1. STUDY OF FINANCE MODULE OF ERPA PROJECT REPORTAtLear Automotive India Pvt. Ltd.Submitted byVipul Patel

2. AES POST GRADUATE INSTITUTE OFBUSINESS MANAGEMENTAHMEDABAD.May-June 2007TABLE OF CONTENTSPreface 4Acknowledgement 5Executive summary 6Indian Automotive industry 8Introduction of the company 10Accounts Receivables Introduction 18 Issuing DR/CR memos 192 3. Processing Payments21 Aging Reports 21Accounts Payables Introduction 23 Accounts Payable Flow 25 Processing Payments 25 Batch control 27 AP Payment flow 30 Variance Calculation 31 Aging Reports 3219Inventory Control Work In Progress 34 ABC Status 353 4. Inventory Valuation Reports 36 Understanding Kanban 39References 43PREFACE4 5. Training is for development and enhancement ofknowledge in particular field. It can never be possible to make a mark in todayscompetitive era only with thetheoretical knowledge when industries in India are developing at global pace.Hence, In addition to theoretical studies and group discussions practical trainingis of great importance for MBA students to give them real life experience of theclassroom teaching.With a view to expand the boundaries of thinking, I have undergone the summertraining at Lear Automotive India Pvt. Ltd. It had been a great experience to bepart of Synergy and gather knowledge regarding the project topic STUDY OFFINANCE MODULE OF ERPACKNOWLEDGEMENTSAt the outset, I would like to take this opportunity to express my deep gratitudeto Mr. Dilip Parikh, Finance Manager, Lear Automotive India Pvt. Ltd., forallowing me to work under his guidance, thereby, giving me an opportunity to5 6. gain knowledge and skills from his vast experience asfinance manager.I am also grateful to Mr. Shital Vyas, Assistant Finance Manager, without whosehelp, guidance, valuable inputs and constant monitoring, my learning would havebeen 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 majortenure of my training and have gained a lot from his experience.I am also sincerely thankful to my faculty guides, Mr. Mayank Joshipura for hisguidance and valuable suggestions prior to and during the entire course oftraining.My acknowledgement would be incomplete if I do not extend my sincere thanksto all the executives & staff of Lear Automotive India Pvt. Ltd., especially, Mr.Akash Shah, Mr. Hiren Parikh and Mr. Amit Patel for their assistance andsupport to prepare my report.EXECUTIVE SUMMARYERP (Enterprise Resource Planning) is software that organizes and manages acompanys business processes by sharing information across functional areas. Ittransforms transactional data like sales in to useful information that supportbusiness decisions in other parts of company such as manufacturing, inventory,procurement, invoicing, distribution and accounting. In addition to providing allback office functions ERP connects with supply chain and customer managementapplications, helping business share information both inside and outsidecompany.6 7. With ERP companies could integrate their accounting,sales, distribution, manufacturing, planning, purchasing, human resource andother transactions in to one application. ERP modules generally grouped in tofour they areFinance and AccountingSales and MarketingProduction and Material managementHuman ResourceFinance module comprises financial accounting, Investment management, Costcontrol, Treasury management, Asset management and Enterprise controlling. Itfurther includes Cost centers, Profit centers, Activity based costing, CapitalBudgeting and Profitability analysis. The finance provides consistent financialdata that is updated regularly that links operational results with the financialeffects of those results. For every physical transaction, the financial result isshown. It connects processes that belong together, giving every employee fast,convenient access to the information required for their jobs. Despite of havingmany 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 competitiveadvantage. ERP systems can be very expensive to install often ranging from $40,000to$500,000,000 for multinational companies. ERP vendors can charge sums of money for annual license renewal that isunrelated 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 specificworkflow and business process of some companiesthis is cited as oneof the main causes of their failure.7 8. Systems can be difficult to use and are toorestrictive and do not allow much flexibility in its implementation andusage. Resistance in sharing sensitive internal information between departmentscan reduce the effectiveness of the software.Knowing the level of sophistication needed for a business is the key to effectiveimplementation of ERP. There are various vendors available in the market suchas SAP America, Peoplesoft, Inc., Oracle Corp., i2 technologies and QAD. TheLear Automotive India Pvt. Ltd. Have QAD based ERP which offers MFG/PROand eQ software to companies. Instead of deploying a single system to manageall of a companys plants, it tailors its software to individual plants, and thenlinks them with corporate financial, distribution and support function. QAD isknown for both its ease of implementation and ease of use.Indian automotive industryThe Indian automotive industry has flourished like never before in the recentyears. This extra-ordinary