuing DR/CR Memos
21

22. DR/CR memos are used to record miscellaneous amounts such as credits or to
write off bad debts. DR/CR memos can also be used to load customer’s
opening balances when you begin running MFG/PRO. Receivables and finance
charges are debits, while payments and discounts are credits. DR/CR memos
only update records for the Accounts Receivable and General Ledger modules.
Do not use DR/CR memos to record corrections or adjustments affecting
inventory, sales history or commissions.
22

23. System allows specifying tax effective date for the
system to use in determining which tax rates apply to the transaction. When
you enter tax date, the system calculates the taxes based on the rate for the
ship-to address for tax effective date.
When entering a DR/CR memo, you can record commission percentages for up
to four salespersons. This information then appears on the salesperson
commission reports but does not update sales history.
Each invoice, memo, or finance charges can have an expected payment date
associated with it, specified in the Expt date field. This date indicates when you
actually expect to receive payment rather than the date payment is due. On
each distribution line, enter the account, cost center, entity, taxable code,
description, and amount.
If you are entering a credit memo, enter a negative amount by specifying a
minus sign (-) in front of the number. Credit memos decrease the customer
balance but remain open until they are applied to a specific customer invoice or
debit memo.
Various information regarding DR/CR memos can be obtained from the system
through following reports
DR/CR Memos Maintenance
DR/CR Memos Reports
DR/CR Memos Inquiry
DR/CR Memos Register
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24. Processing payments
24

25. Applied payments: used to record cash from a customer in payment of
specific invoices, memos or finance charges.
Unapplied payments: used to record cash received from a customer that does
not apply to specific invoices, memos or finance charges
Non-AR receipt: used to record cash received that is not paying any invoices,
memos or finance charges.
Aging Reports
Used to monitor customer’s payment history and track overdue amounts. Aging
reports identify outstanding amounts so that payments can be prioritized based
on the voucher date or the invoice due date.
Report can be run in detail or in summary format:
o Detail Reports print all open items, the aging period totals, and the total
outstanding balances for each selected customer.
o Summary Reports print only the aging periods totals and the total
outstanding balances for each selected customer.
When you have multiple payments against an invoice or memo, the system
aggregates the amounts by periods and shows the total in the report currency.
25

26. o AR Aging by Due Date Report (27.16) is used to
run aging by due date.
o AR Aging by Invoice Date Report (27.17) is used to run aging by
invoice date.
o AR Aging as of Effective Date (27.18) is used to re-create an aging as
of a previous date. The system looks at each record and checks the
effective date. If some records have been deleted it can not be re-create
balances.
If orders always have credit terms of net 30 from invoice date, you can run
aging by due date or invoice date with identical results. The due date is always
30 days after the invoice date.
If you use a variety of credit terms such as end of month, end of fortnight, or
end of week, use AR Aging by Due Date Report. For example, if credit terms
are stated Net 30 EOM, all invoices would have due dates falling 30 days after
the last day of month, whether the invoice date was the 1st or 31st of the
month. On the AR Aging by Due Date Report, amounts subject to credit terms
with multiple due dates are split out according to the dating sequence and
placed in the appropriate aging time buckets.
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27. Accounts Payable
Introduction
27

