How ERP System (Oracle) Facilitates Companies in Auditing Process

How ERP System (Oracle) Facilitates Companies in Auditing Process

Technology is now playing a pivotal role in our day to day life matters. There is no doubt in it that usage of technology makes our life not only easy but more productive too. We can now handle multiple tasks at the same time which were not possible in the past. If we talk about oracle software (ERP system) then it’s also one of those inventions which gave us relieve and productivity in our daily work life. An oracle software is extensively using in most of the manufacturing and services industries.

The textile industry is also one of those industries which are getting multiple benefits from this technology. As it’s not only fulfilling the needs of finance but along-with that it’s also performing productive functions of accounting too. In general, if we closely look into the broader prospects of ERP system. Then it covers recording, summarizing and interpreting of accounting and finance data into more precise and efficient manner.

Why We Need ERP System (Oracle)?

The beauty of ERP system is that even an ordinary user can easily understand it within no time. And if we talk about the cost of ERP system then there is no doubt in it that it’s a bit high. But when we compare it with its benefits then it outweigh the cost from all aspects. Most of the big textile firms have their own internal audit functions due to the magnitude of financial transactions. Internal audit department uses different tools to carries out the audit of finance and accounting function. And this could only be fruitful if company uses highly integrated software system. The technology which is not only helps to summarize the data within no time. Along with that the authenticity of the summary/result could not be challenged anywhere.

ERP system makes life easier for auditors as it provides the best solution for auditing of financial and accounting transaction. Since the big organization’s transaction magnitude is so huge. So, the small or less integrated software cannot give the ultimate results in terms of speed and accuracy.

The usage and importance of technology varies company to company. In public limited companies, where people have invested their life savings in shape of investment in shares. So, being investors, they expect accurate, transparent financial position of the company time by time. The external auditors are normally hired by the shareholders to know the exact position of the company. These auditors have task to provide their opinion on the financial data of the company. If the company uses oracle then it makes it easier for external auditor to form their opinion on the financial data. Since there is no question about the accuracy and functionality of this highly sophisticated technology. So, the required outcome is normally obtained without any hassle.

Internal Audit of Purchases through ERP System:

The progress of company normally matters on different factors. A good marketing and production team cannot assure this thing that a company will progress. The financial and purchasing departments are also equally responsible for getting positive outcome. And for a company, the outflow of money equally concern as inflow of money. Because if you don’t have any appropriate check and balance on your financial activities. Then the efficiency of your sales and production teams couldn’t drag the organization on the way of progress. The ERP system didn’t ignore this important aspect too and it also efficiently manages the outflow payables of the organization.

Purchases Audit in Textile Company:

In order to know the in-depth of ERP system, we have to review the complete procedure that how it works in an organization. Let’s take the example of  Textile Company where most of expenses are on material requisition. When an audit of purchases carries out, you need to make sure that you have access to all modules in ERP. And it includes: Purchase requisition (PR), Purchase order (PO), Inward gate pass (IGP), Goods receipt note (GRN), Purchase Invoice (PI) and Purchase invoice voucher (PIV). Once you have complete access on these modules then it will really helpful to view the whole trail of transactions. Auditing these modules shall help to make opinion whether the purchases acquired through systematic procedure.

The purpose of purchase audit is to ensure that expenditures on purchases are actually for the use of the business. Further, we need to check this thing that all the materials are purchased according to agreed cost and units. In some firms, this audit is also called as reverse costing which gives the management about the clear picture of order after dispatch.

Where to Start?

The auditor normally starts with purchase order which is actually a main reason of every activity of order processing. After having the purchase order, he needs to the see all the purchase requisitions which were raised during order processing. And these are mainly includes; fabric requisition, accessories and trims requisitions etc. The purchase requisitions (PR) normally issued by marketing department who is responsible for delivery of goods to Customer. All the PRs normally signed by authorize person of department. The main motive for auditing the PRs is to check whether quantity and cost is in accordance with agreed value.