growth that the Indian automotive industry haswitnessed is a result of a two major factors namely, the improvement in the livingstandards of the middle class, and an increase in their disposable incomes.Moreover, the liberalization steps, such as, relaxation of the foreign exchangeand equity regulations, reduction of tariffs on imports, and refining the bankingpolicies, initiated by the Government of India, have played an equally importantrole in bringing the Indian Automotive industry to great heights. It is estimatedthat the sale of passenger cars have tripled compared to their sale in the last fiveyears. Thus, the sale of cars has reached a figure of 1 million users and isexpected to increase further. It's also to be noted that the demand for luxurious8 9. models, SUVs, and mini-cars for family owners, haveshot up, largely due to increase in the consumer's buying capacity. The increaseddemand for Indian automobiles has resulted in a large number of multi-nationalauto companies, especially from Japan, U. S. A., and Europe, entering the Indianmarket and working in collaboration with the Indian firms. Also, theinstitutionalization of automobile finance has further paved the way to sustain along-term high growth for the industry.The initial years of the industry were characterized by unfavorable governmentpolicies. The real big change as we see in the industry today, started to take placewith the liberalization policies that the government initiated in the 1991. Theliberalization policies had a salutary impact on the Indian economy and theautomobile industry in particular.The automobile industry in the country is one of the key sectors of the economyin terms of the employment opportunities that it offers. The industry directlyemploys close to around 0.2 million people and indirectly employs around 10million people. The prospects of the industry also has a bearing on the auto-componentindustry which is also a major sector in the Indian economy directlyemploying 0.25 million people.All is not well with the automobile industry the world over currently with theslowdown that has gripped most of the major economies of the world. The gapbetween the manufacturing capacity volume and the assembly volume is growingby the day and has the worried the manufacturers. This state of affairs hastriggered a lot of cutthroat competition and consolidation in the industry. Costreduction 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 tomany of the characteristics, which are peculiar to India. The Indian automobileindustry is very small in comparison to the global industry. Except for two9 10. wheelers and tractors segments, the Indian industrycannot boast of big volumes vis--vis global numbers. The automotive Industryin India is now working in terms of the dynamics of an open market. Many jointventures have been set up in India with foreign collaboration, both technical andfinancial with leading global manufacturers. Also a very large number of jointventures have been set up in the auto-components sector and the pace is expectedto pick up even further. The Government of India is keen to provide a suitableeconomic and business environment conducive to the success of the establishedand prospective foreign partnership ventures.Indian Automobile sector is high on growth trajectory. And is expected to touch10 million marks of which Commercial Vehicle Segment will contributemaximum. To tap this large opportunity, Indian automobile companies and globalautomotive giants have announced huge expansion plans.The market research report provides a detailed analysis of competition in theindustry, the future prospects, opportunities and roadblocks in the growth of theAuto sector.Introduction of the companyLear CorporationHeadquarter10 11. 21557 Telegraph RoadSouthfield, Michigan 48034-4248U.S.A.Statistics:Public CompanyIncorporated: 1917 as American Metal Products CompanyEmployees: 120,000Sales: $17.8 billion (2006)Stock Exchanges: New YorkTicker Symbol: LEAAnnual Income Statements (LEA)All amounts in millions of US Dollars except share amountsYear Revenue GrossProfitOperatingIncomeTotal NetIncomeDec 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 1,402.1 768.4 422.21-Year Sales Growth 4.4% (2006)WORLDWIDE MANUFACTURING PROCESSESThe company offers numerous manufacturing processes on a worldwide basis,including:Seating: DuraBond Cut and SewSeat Systems: Metal Stampings Frames Wire11 12. MechanismsElectronics 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 SolderingMechatronics & 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 ApplicationGlass Reinforced Urethane: SRIM RRIMFoam Molding: Urethane Polypropylene Foam in Place Fabric FoamWire Assembly: Automated Cut, Strip and Terminate Ultrasonic and Resistance Welding12 13. Over Molding Wire Bonding Automated End-of-Line TestingFabrication: Insert Molding Paint and Laser Etch Pad Printing Progressive Die Stamping Vision InspectionKEY FACTS ABOUT LEAR CORPORATION Headquartered in Southfield, Mich., Lear Corporation is one of theworld's largest suppliers of automotive interior systems and components.Lear provides complete seat systems, electronic products and electricaldistribution systems and other interior products 1917: Based in Detroit, American Metal Products Company is foundedby Frederick Matthai as a maker of steel seat frames, with its first majorcustomers being General Motors Corporation and Ford Motor Company. 