28. When your company buys goods or services, it incurs an obligation to pay the
supplier. The supplier sends you an invoice to communicate your obligation to
pay. This document states what items were sold and the amount due. The
invoice also states credit terms such as the payment due date and cash
discounts the company offers for early payment.
Frequently, especially for expensive items, it is not feasible for you to pay the
entire invoice amount in advance or upon delivery. The supplier allows you to
buy on credit, make installment payments, or pay the final amount by a
specified future date.
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29. Whenever you buy something now and pay for it later,
you incur a liability. Most of the payables transactions processed in MFG/PRO
are considered accounts payable liabilities resulting from purchasing
transactions with suppliers. To maximize cash flow, the payment is usually
delayed as long as possible. When you buy on credit, you are in fact enjoying
an interest free loan until payment is due. Instead of paying the supplier, you
can use the cash for other things. However, it is important to pay suppliers on
time to avoid finance charges and to preserve your company’s credit standing.
Therefore, effective accounts payable management simultaneously optimizes
cash flow and maintains satisfactory relationships with creditors. The two
elements that makes possible are vouchers and aging reports. The starting point
for payment processing is the purchase order. The purchase order is a contract
that confirms your intent to buy. It lists items, quantities, and prices along with
any related charges such as taxes and freight. On receipt, your receiving
department issues a receiver to confirm received items and quantities against
the purchase order. The supplier sends you an invoice to confirm your liability
to pay for the items under the conditions specified on the purchase order.
Before you can pay invoice, you verify that the items you received are what
you originally ordered, and that the supplier has charged you the correct price.
To do this, you record a voucher in Accounts Payable.
The voucher references the purchase order and the invoice. The system
retrieves the receivers associated with the purchase order so that you can record
invoice lines against them. If the invoiced items and quantities match the
receiver, the receiver is closed. Vouchers convey authority to pay an invoice
and record all relevant details on the nature of the liability and payment. This
information is especially critical for invoices arising from purchase orders for
inventory items. Voucher verifies invoiced items and quantities against the
purchase order and receiving records before processing payment. In
MFG/PRO, voucher can be used to process any invoice whenever it is more
convenient to generate payments in the system
29

30. Accounts Payable flow:
Accounts payable to process both inventory items and other types of
payments.
30

31. The system compares what you enter for the invoice to
the receiver and the purchase order and displays warning if there is a
discrepancy. For example, the supplier may have invoiced you at the wrong
price or you may not have received all the items that were invoiced. In
MFG/PRO, this kind of discrepancy is called a variance.
The accounts payable flow is slightly different for processing payments on
purchases that are not received into inventory. Some payments such as drop
shipments may have a purchase order and invoice but no receiver. Others such
as airline tickets may have only invoice. For these kinds of items, you can enter
a voucher for processing the payment. You must use procedures external to
MFG/PRO to verify that items, quantities, and prices are correct. After each
batch, the voucher register is printed to verify voucher entry, and corrections
are made if necessary.
Processing payments
Vouchers are then selected for payment, either by due date, discount
date, or manually. Usually, run an aging report to determine which balances are
oldest. Then print the payment selection register to show the vouchers selected
for payment and make needed corrections. Once vouchers are selected, printing
checks, recording manual checks, or creating a printed report or ASCII file for
electronic fund transfer processes payments. The payment register is printed as
a record of payment made. To confirm electronic fund transfers, you can print a
payment specification report and send to the supplier.
31

32. After payment, the supplier balance is decreased, but the payment is not
immediately flagged as closed. Both the payment and original vouchers remain
in the system until the bank clears the payment. If the payment does not clear
or must be voided for any reason, the system automatically reopens the
voucher. Vouchering is usually done daily. Automatic payments are usually
processed weekly, Manual payments are recorded as needed. Less frequently,
often at the end of each year, closed AP history is purged from the system and
optionally archived.
Batch control
32

33. Generally process transactions are done in groups, such
as vouchers or payments for a number of invoices. To improve processing,
MFG/PRO assigns each group of vouchers, payments, check cancellation, and
voids to a batch field in the Accounts Payable control file. The batch ID
consolidates transactions when posting in summery to the general ledger. Use
control totals to double check transaction entries. If the total of what you have
entered does not equal the control total, the system displays warning. You are
even allowed to proceed even if your batch totals are incorrect. Entering a
control total is optional but is highly recommended. To verify data entry, print
the register report after each batch. For each batch. The system records batch
ID, control total, batch amount entered, user ID, and date. Updating the batch,
it updates this information. The system also tracks unused and out of balance
batches.
Using Vouchers
33

