LECTURE NOTES ON MODERN TECHNIQUES

OF MATERIAL MANAGEMENT:JIT/SAP/ERP
Ramun Prasad†*
(Lecture No. -38, 39 & 40)

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Recapitulate

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Learning Outcomes
After this session students will be able to:

- Explain the Just in Time (JIT)

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- Describe the System Applications and Products (SAP) in data processing.

- Describe the Enterprise Resource Planning(ERP).

- Discussed the importance of modern techniques in material management.

- Define SAP.
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- Explain the need of an ERP System.

Introductory Treatment to JIT/SAP/ERP

1 Just-In-Time (JIT)
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Just-in-time (JIT) is an inventory strategy implemented to improve the return on investment

of a business by reducing in-process inventory and its associated costs. In order to achieve
JIT the process must have signals of what is going on elsewhere within the process.

Just-in-time (JIT) inventory system (is also known as just-in-time production or lean man-
ufacturing or the Toyota Production System (TPS)) is a management strategy that aligns
raw materials orders from suppliers directly with production schedules. It aims primarily at
reducing flow times within production system as well as response times from suppliers and
* Lecturer,Department of Humanity (Economics), Government Polytechnic, Gaya, Bihar
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E-mail: ramuncup@gmail.com, Homepage: https://ecoramun.wordpress.com/
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©Govt. Polytechnic, Gaya

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to customers. Its origin and development was in Japan, largely in the 1960s and 1970 and
particularly at Toyota.

1.1 Concept & Issues of JIT

• Just-in-time (JIT) Production system is a production system where only the necessary
products, at the necessary time, in the necessary quantity are manufactured and stock
on hand is held to a minimum.

• JIT based manufacturing systems emphasize the importance of developing an inven-

tory system that ensures smooth flow of materials within the production system at the
plants.

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• JIT based inventory systems primarily controls raw materials and Work in process
(WIP) inventory levels for dependent demand items.

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• It attempts to control and minimize the waiting times or queuing times and achieve an
ideal lot size of one unit.

• JIT based systems is based on a philosophy of production where inventory is consid-

ered undesirable.
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• JIT based manufacturing systems was developed by Toyota Motor Company, and
one of the key areas of Toyota Production System (TPS).

The Objectives of Toyota Production System (TPS) are as follows:

(i.) Reducing costs by eliminating all kinds of wastes.

(ii.) Making it easier to achieve and assure production quality.

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(iii.) Attempting to create work sites that respond quickly to change.

(iv.) Organizing work sites based on human dignity, mutual trust and support, and allowing
workers to realize their potential fully.

• TPS covers a number of areas: process design, job design and job standardization;economic
lot size and accelerated set up times; just in time production automation; kanban/andon;
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and Yo-i-don.

• The most distinctive and dominant among these areas is the Just-in-time production
system.

• One of the key elements of JIT production system is the Kanabn system, the appli-
cation of which ensures a smooth flow of materials among production stages with
minimum level of raw materials and WIP inventory even under highly fluctuating de-
mand condition.

• A pull type production system is used to respond effectively toward a fluctuating de-
mand situation.

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• JIT based production system is capable of minimizing or eliminating different types

of wastes. These wastes are grouped under three categories: Muda (waste), Mura
(unevenness) and Muri (overburden).

• In a typical production system, wastes are classified in seven types: correction, over-
production, unnecessary processing, conveyance or material handling, unnecessary
movements, waiting, and inventory.

• The main advantage of implementing JIT-based inventory management are three-fold:

minimum cost, maximum quality, and minimum throughput time.

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1.2 Kanban System:
• Kanban is Japanese word meaning ‘Visible record.’

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• Toyota developed the kanban system. In this system, a set of cards travel between
preceding and succeeding processes/production stages communicating what parts are
needed at what quantities at the subsequent processes.

• It is used to move materials driven by the usage of parts and to control WIP, produc-
tion, and inventory flow.
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• Two types of Kanbans are commonly used: (i) withdrawal (or conveyance) kanban
(ii) Production kanban.

