In previous blog posts, we covered the definition, initial setup and advantages of managing consignment inventory using Epicor ERP v9 or v10.
Several other questions remain to be answered, i.e.: “How do we verify the consignment inventory quantities?” and “How do we finish the contract without ending up with extra inventory?”
Cycle Counting/Physical Inventory
Consignment inventory is still an asset of the company that currently owns it. It is therefore the distributor’s fiscal responsibility to periodically count that inventory to make sure it is still in its proper place. If you have used the procedures defined in the previous blog posts, then you can use the standard cycle counting or physical inventory module that is built into Epicor ERP v9 or v10.
Since Epicor supports counting by warehouse ID, you can simply initiate a physical inventory for your consignment warehouse. If you have multiple customers, you would have multiple warehouses, with each warehouse to be counted separately.
Of course, in order to do this inventory check, you still need access to the inventory itself, or you need a trustworthy customer that will return the physical inventory results. It is up to you to determine what you are going to do with any adjustments that are found.
- If during the count, you find more parts that were supposed to be there, that may mean:
- You have overbilled your customer for product they did not actually use, or
- You shipped more parts than you acknowledged in the electronic transfer order.
- If during the count, you find fewer parts than you were supposed to:
- Your customer has used more parts than they have told you about.
In either of the above two cases, you need to confirm that there is a clear declaration of who is responsible for any variances found during the physical inventory. If you followed all of the procedures, there should be no unverified variances in the shipment. This would then leave only one option for the variance: issue a credit or an invoice for the difference in inventory quantity.
Closing the Contract
As the contract is coming to an end, you want to ensure that you do not end up with large quantities of inventory sitting in your customer’s consignment warehouse. At some point, they will not want that inventory anymore, and you will need to take it back (unless you have a clause in your contract to protect you).
Our recommendation is to closely monitor those parts as the contract is winding down, to make sure you have reduced or eliminated the minimum on hand/safety stock levels that you have defined throughout the system. Also, verify that any forecasts that the customer has delivered represent real, sellable product.
Posted by Tim Shoemaker, Senior Principal Consultant, Epicor Professional Services
In the previous blog post, we covered the definition, initial setup and advantages of managing consignment inventory using Epicor ERP v9 or v10.
Below are the steps that must be done to implement a new consignment customer with a new consignment part, assuming that you already have a consignment plant (in v9) or site (in v10) set up in the system.
- New consignment agreement is placed by the customer
- Create a “Consignment Warehouse” for this new customer (one time for each customer).
- Define minimum stocking levels in the consignment plant/site; i.e., if your contract says you are to always have 100 on hand, then set 100 as the minimum on hand for the consignment plant/site.
- Define minimum stocking level at the manufacturer’s local plant. This would be any inventory that you want to keep on hand to fulfill any rush requirements. Typically, this is less than or equal to the minimum consignment level above.
- In the consignment plant/site, specify that this item is a “Transfer” item, and that the “Supply Plant/Site” is your main manufacturing plant. Also specify the transfer lead time (the number of days that the item will be in transit).
- Create the MRP forecast for this customer part in the consignment plant (i.e., you are forecasting that the inventory will be consumed from consignment, not from your local stores).
- Note: at this point, you do not have to have any firm Sales order entered… MRP Forecasting + minimum on-hand will drive the first fulfillment of consignment inventory.
Firm Job, and Make Product
- MRP will see that you are currently below the minimum in the consignment plant, and will generate suggested transfer order requirements from the manufacturer’s plant to consignment.
- MRP will then add these requirements to the minimum on hand specified in the manufacturer’s plant, and will generate “unfirm jobs” to fill these demands (even without a firm sales order).
Ship Transfer Order from the manufacturer’s plant
- This is a normal job in your local plant.
- When complete, the product is received to stock.
- Once in stock, it will show on the suggested transfer order shipments.
Receive Transfer Order into Consignment
- Transfer orders generate Transfer Order Packslips. These packslips show the address of the demand (the consignment plant). It is your paperwork that goes to the customer.
- Note that this is not a customer shipment…it is a transfer, because you are not transferring ownership, only moving inventory locations.
Consumption of Consignment Inventory
- This is done once you receive confirmation from the customer that they have received the shipment.
- This function actually takes the inventory out of “In transit” and puts it into the consignment plant.
Replenishing consignment locations (basically, Go to Step 2 above)
- In most cases, your customers give a report showing what items were consumed. When this happens, an order needs to be entered, shipped and invoiced.
- There are several ways that this can be done, but easiest is to create a new “counter sale” sales order. Counter sales allow for an order to be entered, “shipped” and immediately invoiced without all the extra processing.