34. Most vouchers cover supplier invoices from purchase
orders. In a voucher system, the system verifies invoiced items against the
purchase order and receiving records. By entering a voucher, you also ensure
that the payment correctly updates supplier balances and GL accounts. Use
vouchers to control who receives payment, how they receive, and when
payment is sent. Before authorizing payment, verify following information.
Purchase amount was authorized by the purchase order.
o Supplier sent the correct item quantities.
o Supplier invoiced you for the correct amount.
o Do not select a voucher for payment if there is a problem in any of the
above information. Enter the disputed amount as the hold amount in
voucher maintenance.
Hold amounts are not selected for payment until hold is removed in
voucher maintenance or voucher confirmation manual. Many companies
record the voucher as soon as they receive an invoice, even when the
purchased items have not been received. This helps prevent loss and eases
tracking. Another use for voucher registration is to pre-record vouchers for
fixed expenses. For example, enter a year’s worth of vouchers for monthly
rent payments at the beginning of the year. AP voucher registration lets you
do this without unwanted GL consequences. Initially enter the voucher as
unconfirmed in Voucher maintenance. When the PO lines are received or
the invoice approved, record the receiver lines and confirm the voucher.
Only confirmed vouchers are selected for payments
34

35. Voucher conformation –Manual is used to confirm
vouchers one at a time.
Voucher conformation – Automatic is used to confirm vouchers in batch.
Supplier credits are entered as vouchers as vouchers with negative
amounts. The system automatically deducts credits from open supplier
balances and the next automatic check. When a supplier issues you a credit
for returned items, enter this as a purchase order return. This creates a
negative receiver to credit inventory. Supplier holds are applied only to
debit vouchers and only if the hold is greater than the voucher amount in
voucher confirmation-Manual.
Miscellaneous Expenses
Vouchers can also be used for:
o Miscellaneous expenses such as utilities, commissions, and rent
o Entering supplier balances during implementation
o Processing credits such as prepayments, rebates, discounts, and RTS
receivers
o To process vouchers that do not reference to purchase orders, you must
reference a supplier code. Most companies create at least one supplier
code for miscellaneous payments.
You can pay a voucher immediately or latter, depending on the circumstances
and payment terms. You can also record payments that are not specifically
related to a voucher. The simplest case of payment processing is when you
decide what to pay and then write a check or transfer money in person. Manual
payments can also be applied to one or more vouchers, flagging them as closed
when they are fully paid. If a discount was taken, this can also be recorded.
35

36. A more complex situation is when you have the system
determine which vouchers should be paid and then print checks for selected
suppliers and amounts. Start by having the system automatically select most of
the vouchers you intent to pay. System allows to print payments on standard
check forms or to a file in the case of automatic bank transfers.
AP payment flow
Automatic payment selection
36

