Managing material flows in ERP systems

Author: Nikolay Dragomirov, Ph.D

Managing material flows in ERP systems

Methodological description of an Innovative class or educational game

(A standardized template for instructions to teaching staff)

Overview

ERP systems are becoming increasingly important to today’s business organizations. At their core, they are an integrative software solution for unified management of multiple processes within the organization. This type of system integrates a number of activities from the functional areas of the organization – marketing, logistics, finance, and human resources. The conceptual form of these systems puts the management of material flows first, with the other activities organized around it. A key point is inventory and the management of incoming and outgoing issues. This type of system, unlike Warehouse management system (WMS), does not cover in detail the warehouse systems processes; instead it focuses on purchase orders, delivery & receiving, sales orders, orders preparation, and processes related to them – financial, human resources, etc. With these systems, synchronization of the functional areas involved in the main processes that generate value for the organization comes first. This type of system is turning into a benchmark and an indispensable element for every business, so full understanding of their role in the integration of individual units in the organization and the automation of their work is a must.

Objectives

The game’s objective is to demonstrate the capabilities of ERP systems for organizing the workflow of various units in the business organization, with material inflows and outflows being the key points. The participants in the game have the opportunity to learn about the automated processes in the organization, the improved information exchange and communication, as well as the management of material flows through informational ones. A key moment in the game is clarifying the relationship between material flows and software by illustrating the need for a match between actual stocks and those in the software system.

Group Size

Single group size 4-8. It can be done in 2 groups that are simultaneously competing for time and minimal discrepancy between actual stocks and those in the software system.

Time requirements

1 – 1.5 hours, depending on the size of the groups.

Set Up

What materials and other preparations should be made in advance before the class. Add images & URLs if needed, for easier understanding.

The participants are presented with the conceptual scheme of the main processes in the ERP system in terms of material flow management. Their attention should be directed to the orders made to the suppliers and the deliveries, as well as to the client orders and shipping. It is important to clarify again the relationship between material and information flows in logistics. Students can join the groups as listed below or participate individually (it is preferable that they be separated):

• Purchase manager/s
• Warehouse inbound materials receiving
• Sales manager/s
• Warehouse order preparation

The teacher organizes the work of the supplier and the customer. The role of material flow can be illustrated with tokens, small boxes, balls, etc. Each unit to be processed is represented by the respective object.

Procedure

Step-by-step detailed description of all activities to be carried out in order.

Each group has its own tasks, as follows:

• Purchase manager – keeps track of inventories and prepares purchase orders to suppliers. The only function throughout the game is to monitor inventories in the system without communicating with the others.
• Warehouse inbound materials receiving – receives deliveries in compliance with the orders in the system.
• Sales manager – makes orders based on actual customer demand.
• Warehouse order preparation – prepares orders.

No participants should communicate during the game. A step is selected when it can take place, for example, every five minutes. The number of steps depends on the course of the game.

1. At the beginning of each period, the teacher requests from Purchase manager the order for the period. The relevant manager must take into account inventories and future demand, which is unknown.
2. At the same time, the teacher submits an order (exact quantity is not revealed to the others) to the Sales manager that the Purchase manager does not know about.
3. Using a larger box (for the tokens, small boxes, balls…), he makes the delivery to Warehouse inbound materials receiving and there are different possible situations:
4. The amount corresponds to the one ordered.
5. The amount is higher.
6. The amount is lower.
7. The teacher goes to Warehouse order preparation and takes the prepared order, which may correspond to the order or there may be a discrepancy like in the previous step.

Directions

During the game:

1. No communication between the teams.
2. Only the information system is used.
3. To Purchase manager – try to use knowledge from Inventory Management disciplines.
4. To Warehouse inbound materials receiving – monitor the quantities of deliveries and the ordered quantities.
5. To Sales manager – Monitor whether you have enough stocks before placing an order.
6. To Warehouse order preparation – monitor the proper execution of orders.

A key point is the quantities that will be ordered and sold. The teacher can significantly influence them by changing them dynamically to make the system go into situations of low stocks. Participants are initially informed that customer demand is in the range of 5-10 units per tour. Deliveries can be a minimum of 10 and a maximum of 30. No prior quantification is required. The teacher only needs to cause a discrepancy between ordered and actual quantities every 2-3 deliveries. The problem that will arise is related to poor coordination with the information system. In an effort to perform the activities within the stage, mistakes are made in the physical acceptance. (Over the course of the game, the time for the step can be reduced so that more players can participate.) For example, when ordering 10 units from Purchase manager, the supplier delivers 9, but 10 are credited in the system, creating a discrepancy in the stocks of 1 unit.

As the game progresses, the discrepancies increase and the teacher can cause a breakdown in the system at their discretion – an order is placed, which is feasible according to the system, but is greater than the actual stock in the system. At this point, it is appropriate to stop the game and make an analysis.

Debrief

Why did the game come to this end? Question to the audience. Guiding questions: 

• What difficulties did you experience?
• Who’s to blame?
• How could this outcome have been prevented?

The answer is the discrepancy between actual quantities and those indicated in the information system. How did this come about? Discrepancy between the quantities in the warehouse and in the system – errors in the warehouse system – not reflecting the real material flows.

That is why, in logistics, it is important to trust the information systems because material flows are managed through the information flows. Therefore, it is important for real quantities of material flows and values in the information system to match. It is also necessary to carefully monitor the values that the information system expects and what is actually received / shipped.

Variations

Depending on the particular situation, it is possible for the game to be made more complicated or easier at the teacher’s discretion by collapsing or emphasizing the key points.

The article is part of the development of a study on the application of the game approach in logistics and transport training (Output title O4) under the Erasmus+ strategic partnership project “Building an innovative network for sharing of the best educational practices, incl. game approach, in the area of international logistic and transport”, Project number: KA203/HE25/13.09.2019