- When you create the counter sales order, you tell the system that you are selling it from the “consignment warehouse” location. This then automatically reduces the quantity on hand in consignment.
- If there are a large number of parts consumed each day, then this could be automated with a Service Connect process to create and ship the orders. Alternately, an Excel spreadsheet could be copied and pasted into the counter sale section on the sales order.
- If the customer’s consumption above did not reduce inventory below the “minimum” on hand in the consignment plant, then nothing will happen.
- But, if it does reduce the on hand below minimum, then when MRP has its nightly run (see step 2 above), it will create another transfer order suggestion to move more inventory from your main stock to consignment.
While there are “urban legends” that Epicor ERP v9 and v10 cannot do consignment inventory because there is not a consignment module, this is not true, and as shown above, the actual steps are not difficult. In fact, once set up, the system will self-fulfill as the customer consumes the inventory. The manufacturer may need some help from an Epicor consultant in setting this up the first time, but once the model is complete, it can be easily replicated.
In the last part of this series, we will discuss how to verify the quantities and finish the contract for consignment inventory.
Posted by Tim Shoemaker, Senior Principal Consultant, Epicor Professional Services
Consignment inventory is inventory that is:
- Owned by the manufacturer
- Shipped to the customer, but not invoiced until—
- Consumption of the inventory is advised by the customer—at which time, it is invoiced.
Consignment and Epicor ERP v9 & v10
Epicor ERP (v9 & v10) does not have a “consignment module” per se, but it does support consignment very well, with well-defined procedures. For example, the method described below has been used by multiple companies in the aerospace industry.
There are several deviations from this model that can cause it to malfunction. We conclude this post by highlighting those pitfalls so they are not pursued.
Consignment with MRP-Multi-Site Advantages
By setting up consignment in the manner described here, there are many advantages and processes that can be managed within Epicor ERP v9 or v10. These include:
- Forecasting of consignment usage by location
- Management of minimum stocking levels by consignment location
- Management of minimum stocking levels at manufacturer’s location to fill consignment emergencies
- Automatic replenishment of minimum levels at the consignment location
- Ability to cycle count/physically inventory a specific customer’s inventory
- Easy shipment of “Transfer Orders” to move inventory to consignment location
- Material requirements for future consignment deliveries are still calculated based on the forecast that is entered into consignment
The Required Initial Setup
To process consignment inventory, there are several modules required, as well as some specific setups.
- Must have Material Requirements Planning (MRP)
- Must have Multi-site
- Must create a new “Plant” (in v9) or “Site” (in v10) to hold “Consignment Inventory”
Optional Setup Items
There are some decisions that are optional, depending on the customers, and the products that are shipping to those customers:
- You can set up either one consignment plant/site for the entire company, or one consignment plant/site for each Customer Ship-To. The reason is:
You can alternatively create separate cost tables for each plant. This allows the plant to have its own average cost. However, many companies do not want this to happen, and tie the costs of the consignment plant to the main plant.
- If you ship common assemblies to multiple consignment sites, then it is easier to track requirements if there is a separate plant for each location.
- But if there are no common parts between customers, then creating one plant (or site), with one warehouse for each customer, is sufficient.
Pitfalls of Skipping Steps or Incorrect Setup
As stated above, there are several pitfalls that are potential causes for failure and should be avoided:
- Some think that these consignment locations are supposed to be “non-net inventory”… this is not true. They must be considered “nettable” inventory in order for this to work.
- Ignoring forecasts, or putting forecasts in the wrong location.
Forgetting transfer lead time.
Entering sales orders against the wrong plant. All consignment usage must be “shipped” (consumed) from the consignment plant.
- Forecasts should always be entered, and they should be entered into the consignment plant.
- Forecasts are what drives the future purchases (and even manufactured job orders, if the lead time on purchasing/manufacturing is longer).
In the next post, we will discuss the consignment process in action.
Posted by Tim Shoemaker, Senior Principal Consultant, Epicor Professional Services
Attendees at the Insights 2014 Customer Conference were excited to see a preview of the updated Epicor Prophet 21 user interface that will be introduced in version 12.14.