37. In payment selection-Automatic, you can select open
vouchers by due date, supplier code, and other criteria. Based on these criteria,
the system recommends which vouchers selected for payment and totals the
amounts. Use this function to see what vouchers are due or to see what
discounts are available by making some payments immediately. You can run
the automatic selection function several times, each time selecting a different
range of vouchers to pay. For example, select all the vouchers for particular
supplier, then return it to select all the vouchers for a particular due date.
Manual Payment Selection
In payment selection-Manual, select single vouchers for payment or override
the choices the system made automatically. This is particularly useful when
there is a cash shortage. For example, you can choose to send payments only to
your most important suppliers. Manual selection also lets you override the
amounts to pay. For example, make a partial payment or take a discount that
the system did not suggest.
The payment selection register lists all vouchers selected for payment and the
total payments for each supplier, currency, and bank. It includes all vouchers
that were automatically selected for payment and any changes/additions made
in payment selection-Manual.
Variance calculations
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38. During voucher entry, the system calculates a variance if
what was ordered or received does not match what was invoiced. Purchase
price variance are calculated when purchase orders are received. AP rate and
usage variances are calculated when receivers are vouchered.
The system includes tax on the difference between purchase and invoice price
when calculating item cost if you are using average costing in Voucher
Maintenance.
Tracking purchasing variances is important for evaluating buyer performance.
If a company consistently pays more than the item GL cost, your buyer should
be negotiating lower prices or sourcing other suppliers. Tracking AP variances
is important for evaluating supplier performance
Purchase price variance is the difference between the unit cost on the purchase
order and the GL unit cost in the item master, excluding GL this level overhead.
It affects inventory items only.
PO unit cost – (GL unit cost – overhead) * PO qty received
AP Rate variance is the difference between the unit costs on the purchase order
and the invoice.
(Invoice unit cost - PO unit cost) * invoice quantity
AP Usage variance is the difference between the quantity on the purchase order
and the invoice, which occurs if you close a receiver with a quantity still open or
with an invoice quantity greater than the PO receipt quantity.
(Invoice quantity – PO receipt quantity) * PO unit cost
Aging report
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39. Flexible aging periods let you project cash
requirements as well as review overdue accounts. Aging are normally run at
each month end prior to entering activity for the next month. Detailed agings
print all open vouchers. Summarized agings print only the aging period total
outstanding balances for each supplier. Hold amounts are always flagged as
Hold.
o AP Aging by Voucher Date Report (28.16) displays aging by voucher
date.
o AP Aging by Due Date Report (28.17) displays agings by payment due
date.
o Aging as of Effective Date Report (28.18) It reviews all activities in the
system and checks the date on each transaction.
Inventory control
This module creates GL records for receipts, issues, and cycle counts
adjustments. The system uses item/site cost data to cost a GL debit or credit
transactions. Transactions affecting inventory accounts include purchase order
receipts, work order issues/receipts, sales order shipments and physical
inventory counts. Each transaction affects inventory by creating a GL
transactions that either debits or credits the account value. Inventory of a
manufacturing company can be broken down in to following categories:
 Finished Goods
 Work In Progress
 Raw Materials
 Slow Moving
 Obsolete
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40. Inventory management software is required to efficiently manage and achieve
appropriate levels in the supply chain. Inventory management software reduces
inventory costs and increases the efficiency and level of control you are able to
exercise over growing distribution business. Inventory can be one of the
indicators of management effectiveness in the context of materials management.
It provides exact details of the stock you have, what you have ordered and what
you have sold. This saves time, money and labor, and improves your sales. The
large amount of paperwork that was needed for proper management can be a
thing of the past, with efficient use of inventory management software.
Today with multi-stage process companies there is much inventory that would
once have been finished goods which is now held as 'work-in-process' (WIP).
This needs to be valued in the accounts but the valuation is a management
decision since there is no market for the partially finished product. This
somewhat arbitrary 'valuation' of WIP combined with the allocation of overheads
to it has led to some unintended and undesirable results.
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41. Work in progress (WIP): cost of open work orders. It includes the cost of
component issues, labor, burden, and subcontract. When labor is reported, WIP
is debited and the labor account credited for actual hours times actual labor
rate. At posting, positive labor rate and labor usage variance amounts are
debited to the labor rate variance account and credited to WIP. These
transactions leave WIP at standard.