• The primary function of withdrawal kanban is to pass the authorization of movement

of parts from one centre to another.

• The primary function of production kanban is to release an order to the preceding

process/stage to produce parts equal to the lot size specified on the card.
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1.3 Benifits of JIT-based Production and Inventory Control System

• There are many benefits a company may have if JIT-based system is implemented.
The main benefits are as follows:

(i.) Increased productivity.

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(ii.) Reduced lead time.

(iii.) Reduced setup.

(iv.) Less scrap and rework, and hence reduced requirements for raw materials and machine
capacity.

(v.) Less WIP.

(vi.) Increased worker and equipment efficiency.

(vii.) Improved quality.

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1.4 Barriers to JIT Implementation

• Implementation of JIT system may be difficult in many situations. A total system
approach is needed and hence, implementation depends on the level of integration
and teamwork needed.

• A few problems in this context is worth mentioning:

i. Difficulty in knowing exact demand of an item at particular stage in a given time
period.
ii. Equipment failures becoming uncontrollable.
iii. Frequent changes in production plans.

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• However, even if these problems some across, with concerted effort and following
principles of JIT implementation, there have been several instances where JIT-based

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systems implemented in several functional areas, such as manufacturing, engineering,
purchasing, marketing, quality control and assembly.

• The equivalent European system, called lean engineering can also be implemented.

2 System Applications and Products(SAP)

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2.1 Concept & Overviews
• SAP stands for Systems, Applications and Products in data processing.It is a system
that controls and manages entire resources in a company, form manufacturing, finan-
cial assets, to human resources and logistics management. The Knowledge obtain
from SAP is helpful to perform enterprise resource Planning (ERP) activities.
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• SAP is one of the world’s leading producers of software for the management of busi-
ness processes, developing solutions that enable effective data processing and infor-
mation flow across organizations.

• SAP was Founded in 1972 by Wellenrethur, Hopp, Hector, Plattner and Tschira. The
company was initially called System Analysis Program Development (German: Sys-
temanalyse und Programmentwicklung). But in 1977 it was renamed as Systems
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Applications and Products i.e. (SAP). Since then, it has grown from a small five-
person startup to a multinational enterprise with more than 100,000 employees and
over 440,000 customers in 180 countries. Its global headquarters is in Walldorf, Ger-
many.

• With its original SAP R/2 and SAP R/3 software, SAP established the standard for
enterprise resource planning (ERP) software. SAP S/4HANA takes ERP to the next
level by using the power of in-memory computing to process vast amounts of data
and support advanced technologies such as artificial intelligence (AI) and machine
learning.

• The company’s integrated applications connect all parts of a business into an intelli-
gent suite on a digital platform. Today, SAP has more than 215 million cloud users,

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more than 100 solutions covering all business functions, and the largest cloud portfolio
of any provider.

• SAP modules Integration ( SAP R/3) can be demonstrated with help of following
figure:

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Figure 1: SAP modules in SAP R/3

Source: http://iced.cag.gov.in

2.2 What is SAP Software used for?

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Traditional business models often involve decentralized data management, with each busi-
ness function storing data about its operations in a separate database. This means that em-
ployees from other business functions cannot access the information, and duplication of data
across multiple departments increases IT storage costs and the risk of data errors.

By centralizing data management, SAP software provides a single view of the truth that
is used by multiple business functions. This helps companies to manage better to complex
business processes involving different departments by giving employees access to real-time
insights across the enterprise. As a result, businesses can accelerate workflows, improve
operational efficiency, raise productivity, enhance customer experiences – and ultimately
increase profits.

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2.3 Benefits of SAP Software used for?

• Customized solutions: Since the needs of every company are different, each gets a
customized system.

• Increased Productivity and Efficiency: With real-time information, employees do

more work and handle customer queries faster. Different departments communicate
effectively since all the information is up-to-date.

• Cost Efficient Use: For the price of one, a company gets a system that operates in
each department. It reduces the cost of labor by making sure everyone is working at
the right time. This helps to reduce administration costs as well.