Highlights of this version, expected to be GA in the coming month, include:
- .NET Ribbon bar for faster navigation to frequently accessed areas
- Improved readability
- A new history panel that remembers information recently accessed for faster recall later
- Completely re-designed tabs that are more spatially efficient, easily re-organized and navigable via keystrokes
- Tighter conformance to Microsoft design standards to promote consistency between the applications our customers utilize
*FORWARD LOOKING STATEMENT: This document includes descriptions of product functionality that is not presently available and thus constitute forward-looking statements. These forward-looking statements include statements regarding expected functionality, product release dates, competitive advantage and other statements that are not historical fact. These forward-looking statements are based on currently available competitive, financial and economic data together with management’s views and assumptions regarding future events and business performance as of the time the statements are made and are subject to risks and uncertainties. Actual results may differ materially from those expressed or implied in the forward-looking statements.
We touched on this topic in our last blog about software utilization; now let’s drill deeper into how to set up and apply this in order processing.
Accessory items are also commonly known as go-together items. A typical example would be when a customer calls and inquires about a flashlight. The Epicor Prophet 21 ERP system is capable of suggesting batteries that match this flashlight; possibly different kinds of batteries such as rechargeable, or alkaline. Why not list all options and automatically offer the ability to add to the order?
Other common accessory items include earplugs when a customer is buying safety gloves, tool holders when buying inserts, etc….the list is endless. So how do we get started?
The first way is in Item Maintenance. Simply add the battery options to the flashlight. We can also “scale” the batteries, so when the flashlight is ordered and batteries are added, the correct quantity is inserted; in this case, two size D batteries will be added. This can also be a 1:1 pairing.
The other way to pair up accessory items is with a job inside Epicor Prophet 21 to generate accessory items. Now we have plenty of options, starting with minimum percentages of orders to match to. You can determine the minimum percentage of orders for the parent item where the proposed accessory item was also ordered; i.e., if you always sold batteries 100 percent of the time you sold flashlights, the component batteries will be automatically added as accessory items.
You can also set other criteria for the parent, as well as for the accessory items: e.g., limiting to item classes and suppliers, or sales and purchase discount groups and product groups. On the component side of the criteria, we have the same options to filter, as well as service contract items.
Once the list is generated by performing a RMB (right mouse button) and selecting “generate accessory items,” you have the ability to uncheck items not wanted or needed, as well as scale them. Or if you want to auto populate the items in order entry, you can always unselect as needed. You also have the option to set the accessory unit of measure, and the parent unit of measure. Citing the flashlight and batteries example, this would be one EA light to one PK of batteries.
Remember, this is a great way to not only upsell the customer, but also to provide an easy method to add items needed to complete a task.
Posted by Neil VanWalbeck, Senior Professional Services Consultant at Epicor Software
Technology, innovation, and unsurpassed customer service have been the foundation of Guillen Plumbing Supply for over 40 years. Originally founded in 1973 as a leading plumbing warranty repair operation servicing all of Southeast Florida, the company has since evolved into a leading worldwide supplier and distributor of plumbing products, with a 2,500-sq. ft. showroom and warehousing complex based in Miami, Florida.
“Our goal is to be the most respected supplier in our industry,” says Veronica Guillen-Simon, Vice President. The company is committed to meeting client needs with advanced, just-in-time delivery programs, online ordering, e-mail invoicing, and powerful Web commerce tools that allow customers to easily access detailed pricing, availability, and account information.
Since September 2006, these goals have been supported by Guillen’s implementation of the Epicor Eclipse enterprise resource planning (ERP) software solution. Epicor Eclipse is designed to provide plumbing, HVAC, and electrical wholesalers with a powerful, transactional-based system for streamlining and tracking all purchasing, inventory management, and warehousing functions in real time.
See Veronica and other members of the Guillen Plumbing Supply family discuss the impact of the Epicor Eclipse solution on their business in this 4-minute video:
As discussed in the white paper Operational Guide to Implementing Lean in Distribution
, the concept of Lean
involves removing non-value-added wastes and increasing speed and efficiency. Lean is a journey in which an organization ascends to different Lean “maturity levels.” The initial focus should be on identifying waste and value in your business processes, from the time an order is received to the time the final payment is collected (or “from quote to cash”).
As your organization progresses and becomes more sophisticated in the use of Lean tools such as those described below, you can increase your time and efficiency gains. This striving toward perfection is a continuous process, with ongoing goals of delivering exactly what the customer wants, and repurposing your employees to deliver additional value to your customer. To succeed with Lean, you need to make it part of your culture.
A related concept, Six Sigma, refers to improving quality (as measured by customer expectations) to “near perfection” levels—reducing or eliminating variation. (“Sigma” is a statistical term that measures how far a given process deviates from perfection.) A highly disciplined philosophy and methodology, Six Sigma is broken down into the following phases, abbreviated as DMAIC:
- Define (the project charter, paying particular attention to the “Voice of the Customer”)
- Measure (the “as is”/current state of the targeted processes)
- Analyze (what the data is telling you)
- Improve (by piloting the proposed solutions in a small subset of the organization)
- Control (maintain the gains as you roll out the solutions more broadly).