Physical Inventory: This module uses physical inventory counts to establish
the new work in the process and stocking location inventory balances. Costed
item counts are used to determine the beginning GL amounts for the inventory
and finished goods accounts and inventory variance accounts.
ABC Status of Inventory
Item ABC status Report/Update: ABC is a term used to describe
classification of company’s items in terms in terms of cost and usage.
 The A group of items usually represents 10-20% of the items and 50-
70% of a company’s sales issues.
 The B group may represent about 20% of the items and 20% of the
sales.
 The C group may represent about 60-70% of the items for about 10-
30% of sales.
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42. Thus, the most important items in terms of cost
control are A items, and the least important items are C items. The program
used to run the report can also update records. You can update the item
ABC classification codes, the item average usage, and cycle count intervals
by classification. System also allows to change the default ABC
classification percentages.
The report lists items in descending sales or issue value depending on the
parameters selected.
 Old ABC classification
 New ABC classification
 Item number
 Cumulative percent of items
 Item description
 GL cost
 Gross profit
 Annual usage
 Annual amount
 Percent of report annual amount total
 Cumulative percent of report annual amount total
Inventory of manufacturing company can be broadly classified on the basis of
location as follows.
Location Description
100 Inspection Location
150 Godown Location
200 Main Stores
210 Obsolete Inventory
250 Slow Moving Items
300 Shop Floor
400 Store Room
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43. 500
Reject Location
Inventory valuation report (3.6.13).Lists the following for specified product
line or lines.
 Item number
 ABC inventory classification code
 Site ID
 Quantity on hand
 Unit of measure
 GL cost per unit
 Extended GL cost
 Current unit cost
 Extended cost
 Variance %
Totals are shown for each product line and the report.
Inventory valuation by location report (3.6.14): Lists the following for
specified sites and locations.
 Item number and description
 ABC inventory classification code
 Quantity on hand
 Unit of measure
 GL unit cost
 Extended GL cost
 Current unit cost
 Extended current cost
 Variance
Report totals are shown for the location, site, and report.
Inventory valuation as of Date report (3.6.15).Lists the following for specified
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44. product lines and effective date.
 Item number and description
 Site ID
 ABC inventory classification code
 Quantity on hand
 Unit of measure
 GL unit cost
 Extended GL cost
Totals are shown for each product line and the report.
Inventory valuation as of by location report (3.6.16).Lists the following for
specified locations and effective date.
 Item number and description
 ABC inventory classification code
 Quantity on hand
 GL unit cost
 Extended GL cost
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45. The company had begun to adopt just-in-time (JIT)
manufacturing, which emphasized inventory reduction through efficient and
timely production and delivery. By locating its production facilities near its
clients, Lear cut both storage and shipping costs. It added "sequencing" to the
JIT equation by integrating its computers with those of its customers. As most
companies use an inventory system best suited for their company, the Just-In-
Time Inventory System (JIT) can have many benefits resulting from it. The
main benefits of JIT are listed below.
Set up times are significantly reduced in the warehouse. Cutting down the
set up time to be more productive will allow the company to improve their
bottom line to look more efficient and focus time spent on other areas that may
need improvement.
The flows of goods from warehouse to shelves are improved. Having
employees focused on specific areas of the system will allow them to process
goods faster instead of having them vulnerable to fatigue from doing too many
jobs at once and simplifies the tasks at hand.
Employees who possess multiple skills are utilized more efficiently. Having
employees trained to work on different parts of the inventory cycle system will
allow companies to use workers in situations where they are needed when there
is a shortage of workers and a high demand for a particular product.
Better consistency of scheduling and consistency of employee work hours.
If there is no demand for a product at the time, workers don’t have to be
working. This can save the company money by not having to pay workers for a
job not completed or could have them focus on other jobs around the
warehouse that would not necessarily be done on a normal day.
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46. Increased emphasis on supplier relationships. No
company wants a break in their inventory system that would create a shortage
of supplies while not having inventory sit on shelves. Having a trusting
supplier relationship means that you can rely on goods being there when you
need them in order to satisfy the company and keep the company name in good
standing with the public.
Supplies continue around the clock keeping workers productive and
businesses focused on turnover. Having management focused on meeting
deadlines will make employees work hard to meet the company goals to see
benefits in terms of job satisfaction, promotion or even higher pay.
Understanding Kanban
A system of continuous supply of components, parts and supplies, such that
workers have what they need, where they need it, when they need it. The word
Kan means "card" in Japanese and the word "ban" means "signal". So Kanban