1966: Conglomerate Lear Siegler, Inc. acquires American Metal, which islater renamed the Automotive Group. Acquired Automotive Industries, Inc. in August 1995 and MaslandCorporation in July 1996 to become the worlds leading independentsupplier of fully integrated automotive interior systems. Added electronics and electrical distribution systems capabilities throughthe acquisition of United Technologies Automotive in May 1999. Acquired Grote & Hartmann in July 2004 to further grow its electronicsand electrical distribution systems business. Employs a diverse team of 120,000 employees at 286 locations in 34countries. Is a Fortune 500 company publicly traded on the New York StockExchange (NYSE:LEA).13 14. Has reported sales growth from $160 million in1983 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 PRESENCELear Corporation has operations in the following countries:Argentina Austria Belgium Brazil CanadaChina Czech Republic France Germany HondurasHungary India Italy Japan MexicoMorocco Netherlands Philippines Poland PortugalRomania Russia Singapore Slovakia South AfricaSouth Korea Spain Sweden Thailand TunisiaTurkey United Kingdom United States VenezuelaLear Automotive India Pvt. Ltd.14 15. Lear also has a significant presence in the Asia Pacific region. The company'sAsia Pacific Operations, headquartered in Singapore, has facilities in Australia,China, India, Philippines and Thailand. Lear's heritage includes a long historyserving Asia's automakers and providing superior products to meet the needs ofthe Asian market. Lear is the global leader in automotive seat systems, as wellas 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 businessoutside of Europe and North America has grown dramatically. For 1994, Learreported sales of $196.3 million in rest-of-world (ROW) markets. Learconducts business with most major Asia Pacific automotive manufacturersincluding 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, Fordand General Motors through their joint ventures in the Asia Pacific region.In 1995, Lear opened facilities in Australia and India to provide just-in-timeseating 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 itscurrent vehicle platforms.15 16. Company Perspectives:The corporate phrase of Lear is "ADVANCE RELENTLESSLY"The automotive industry has and will become increasingly competitive ascurrent markets change and others emerge around the world. Lear Corporationis set to stay ahead of those needs by leading the fastest-growing segment inthe 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 MotorsCorporation and Ford Motor Company (and their respective affiliates),for about 56 percent of its sales. Seventeen major acquisitionscompleted between 1994 and 1999 when Lear went public.Lear Corporation has three main business which supplies material to itscustomers.o Seating System Divisiono Electronic System Divisiono Interior System Division16 17. Lear entered in to the India way back in year 1995 to provide seating toGeneral Motors. With the intention to grab opportunity in Indian AutomobileIndustry which is supposed to be growing at a whooping pace of 14% perannum over last five years. Presently India is the second largest two wheelersmarket in the world, fourth largest commercial vehicle market in the world and11th largest passenger car market in the world.Legal entity: Lear Automotive India Pvt. Ltd.Division: Asia PacificRegional Head office: Lear Automotive India Pvt. Ltd.206 & 206A, Rectangle-1,D-4, Saket District Centre, Saket,New Delhi-110017Regional Head: Mr. Ratindra PuriVice president & MDLocation:Baroda-Halol highwayNear toll-naka, HalolDist: Panchmahals, GujaratHalol-389350Lear Automotive India Pvt. Ltd. Provides seating material to General Motorsfor their all cars under Chevrolet badges and Mahindra & Mahindra For theirrecently launched Logan. Plant at its Halol facility provides materials such as Seat Systems Seat Components Door Panels Interior Trims Headliner17 18. Finance moduleGeneral LedgerMultiple CurrencyAccounts ReceivablesAccounts PayableCost ManagementCash ManagementInventory Control18 19. Accounts ReceivablesIntroduction19 20. In accounting, a receivable is any financial claim that abusiness has against individuals or other organizations. Accounts Receivablesare financial claims resulting from sales transactions. When a company sellsgoods or services, it has a claim on the customer for payment. That is youactually communicate this claim to the customer on the invoice, a documentthat that states what items were sold and the amount due.Usually the customer sends the correct payment and you credit it directly to theinvoice. Some times customer pays too much or too little, qualify for cashdiscounts, or pay late and incur finance charges.MFG/PROs 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.20 21. Issuing DR/CR Memos21 22. DR/CR memos are used to record miscellaneous amounts such as credits or towrite off bad debts. DR/CR memos can also be used to load customersopening balances when you begin running MFG/PRO. Receivables and financecharges are debits, while payments and discounts are credits. DR/CR memosonly