7 Deadly Wastes
Many common tools exist between Six Sigma statistical analysis and Lean methodology; you can combine them to eliminate waste, which is is also called “Muda” in Japanese.
The first step in the lean journey is identifying what waste is, because once you know what waste looks like, you can try to reduce or eliminate it. The “seven deadly wastes” that can be seen in wholesale distribution are: Defects, Inventory, Over Production, Waiting, Motion, Transportation, and Over Processing. (An easy mnemonic for remembering these is: TIMWOOD.)
In distribution, Defects look like:
• Missed deliveries
• Shipping wrong parts
Inventory wastes include:
• Excess inventory
• Dead stock
• Not having the right inventory in stock
Over processing looks like:
• Double entry
• Filling out extra screens
• Double- and triple-checking items in every order
Waiting can look like:
• People waiting for unnecessary approvals
• Late shipments
• Customers waiting at your counter
• Taking more steps than needed in a warehouse or in the office
• Not having efficient truck routing
Overproduction can be thought of as:
• Not buying the right inventory to fulfill customers’ needs
• Putting too many features into a product (e.g., in kitting) that the customer did not want or need.
Some of the tools available to help you identify and eliminate as much waste as possible include:
This refers to creating controls for mistake- or error-proofing, leading to more predictable results and increased capacity. Mistake prevention must be a key business objective, but you can also readily see examples of this in your daily life; e.g.:
- Automated shut-offs on irons
- Ground fault circuit breakers for bathroom or outside electric circuits
- Childproof caps on medications
- ERP data fields that require input in a certain format
- Color-coded files
- Spell check in word processing
- Software questioning “Are you sure you want to delete?” after pressing the “Delete” button on your computer
- Dual Palm Buttons and other guards on machinery
- Bar Coding
- Fixtures, jigs, and templates
- Lock-Out / Tag-Out
“Go to Gemba” and “5 Why’s”
“Gemba” refers to the workplace, and the recommendation is to go where the work is actually happening, to visually identify what’s going on in a process. As part of this reality check, Lean Six Sigma advises using the “5 Why’s”: ask “Why” 3-5 times or more (or ask “What, Where, When, Who, How?” in addition to “Why?”) to drill down to root causes/issues, and get to something that’s actionable. Go after the biggest problems (as identified by employees) or biggest sources of revenue. Document the evidence/facts that led to the answer at each step, and then check the logic in reverse, from problem to cause. This leads to the development of effective and sustainable countermeasures or solutions.
Posted by Brent Gough, Sr. Business Process Consultant, Epicor Business Consulting Services
Supplier performance scorecards and supplier stratification modeling are related concepts, but very different in how they should be used.
A supplier performance scorecard program should be used between an organization and its suppliers as a means of evaluating the performance of the suppliers against mutually agreed upon or accepted criteria.
A scorecard or performance measurement program is critical in the development and maintenance of supplier relationships, as it provides quantitative measurements that can be used to engage suppliers about improving their performance and incentivize them to do so (especially if high scores mean new opportunities for the supplier). Having a program that is well developed and executed helps keep suppliers focused on their internal process improvements, which will ultimately impact your organization’s business goals.
Supplier stratification should be an internal metric, where an organization takes other criteria (one of which can be the scorecard metric) and combines them to rank its suppliers.
Stratifying the supplier base of an organization allows for collaborative partnerships to be formed through the segmentation of the supplier base into smaller and more manageable categories. This feeds directly into the concept of strategic supplier relationships, in which you will be able to identify the suppliers that your organization targets to do business with, the ones the organization must do business with, and the suppliers that the organization could likely do without.
Many organizations that attempt to stratify their suppliers do so based on only one or two factors (usually landed cost and cost of goods sold). A more comprehensive methodology is a combination of taking the final rank from the supplier scorecard exercise and then adding a few more factors, as shown below.
Successful implementation of these concepts can have a positive impact on supplier relationships, operational efficiency and improvement of EBITDA. To learn more about these topics, including scorecarding criteria and reasons for stratifying suppliers, read the two-part series on supplier performance scorecards and supplier stratification recently published in Industrial Distribution.
Posted by Brad Vance, Senior Business Process Consultant, Epicor Software
Year-end is a perfect time for distributors to review their current Enterprise Resource Planning (ERP) software utilization. Here are some suggestions to get started.