Purchase Order:

Once purchase requisitions are audited then the auditor normally moves on to Purchase department’s purchase orders. These purchase orders are normally issued against the purchase requisitions by the marketing department. While auditing purchase orders, the auditor is more curious about the quantity and unit price of the material. As these two things must be approved by the authorized person of the top management. All the purchase orders normally have an authorization person’s name on it. The good thing about ERP is that Purchase department’s POs fetches data from PRs. If there is no purchase requisition then no purchase order can be generated. So, the probability of extra or useless buying is not possible if you are using ERP system. But here the auditor normally reconfirms the quantities which are fetches from purchase requisitions.

Inward Gate Pass: 

Inward gate pass (IGP) is normally formed when goods arrived into production facility.  The IGP only signifies the date and time of arrival of goods against specific purchase order. It also shows the total quantity received against PO though. IGP is a proof of a delivery arrival which normally confirms that goods are delivered against specific PO. As the purchase order number is normally mentioned on the IGP. The Auditor normally needs to cross check the quantities of IGP with respect to its generated purchase order. In ERP system, IGP fetches data from purchase order so that each every received unit is checked under the light of demand paper.

Goods Receipt Note:

Goods receipt note is normally created when store & inventory department counted the material quantity. During Audit, the auditor checks the GRN to ensure that it has relevant PO, Quantity, Unit price. Further, he also checks this thing that all the documents are duly signed by the authority that controls the Store & inventory department. ERP integrates GRN with PO and IGP. So, GRN cannot be prepared until or unless the approvals of purchase order.

Invoice Posting:

The auditor needs to reconfirm whether the invoice posting against the PI is correct. Whether, it has proper tax rates, net values traces back to GRN and PO? If these are correct then make sure that PIV prepared on the basis of the whole data correct also. PIV had the correct nominal account in debit side with corresponding credit side. i.e. Purchases and Trade creditors. All these checks is normally performs within no time while using ERP system. Since, the integration of all document into one system can make this thing possible to compare and check value easily.

Opinion: 

An appropriate opinion can be made when an efficient audit is carried out through ERP which integrates each purchasing activity from purchase requisition to stock stacking. Although cost of implementation and maintenance of Oracle is high but the benefits are long lasting from every aspect.

 

ERP system

Is Old ways of Sourcing in fashion industry Still Key to Success?

 

sourcing in fashion

By definition, sourcing is a process through which something is obtained from another place. So, the sourcing in fashion industry is process to procure apparels from other best resources. The sourcing decision is normally made on the basis of several factors. Although sourcing of anything is not a simple task. That’s why, the concern people always first try to make/develop the product by their own. If the production of particular product is not cost effective, non-availability of skills, unsatisfactory suppliers or vendors then they have to go for sourcing. There are four factors on the basis of which one can decide whether to make or source the product. And it includes cost, production capability, quality and lead time of the required product.

Cost: In some products, the product cost is not as cheaper as compare to the outsource supplier. It could be due to several factors like cheaper labor availability or cheaper raw material cost due to several suppliers. So, in this particular case, you better decide outsource the production instead of in-house manufacturing.

Production Capability: Every territory and geographic location has its own characteristics and benefits. If we consider the apparel industry examples then some areas have skilled labor of top items (jackets, upper, shirts etc). Whereas, some are good in washing capability due to its good water PH value and labor proficiency. So, here in this particular case, again you will have to make fashion sourcing strategy according to the product characteristics and classification.

Quality:  Quality is no doubt the foremost requirement of every client. If you are compromising on product quality due to unskilled labor or usage of sub-standard raw material. On the other hand, you could have option to procure the better quality with same cost. Or by paying some extra pennies for better quality from contract manufacturing. Then your first choice would be none of the other to outsource the product.

Lead Time: The product lead time is also really crucial in product development process. Some companies have expertise and running regular orders in specific products. Such companies can offer you not only competitive prices of those products but also give you a short lead time. So, in that particular case, you will definitely choose outsourcing option.

Sourcing in Fashion Industry:

The sourcing in fashion industry was use to follow the traditional ways. In which the main motive is to reduce product cost through selection of cheapest manufacturers. And in order to get cheap manufacturing vendors, you have to look for in less developed countries. This is why, the fashion industry gradually moved from west to Eastern Europe to Asia and Africa.