update records for the Accounts Receivable and General Ledger modules.Do not use DR/CR memos to record corrections or adjustments affectinginventory, sales history or commissions.22 23. System allows specifying tax effective date for thesystem to use in determining which tax rates apply to the transaction. Whenyou enter tax date, the system calculates the taxes based on the rate for theship-to address for tax effective date.When entering a DR/CR memo, you can record commission percentages for upto four salespersons. This information then appears on the salespersoncommission reports but does not update sales history.Each invoice, memo, or finance charges can have an expected payment dateassociated with it, specified in the Expt date field. This date indicates when youactually expect to receive payment rather than the date payment is due. Oneach 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 aminus sign (-) in front of the number. Credit memos decrease the customerbalance but remain open until they are applied to a specific customer invoice ordebit memo.Various information regarding DR/CR memos can be obtained from the systemthrough following reportsDR/CR Memos MaintenanceDR/CR Memos ReportsDR/CR Memos InquiryDR/CR Memos Register23 24. Processing payments24 25. Applied payments: used to record cash from a customer in payment ofspecific invoices, memos or finance charges.Unapplied payments: used to record cash received from a customer that doesnot apply to specific invoices, memos or finance chargesNon-AR receipt: used to record cash received that is not paying any invoices,memos or finance charges.Aging ReportsUsed to monitor customers payment history and track overdue amounts. Agingreports identify outstanding amounts so that payments can be prioritized basedon 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 totaloutstanding balances for each selected customer.o Summary Reports print only the aging periods totals and the totaloutstanding balances for each selected customer.When you have multiple payments against an invoice or memo, the systemaggregates 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 torun aging by due date.o AR Aging by Invoice Date Report (27.17) is used to run aging byinvoice date.o AR Aging as of Effective Date (27.18) is used to re-create an aging asof a previous date. The system looks at each record and checks theeffective date. If some records have been deleted it can not be re-createbalances.If orders always have credit terms of net 30 from invoice date, you can runaging by due date or invoice date with identical results. The due date is always30 days after the invoice date.If you use a variety of credit terms such as end of month, end of fortnight, orend of week, use AR Aging by Due Date Report. For example, if credit termsare stated Net 30 EOM, all invoices would have due dates falling 30 days afterthe last day of month, whether the invoice date was the 1st or 31st of themonth. On the AR Aging by Due Date Report, amounts subject to credit termswith multiple due dates are split out according to the dating sequence andplaced in the appropriate aging time buckets.26 27. Accounts PayableIntroduction27 28. When your company buys goods or services, it incurs an obligation to pay thesupplier. The supplier sends you an invoice to communicate your obligation topay. This document states what items were sold and the amount due. Theinvoice also states credit terms such as the payment due date and cashdiscounts the company offers for early payment.Frequently, especially for expensive items, it is not feasible for you to pay theentire invoice amount in advance or upon delivery. The supplier allows you tobuy on credit, make installment payments, or pay the final amount by aspecified future date.28 29. Whenever you buy something now and pay for it later,you incur a liability. Most of the payables transactions processed in MFG/PROare considered accounts payable liabilities resulting from purchasingtransactions with suppliers. To maximize cash flow, the payment is usuallydelayed as long as possible. When you buy on credit, you are in fact enjoyingan interest free loan until payment is due. Instead of paying the supplier, youcan use the cash for other things. However, it is important to pay suppliers ontime to avoid finance charges and to preserve your companys credit standing.Therefore, effective accounts payable management simultaneously optimizescash flow and maintains satisfactory relationships with creditors. The twoelements that makes possible are vouchers and aging reports. The starting pointfor payment processing is the purchase order. The purchase order is a contractthat confirms your intent to buy. It lists items, quantities, and prices along withany related charges such as taxes and freight. On receipt, your receivingdepartment issues a receiver to confirm received items and quantities againstthe purchase order. The supplier sends you an invoice to confirm your liabilityto 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 whatyou 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 systemretrieves the receivers associated with the purchase order so that you can recordinvoice lines against them. If the invoiced items and quantities match thereceiver, the receiver