First, make sure to stay current on the software build, confirming that you can indeed update. (Some blocks could be custom software and the like.) Many of the new features that come in with each Epicor Prophet 21 software build often go unnoticed. Make a list of each new feature with each build that you have missed by not staying current. Work through this list as to what is important, and what can save you time.
Then review your day-to-day processes. Ask questions such as, “Can we design the order entry screen with the new Epicor DynaChange features, adding new fields, moving fields with Field Chooser, creating a faster way to add carriers’ order types, and so on?”
Even more important is Demand Replenishment Planning—purchasing options for long lead times. Many times, buyers may be “tagging” items to be handled differently for long lead times, and then they extract data and manage it in Microsoft Excel. But these long lead time items can actually be managed directly in Prophet 21.
Smaller options such as item class and customer class will enhance reporting for items that need deeper review than just product groups. What about territories on customers? Did you know you can actually print invoices and sales history reports by territories?
Discount groups are available for possible use in sales pricing, as well as supplier price libraries. Are you using the “next break” option in purchase requirements generation, where the system can tell the buyer if buying up to the next break in quantity is a good investment or not? And are you combining customer libraries into your customer contracts?
What about “Go-Together” items? This feature is a great way to have the system add items that have previously been sold together, such as batteries with flashlights, so inside sales can recommend additional purchases. Of course, the sales staff knows to do this, but having the items pop up so they do not need to type them in is a big timesaver.
Image: As a customer order is placed for a Face Mask, Prophet 21 suggests that it “goes together” with Gloves.
How many of you use the available CRM (Customer Relationship Management) options: entering opportunities, seeing these opportunities in order entry, and tracking lost opportunities to competitors?
Looking at warehouse options, you can always rank your inventory by how many times you pick the items, making sure these items are stored close to the shipping area of the warehouse.
There are many options in accounting, as well, such as controlling customers’ credit, tracking ARO days, and ranking customers by sales and/or profits.
Implementing these options does not have to be an overwhelming task. With the help of a Business Process Consultant from Epicor, you can design an internal continuing education class for your users, focusing on shortcuts and new features.
Posted by Neil VanWalbeck, Senior Professional Services Consultant at Epicor Software Corporation
According to a post on The Data Warehousing Institute, this year’s major trends in analytics were expected to focus on delivering the data and capabilities needed to become a truly analytic-driven enterprise. The organization calls out three top trends:
- More organizations will move to cooperative processing architectures.
Data warehouses are straining from the surge of new data and complex analytic workload requirements. Traditional data warehousing wasn't designed for big data or real time, social, and converged analytics, so the new expert-recommended architectures emphasize multiple, well-integrated systems working together to deliver a broad range of analytic capabilities.
- Converged analytics will become the new normal.
Big data analysis in a silo often paints an incomplete picture. That is why organizations are now moving toward converged analytics, combining analytic results across domains
(customer, supply chain, marketing, etc.) for more complete insights.
- Everyone will play with big data, thanks to new big data applications.
Big data has been decidedly DIY to date, embraced by tinkerers and architects. That's about to change. New big data applications offer prebuilt models and analytic functionality for specific business problems and data types. They are focused, single-purpose applications that can make a big impact on businesses, such as analyzing sensor data from a particular type of machine, or sifting through supply chain data to identify potential “weak links.”
Additionally, a recent article from Information Week notes that big data analytics is increasingly becoming a topic of focus for chief financial officers (CFOs). It quotes Hewlett-Packard’s Thomas Dobis, acting global finance and account service line leader of business process outsourcing (BPO) at HP Enterprise Services, as saying CFOs are increasingly using big data analysis to control collections, customer retention, and fraud and loss, among other money-related matters.
But a number of recent articles are sounding cautionary notes on the rise of big data and data analytics. In a piece titled “Don’t Be Blinded by Big Data,” Michael Healey, senior contributing editor at Information Week, points out that making decisions based on flashy macro trends while ignoring "little data" fundamentals is a recipe for failure:
In most organizations, big data mining prioritizes activities such as social media monitoring and macro trend analysis—the shiny stuff that can dazzle even experienced executives—while sidelining routine "little" data, which includes detailed financials, customer and vendor records, product quality information, customer service data, and supporting sales stats such as store traffic, website visits, and CRM information.
That there is a revolution underway in big data and data analytics is not in debate. The question is the nature of the transformation, and how people and organizations will ultimately be affected by it. In the quest for big data, it is important not to lose sight of your key business drivers, such as inventory and customer service. Focus on gathering and analyzing the information that will have the most impact on your bottom line.
Posted by the Epicor Social Media Team.