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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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