is closed. Vouchers convey authority to pay an invoiceand record all relevant details on the nature of the liability and payment. Thisinformation is especially critical for invoices arising from purchase orders forinventory items. Voucher verifies invoiced items and quantities against thepurchase order and receiving records before processing payment. InMFG/PRO, voucher can be used to process any invoice whenever it is moreconvenient to generate payments in the system29 30. Accounts Payable flow:Accounts payable to process both inventory items and other types ofpayments.30 31. The system compares what you enter for the invoice tothe receiver and the purchase order and displays warning if there is adiscrepancy. For example, the supplier may have invoiced you at the wrongprice or you may not have received all the items that were invoiced. InMFG/PRO, this kind of discrepancy is called a variance.The accounts payable flow is slightly different for processing payments onpurchases that are not received into inventory. Some payments such as dropshipments may have a purchase order and invoice but no receiver. Others suchas airline tickets may have only invoice. For these kinds of items, you can entera voucher for processing the payment. You must use procedures external toMFG/PRO to verify that items, quantities, and prices are correct. After eachbatch, the voucher register is printed to verify voucher entry, and correctionsare made if necessary.Processing paymentsVouchers are then selected for payment, either by due date, discountdate, or manually. Usually, run an aging report to determine which balances areoldest. Then print the payment selection register to show the vouchers selectedfor payment and make needed corrections. Once vouchers are selected, printingchecks, recording manual checks, or creating a printed report or ASCII file forelectronic fund transfer processes payments. The payment register is printed asa record of payment made. To confirm electronic fund transfers, you can print apayment specification report and send to the supplier.31 32. After payment, the supplier balance is decreased, but the payment is notimmediately flagged as closed. Both the payment and original vouchers remainin the system until the bank clears the payment. If the payment does not clearor must be voided for any reason, the system automatically reopens thevoucher. Vouchering is usually done daily. Automatic payments are usuallyprocessed weekly, Manual payments are recorded as needed. Less frequently,often at the end of each year, closed AP history is purged from the system andoptionally archived.Batch control32 33. Generally process transactions are done in groups, suchas vouchers or payments for a number of invoices. To improve processing,MFG/PRO assigns each group of vouchers, payments, check cancellation, andvoids to a batch field in the Accounts Payable control file. The batch IDconsolidates transactions when posting in summery to the general ledger. Usecontrol totals to double check transaction entries. If the total of what you haveentered does not equal the control total, the system displays warning. You areeven allowed to proceed even if your batch totals are incorrect. Entering acontrol total is optional but is highly recommended. To verify data entry, printthe register report after each batch. For each batch. The system records batchID, control total, batch amount entered, user ID, and date. Updating the batch,it updates this information. The system also tracks unused and out of balancebatches.Using Vouchers33 34. Most vouchers cover supplier invoices from purchaseorders. In a voucher system, the system verifies invoiced items against thepurchase order and receiving records. By entering a voucher, you also ensurethat the payment correctly updates supplier balances and GL accounts. Usevouchers to control who receives payment, how they receive, and whenpayment 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 theabove information. Enter the disputed amount as the hold amount invoucher maintenance.Hold amounts are not selected for payment until hold is removed invoucher maintenance or voucher confirmation manual. Many companiesrecord the voucher as soon as they receive an invoice, even when thepurchased items have not been received. This helps prevent loss and easestracking. Another use for voucher registration is to pre-record vouchers forfixed expenses. For example, enter a years worth of vouchers for monthlyrent payments at the beginning of the year. AP voucher registration lets youdo this without unwanted GL consequences. Initially enter the voucher asunconfirmed in Voucher maintenance. When the PO lines are received orthe invoice approved, record the receiver lines and confirm the voucher.Only confirmed vouchers are selected for payments34 35. Voucher conformation Manual is used to confirmvouchers one at a time.Voucher conformation Automatic is used to confirm vouchers in batch.Supplier credits are entered as vouchers as vouchers with negativeamounts. The system automatically deducts credits from open supplierbalances and the next automatic check. When a supplier issues you a creditfor returned items, enter this as a purchase order return. This creates anegative receiver to credit inventory. Supplier holds are