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• Data Analysis and Reporting: It is tough to rely on people to provide accurate data
analysis and reports. Human error can cost your business a lot of money. An ERP

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system takes the risk out since there is no data duplication.

• Maintain consistent operations: With a SAP ERP system, managers direct all de-
partments to achieve the same goals. This speeds up the decision-making process.
You can make system updates centrally and it applies to every department.

• Less documentation.
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• Fast processing of sale and purchase.

3 Enterprise Resource Planning (ERP)

3.1 Introduction
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• ERP stands for “enterprise resource planning (ERP).” ERP is a process of managing
all resources and their use in the entire enterprise in a coordinated manner.

• In early 1990’s, the Gartner Group first used the acronym ERP. By mid–1990’s, ERP
systems addressed all the core enterprise functions.

• The practice of consolidating an enterprise’s planning, manufacturing, sales and mar-

keting efforts into one management system.
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• Combines all databases across departments into a single database that can be accessed
by all employees.

• ERP automates the tasks involved in performing a business process.

• ERP software includes programs of all core business areas, such as procurement, pro-
duction, materials management, sales, marketing, finance, and human resources (HR).
SAP was one of the first companies to develop standard software for business solu-
tions.

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3.2 Major Reasons for Adopting ERP

• Integrate financial information.
• Integrate customer order information.
• Standardize and speed up operations processes.
• Reduce inventory.
• Standardize Human Resources information.

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3.3 Typical Business Process: Key Observation

• A typical enterprise has many departments/ business units (BU).
• These department / BU continuously communicate and exchange data with each other.
• The success of any organization lie’s in effective communication and data exchange
within the departments/BU as well as associated third party such as vendors, out-
sourcers and customers.

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• Also known as Decentralized System.

3.4 Problem with Decentralization System

• Numerous disparate information system are developed individually over the time.

• Integrating the data becomes time and money consuming.

• Inconsistences and duplication of data.

• High inventory, material and human resource cost.

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3.5 Functions of ERP?

An ERP system typically performs the following functions:

• Supports the integrated business process inside the organization.

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• Improves capital planning and helps in executing organizational plans and strategies.
• Helps speed up the decision-making process over the analysis of accurate data.
• Helps extend the business network to wider domains, expanding the products and
services to reach more customers, suppliers, and partners.
• Identifies operational risks to improve governance.
• Provides protection against organizational data breaches and security threats to leak-
age of information.
• Makes the organization adaptable to the rapid changes in the business process accord-

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ing to the needs.
• Gives long-term profit by providing means to increase the customer base.

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3.6 Advantages of ERP
By integrating the business processes, the ERP offers the following advantages:
• Saves time and expenses.
• Allows faster decision-making by the management, utilizing the data and reporting
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tools designed in the systems.
• Single data source and sharing of data among all the units of an organization.
• Helps in tracking every transaction that takes place in an organization, from starting
till end.
• Supplies real-time information whenever required.
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• Provides synchronized information transfer in between different functional areas such

as sales, marketing, finance, manufacturing, human resource, logistics, etc.

3.7 Disadvantages of ERP

It is not always easy to incorporate ERP in an organization. ERP suffers from the following
drawbacks
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• Sometimes business processes critical to an organization are to be re-engineered to

align them with an ERP solution.
• Cost of complex integration can be very high.
• Switching from one ERP solution to another increases the implementation cost even
further.
• End-users are to be trained for their daily operations.

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3.8 Difference between SAP & ERP

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3.9 How does ERP Software work?

With centralized ERP software, all employees make updates using the same data platform.
They can also view data entered by other departments to complete tasks more efficiently.

For example, when receiving a call about a potential order, a sales team can immediately see
whether there is enough stock and can quickly confirm the sale, providing efficient customer
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service. Once the order is placed, the ERP system automatically triggers a billing process in
the finance department. It also automatically updates inventory information in real time.