refers to "signal cards".
Here's how Kanban works:
Let's say one of the components needed to make seats is a 12" stem-bolt and it
arrives on pallets. There are 100 stem-bolts on a pallet. When the pallet is
empty, the person assembling the seats takes a card that was attached to the
pallet and sends it to the stem-bolt manufacturing area. Another pallet of stem-bolts
is then manufactured and sent to the seat assembler. A new pallet of stem-bolts
is not made until a card is received.
A more realistic example would probably involve at least two pallets. The
widget assembler would start working from the second pallet while new stem-bolts
were being made to refill the first pallet.
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47. If this was a high volume seat manufacturing facility,
each seat assembly station might empty a pallet of stem-bolts in just a few
minutes, and there could be 5 or 10 seat assembly stations. Thus there would be
a continual flow of cards going back to the stem-bolt manufacturing area that
would cause a continual flow of pallets of stem-bolts to be sent to the seat
assembly stations
Kanban is Pull (Demand)
This is called a "pull" type of production system. The number of stem-bolts
that are made depends on the customer demand--in other words the number of
cards received by the stem-bolt manufacturing area.
In Kanban the method of handling the components is flexible, and depends on
the needs of the manufacturing process.
Kanban can also operate like a supermarket. A small stock of every component
needed to make a widget would be stored in a specific location with a fixed
space allocation for each component. The widget assemblers come to the
"supermarket" and select the components they need. As each component is
removed from the shelf, a message is sent to a "regional warehouse" or
component manufacturing facility, requesting that the component be replaced.
The "supermarket" might then receive a daily shipment of replacement
components, exactly replacing those that were used.
Kanban results in a production system that is highly responsive to customers.
In the above example, the production of seats will vary depending on customer
demand. And as the seats demand varies, so will the internal demand for seat
components. Instead of trying to anticipate the future (predicting the future is
difficult), Kanban reacts to the needs.
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48. Kanban does not necessarily replace all existing
material flow systems within a facility. Other systems such as Materials
Requirement Planning (MRP) and Reorder Point (ROP) may remain in
operation. Kanban is most beneficial when high volume/low value components
are involved. For low volume and high value components, other materials
management system may be a better option.
Kanban is directly associated with Just-In-Time (JIT) delivery. However,
Kanban is not another name for just-in-time delivery. It is a part of a larger JIT
system. There is more to managing a JIT system than just Kanban and there is
more to Kanban than just inventory management.
Kanban involves employees as team members who are responsible for specific
work activities. Teams and individuals are encouraged participate in
continuously improving the Kanban processes and the overall production
process. Kanban is not a system indented to be used by itself. It is an integral
part of Kaizen
Kanban provides a number of benefits.
Reduce inventory and product obsolescence. Since component parts are not
delivered until just before they are needed, there is a reduced need for storage
space. There is no inventory of products or components that become obsolete.
This fits well with the Kaizen system on continual improvement. Product
designs can be upgraded in small increments on a continual basis, and those
upgrades are immediately incorporated into the product with no waste from
obsolete components or parts.
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49. Reduces waste and scrap, With Kanban, products and
components are only manufactured when they are needed. This eliminates
overproduction. Raw materials are not delivered until they are needed,
reducing waste and cutting storage costs.
Provides flexibility in production, If there is a sudden drop in demand for a
product, Kanban ensures you are not stuck with excess inventory. This gives
you the flexibility to rapidly respond to a changing demand.
Kanban also provides flexibility in how your production lines are used.
Production areas are not locked in by their supply chain. They can quickly be
switched to different products as demand for various products changes. Yes,
there are still limits imposed by the types of machines and equipment, and
employee skills, however the supply of raw materials and components is
eliminated as a bottleneck.
Increases Output, The flow of Kanban (cards, bins, pallets, etc.) will stop if
there is a production problem. Kanban reduces wait times by making supplies
more accessible and breaking down administrative barriers. This results in an
increase in production using the same resources.
The Kanban system reduces your total costs by:
o Preventing Over Production
o Developing Flexible Work Stations
o Reducing Waste and Scrap
o Minimizing Wait Times and Logistics Costs
o Reducing Stock Levels and Overhead Costs
o Saving Resources by Streamlining Production
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50. o Reducing Inventory Costs
REFERENCES
o http:// www.lear.com
o http://learnet .lear.com
o http:// www.google.co.in
o http:// www.wikipedia.com
o Market Research Report “Indian Automobile Industry-Recent Trends” –
year 2006
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