applied only todebit vouchers and only if the hold is greater than the voucher amount invoucher confirmation-Manual.Miscellaneous ExpensesVouchers can also be used for:o Miscellaneous expenses such as utilities, commissions, and rento Entering supplier balances during implementationo Processing credits such as prepayments, rebates, discounts, and RTSreceiverso To process vouchers that do not reference to purchase orders, you mustreference a supplier code. Most companies create at least one suppliercode for miscellaneous payments.You can pay a voucher immediately or latter, depending on the circumstancesand payment terms. You can also record payments that are not specificallyrelated to a voucher. The simplest case of payment processing is when youdecide what to pay and then write a check or transfer money in person. Manualpayments can also be applied to one or more vouchers, flagging them as closedwhen 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 systemdetermine which vouchers should be paid and then print checks for selectedsuppliers and amounts. Start by having the system automatically select most ofthe vouchers you intent to pay. System allows to print payments on standardcheck forms or to a file in the case of automatic bank transfers.AP payment flowAutomatic payment selection36 37. In payment selection-Automatic, you can select openvouchers by due date, supplier code, and other criteria. Based on these criteria,the system recommends which vouchers selected for payment and totals theamounts. Use this function to see what vouchers are due or to see whatdiscounts are available by making some payments immediately. You can runthe automatic selection function several times, each time selecting a differentrange of vouchers to pay. For example, select all the vouchers for particularsupplier, then return it to select all the vouchers for a particular due date.Manual Payment SelectionIn payment selection-Manual, select single vouchers for payment or overridethe choices the system made automatically. This is particularly useful whenthere is a cash shortage. For example, you can choose to send payments only toyour most important suppliers. Manual selection also lets you override theamounts to pay. For example, make a partial payment or take a discount thatthe system did not suggest.The payment selection register lists all vouchers selected for payment and thetotal payments for each supplier, currency, and bank. It includes all vouchersthat were automatically selected for payment and any changes/additions madein payment selection-Manual.Variance calculations37 38. During voucher entry, the system calculates a variance ifwhat was ordered or received does not match what was invoiced. Purchaseprice variance are calculated when purchase orders are received. AP rate andusage variances are calculated when receivers are vouchered.The system includes tax on the difference between purchase and invoice pricewhen calculating item cost if you are using average costing in VoucherMaintenance.Tracking purchasing variances is important for evaluating buyer performance.If a company consistently pays more than the item GL cost, your buyer shouldbe negotiating lower prices or sourcing other suppliers. Tracking AP variancesis important for evaluating supplier performancePurchase price variance is the difference between the unit cost on the purchaseorder 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 receivedAP Rate variance is the difference between the unit costs on the purchase orderand the invoice.(Invoice unit cost - PO unit cost) * invoice quantityAP Usage variance is the difference between the quantity on the purchase orderand the invoice, which occurs if you close a receiver with a quantity still open orwith an invoice quantity greater than the PO receipt quantity.(Invoice quantity PO receipt quantity) * PO unit costAging report38 39. Flexible aging periods let you project cashrequirements as well as review overdue accounts. Aging are normally run ateach month end prior to entering activity for the next month. Detailed agingsprint all open vouchers. Summarized agings print only the aging period totaloutstanding balances for each supplier. Hold amounts are always flagged asHold.o AP Aging by Voucher Date Report (28.16) displays aging by voucherdate.o AP Aging by Due Date Report (28.17) displays agings by payment duedate.o Aging as of Effective Date Report (28.18) It reviews all activities in thesystem and checks the date on each transaction.Inventory controlThis module creates GL records for receipts, issues, and cycle countsadjustments. The system uses item/site cost data to cost a GL debit or credittransactions. Transactions affecting inventory accounts include purchase orderreceipts, work order issues/receipts, sales order shipments and physicalinventory counts. Each transaction affects inventory by creating a GLtransactions that either debits or credits the account value. Inventory of amanufacturing company can be broken down in to following categories: Finished Goods Work In Progress Raw Materials Slow Moving Obsolete39 40. Inventory management software is required to efficiently manage and achieveappropriate levels in the supply chain. Inventory management software reducesinventory costs and increases the