Based on inventory levels, a production planning team can schedule the manufacture of
new products so they can fulfill the order, with HR getting an immediate update on any
additional resources that are required for this activity. Using the same inventory informa-
tion, a procurement team can see if there are enough raw materials in stock to complete the
planned manufacturing activity. If not, they can then source the materials in a timely manner.

By integrating processes across different business functions in this way, each team is up-
dated about upcoming requirements as soon as possible, resulting in more efficient business
processes and increased customer satisfaction.

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4 Conclusion
During this session, we have discussed about JIT, SAP and ERP and learned that:-.

• JIT based production system attempts to reduce the costs by eliminating all kind of
wastes, assure production quality and keep minimum stock in hand i.e. inventory is
considered undesirable.

• Now a days, businesses wish to impement an ERP system as they want to enhance the
internal business processes and overall business performance.

• A SAP-ERP system help to reduce the companies labour costs, IT expenses, also it

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improve interactions between various departments and teams, avoid data duplication.

• Even an ERP system helps to make the payments on time which in turn prevents the

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company from probable legal actions.

In the next lecture, Project management(Unit-07) would be discussed.

5 Questions for Self-Assessment

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1. What is Just in Time (JIT)? Explain it.

2. Describe the System Applications and Products (SAP) in data processing..

3. Describe the Enterprise Resource Planning(ERP).

4. Discussed the importance of modern techniques in material management.

5. Define SAP.
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6. Explain the need of an ERP System.

6 Glossary
ERP: Enterprise Resource Planning (ERP) is a software that is built for organizations be-
longing to different industrial sectors, regardless of their size and strength. The ERP package
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is designed to support and integrate almost every functional area of a business process such
as procurement of goods and services, sale and distribution, finance, accounting, human re-
source, manufacturing, production planning, logistics & warehouse management.

JIT: The just-in-time (JIT) inventory system is a management strategy that aligns raw-
material orders from suppliers directly with production schedules. Companies employ this
inventory strategy to increase efficiency and decrease waste by receiving goods only as they
need them for the production process, which reduces inventory costs.

SAP: SAP is one of the world’s leading producers of software for the management of busi-
ness processes, developing solutions that enable effective data processing and information
flow across organizations.

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Lot size: Lot size refers to the quantity of an item ordered for delivery on a specific date or
manufactured in a single production run. In other words, lot size basically refers to the total
quantity of a product ordered for manufacturing. A simple example of lot size is: when we
buy a pack of six chocolates, it refers to buying a single lot of chocolate.

Economic Lot Size: The optimum purchase (or production) quantity which minimizes the
combined total cost of carrying inventory and processing additional purchase orders (or pro-
duction setups) is called Economic Lot Size.
The order quantity is generally called lot or lot size. Economic Lot Size (ELS) refers to the
best lot quantity to make the total cost minimum by considering the balance between order-

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ing cost and inventory carrying cost, which are contradictory. As shown in the figure, for
example, the larger the lot size is, the higher the average inventory level is and its inventory
carrying cost also increase by a certain ratio. But the ordering cost a unit decreases because

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the transportation and logistics costs are allocated to many items. On the other hand, the
smaller the lot size is, the lower the average inventory level is. However, on the contrary,
the ordering cost a unit increases. When the total cost of ordering cost and inventory car-
rying cost is minimum, the lot size is the most economic. Economic Lot Size is also called
Economic Order Quantity and is calculated by means of the following formula:
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Source: https://www.asprova.jp/mrp/glossary/en/cat248/post-694.html

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References
[1] (https://youtu.be/syaKsBLn8xo)

[2] (https://news.sap.com/what-is-sap/)

[3] (https://www.tutorialspoint.com/sap/sap_tutorial.pdf)

[4] (https://youtu.be/1HlWwXXJLNs)

[5] (https://youtu.be/NzyhYxUCjlg)

[6] (https://youtu.be/p7-YoB7eP9E)

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[7] (http://iced.cag.gov.in)

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[8] (https://economictimes.indiatimes.com/)
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