efficiency and level of control you are able toexercise over growing distribution business. Inventory can be one of theindicators of management effectiveness in the context of materials management.It provides exact details of the stock you have, what you have ordered and whatyou have sold. This saves time, money and labor, and improves your sales. Thelarge amount of paperwork that was needed for proper management can be athing of the past, with efficient use of inventory management software.Today with multi-stage process companies there is much inventory that wouldonce 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 managementdecision since there is no market for the partially finished product. Thissomewhat arbitrary 'valuation' of WIP combined with the allocation of overheadsto it has led to some unintended and undesirable results.40 41. Work in progress (WIP): cost of open work orders. It includes the cost ofcomponent issues, labor, burden, and subcontract. When labor is reported, WIPis debited and the labor account credited for actual hours times actual laborrate. At posting, positive labor rate and labor usage variance amounts aredebited to the labor rate variance account and credited to WIP. Thesetransactions leave WIP at standard.Physical Inventory: This module uses physical inventory counts to establishthe new work in the process and stocking location inventory balances. Costeditem counts are used to determine the beginning GL amounts for the inventoryand finished goods accounts and inventory variance accounts.ABC Status of InventoryItem ABC status Report/Update: ABC is a term used to describeclassification of companys 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 companys sales issues. The B group may represent about 20% of the items and 20% of thesales. The C group may represent about 60-70% of the items for about 10-30% of sales.41 42. Thus, the most important items in terms of costcontrol are A items, and the least important items are C items. The programused to run the report can also update records. You can update the itemABC classification codes, the item average usage, and cycle count intervalsby classification. System also allows to change the default ABCclassification percentages.The report lists items in descending sales or issue value depending on theparameters 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 totalInventory of manufacturing company can be broadly classified on the basis oflocation as follows.Location Description100 Inspection Location150 Godown Location200 Main Stores210 Obsolete Inventory250 Slow Moving Items300 Shop Floor400 Store Room42 43. 500Reject LocationInventory valuation report (3.6.13).Lists the following for specified productline 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 forspecified 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 VarianceReport totals are shown for the location, site, and report.Inventory valuation as of Date report (3.6.15).Lists the following for specified43 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 costTotals are shown for each product line and the report.Inventory valuation as of by location report (3.6.16).Lists the following forspecified locations and effective date. Item number and description ABC inventory classification code Quantity on hand GL unit cost Extended GL cost44 45. The company had begun to adopt just-in-time (JIT)manufacturing, which emphasized inventory reduction through efficient andtimely production and delivery. By locating its production facilities near itsclients, Lear cut both storage and shipping costs. It added "sequencing" to theJIT equation by integrating its computers with those of its customers. As mostcompanies use an inventory system best suited for their company, the Just-In-Time Inventory System (JIT) can have many benefits resulting from it. Themain benefits of JIT are listed below.Set up times are significantly reduced in the warehouse. Cutting down theset up time to be more productive will allow the company to improve theirbottom line to look more efficient and focus time spent on other areas that mayneed improvement.The flows of goods from warehouse to shelves are improved. Havingemployees focused on specific areas of the system will allow them to processgoods faster instead of having them vulnerable to fatigue from doing too manyjobs at once and simplifies the tasks at hand.Employees who possess multiple skills are utilized more efficiently. Havingemployees trained to work on different parts of the inventory cycle system willallow companies to use workers in situations where they are needed when thereis 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 dont have to beworking. This can save the company money by not having to pay workers for ajob not completed or could have them focus on other jobs around thewarehouse that would not necessarily be done on a normal day.45 46. Increased emphasis on supplier relationships. Nocompany wants a break in their inventory system that would create a shortageof supplies while not having inventory sit on shelves. Having a trustingsupplier relationship means that you can rely on goods being there when youneed them in order to satisfy the company and keep the company name in goodstanding with the public.Supplies continue around the clock keeping workers productive andbusinesses focused on turnover. Having management focused on meetingdeadlines will make employees work hard to meet the company goals to seebenefits in terms of job satisfaction, promotion or even higher pay.Understanding KanbanA system of continuous supply of components, parts and supplies, such thatworkers have what they need, where they need it, when they need it. The wordKan means "card" in Japanese and the word "ban" means "signal". So Kanbanrefers 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 itarrives on pallets. There are 100 stem-bolts on a pallet. When the pallet isempty, the person assembling the seats takes a card that was attached to thepallet and sends it to the stem-bolt manufacturing area. Another pallet of stem-boltsis then manufactured and sent to the seat assembler. A new pallet of stem-boltsis not made until a card is received.A more realistic example would probably involve at least two pallets. Thewidget assembler would start working from the second pallet while new stem-boltswere being made to refill the first pallet.46 47. If this was a high volume seat manufacturing facility,each seat assembly station might empty a pallet of stem-bolts in just a fewminutes, and there could be 5 or 10 seat assembly stations. Thus there would bea continual flow of cards going back to the stem-bolt manufacturing area thatwould cause a continual flow of pallets of stem-bolts to be sent to the seatassembly stationsKanban is Pull (Demand)This is called a "pull" type of production system. The number of stem-boltsthat are made depends on the customer demand--in other words the number ofcards received by the stem-bolt manufacturing area.In Kanban the method of handling the components is flexible, and depends onthe needs of the manufacturing process.Kanban can also operate like a supermarket. A small stock of every componentneeded to make a widget would be stored in a specific location with a fixedspace allocation for each component. The widget assemblers come to the"supermarket" and select the components they need. As each component isremoved from the shelf, a message is sent to a "regional warehouse" orcomponent manufacturing facility, requesting that the component be replaced.The "supermarket" might then receive a daily shipment of replacementcomponents, 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 customerdemand. And as the seats demand varies, so will the internal demand for seatcomponents. Instead of trying to anticipate the future (predicting the future isdifficult), Kanban reacts to the needs.47 48. Kanban does not necessarily replace all existingmaterial flow systems within a facility. Other systems such as MaterialsRequirement Planning (MRP) and Reorder Point (ROP) may remain inoperation. Kanban is most beneficial when high volume/low value componentsare involved. For low volume and high value components, other materialsmanagement 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 JITsystem. There is more to managing a JIT system than just Kanban and there ismore to Kanban than just inventory management.Kanban involves employees as team members who are responsible for specificwork activities. Teams and individuals are encouraged participate incontinuously improving the Kanban processes and the overall productionprocess. Kanban is not a system indented to be used by itself. It is an integralpart of KaizenKanban provides a number of benefits.Reduce inventory and product obsolescence. Since component parts are notdelivered until just before they are needed, there is a reduced need for storagespace. There is no inventory of products or components that become obsolete.This fits well with the Kaizen system on continual improvement. Productdesigns can be upgraded in small increments on a continual basis, and thoseupgrades are immediately incorporated into the product with no waste fromobsolete components or parts.48 49. Reduces waste and scrap, With Kanban, products andcomponents are only manufactured when they are needed. This eliminatesoverproduction. 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 aproduct, Kanban ensures you are not stuck with excess inventory. This givesyou 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 beswitched to different products as demand for various products changes. Yes,there are still limits imposed by the types of machines and equipment, andemployee skills, however the supply of raw materials and components iseliminated as a bottleneck.Increases Output, The flow of Kanban (cards, bins, pallets, etc.) will stop ifthere is a production problem. Kanban reduces wait times by making suppliesmore accessible and breaking down administrative barriers. This results in anincrease in production using the same resources.The Kanban system reduces your total costs by:o Preventing Over Productiono Developing Flexible Work Stationso Reducing Waste and Scrapo Minimizing Wait Times and Logistics Costso Reducing Stock Levels and Overhead Costso Saving Resources by Streamlining Production49 50. o Reducing Inventory CostsREFERENCESo http:// www.lear.como http://learnet .lear.como http:// www.google.co.ino http:// www.wikipedia.como Market Research Report Indian Automobile Industry-Recent Trends year 200650