With the passage of time, the ways of production and processing is changing and improving. The research and development teams are continuously focusing on time high quality product with low cost. In order to reduce the cost, instead of human being, the robots are working in many industries. So, by adding these automation options, one can control his/her day to day increasing labor cost. But practically speaking, its not possible to implement it on all operations of the fashion industry. Because due to fast fashion, every time you will have to change your production lines and flow drastically. But if this addition happens practically then it can affect 231 million manufacturing jobs at risk in almost 50 countries of the world. Anyhow, it’s a long debate which can distract us from our original topic i.e. sourcing in fashion.

Sourcing in Fashion: Automation & Digitization

Furthermore, through technology the sourcing in fashion can also be cost effective as well as fast.  The R&D people also suggested some new ways through which sourcing in fashion operation can handle efficiently and even effectively. And as per them, there are two ways which can revolutionize the fashion sourcing world and it include as follows:

Digitization in Sourcing:  

It’s the requirement of every client for more transparency in production and material sourcing. Along with that everyone is demanding for shorter lead-time and increased production. All of this can happen by the help of digitization in sourcing. As per the current market scenario where speedy but customize production trend is getting hot. So, you can’t meet the market trends without digital support. The sourcing in fashion with digital mode has positive impact on China which is a big player in textile sector. Since the wages are increasing in China so it’s time to move brand manufacturing outside China. In this particular matter, digitization will help the Chinese manufacturers to streamline its product cost.

In-fact, sourcing digitization will empower the client to speak more effectively. As per the experts, there will be a time when people place customize apparel orders through their mobiles. These order will digitally sent to the manufacturers for completing the desired job.  So, the elimination in barriers through digitization will definitely help the manufacturers to speed-up their productions. And this can shorten the lead time and allow end users to communicate their requirement directly. When we look this concept in a broader way then a storekeeper can place the order directly to manufacturer.   So, with the help of digitization, the sourcing in fashion is not only fast but cost effective too. Because the storekeeper will place the order as per most recent trend of the local market. And this would definitely decrease rate of waste clothes which lye on shelves due to non-selling.

Li&Fung is currently investing heavily in digitization concept. And their main motive is to streamline their operations, transparency in production and focusing on digital-design to avoid prototype cost. The famous brands Zara, H&M and Macy’s are also focusing on same line. What they are doing, they are trying to change the whole shopping experience of the customer who visit them. They will try something to the customer and then it will be customized by the help of AI and made nearby.

Automation in Sourcing:

Automation in sourcing means you replace human labor with robots. This approach is vice versa to the traditional sourcing in fashion. Where everyone is normally prefers remote manufacturers due to low cost. But in this approach, your manufacturing is handling by robots so you try to build manufacturing set up closer to end user markets. Moreover, you have a close interaction with the end user so the product innovation or customization is possible. Along with that you can easily enhance your production speed which will shorten the lead time of high fashion apparels. Furthermore, changing in geographical location can also eliminate the huge cost and hassle of long-distance transportation/duties. In-future, if this concept runs well then there will be no inventory at all as all products are made on-request.

There is no doubt that most of the people believed that in future automation would be the major driver in sourcing decision. And this thing will happen in next few years when sourcing people prefer automation instead of labor cost. Its fact, by implementing automation, there is chance the number of people will lose their jobs. But on the other hand, the new jobs are also created with better remunerations. And these new jobs would be a bit tech oriented like data analyst, engineers, technician etc. By adopting automation, factories have even a better chance to grow. So, they could also adjust the surplus staff to other vacant posts (after some training). Anyhow, there are some practical limitations which are also discourage the concept of automation in fashion industry.

Sourcing in Fashion: Practical Approach

There are some people who don’t believe on automation and digitization approach. As per them, the apparel industry is not like other industries where production steps are fixed.  As every product production steps are different from past products due to change in fashion trends (which are already a more volatile thing of current phase). So, you can’t replace skilled workers with robots. On the other hand, some believe that digitization process accompanied with automation can be practical and beneficial. But it’s not a homogenous which equally fits and beneficial for all. As it would be more practical for some brands and may be impractical for few of them.

Sourcing in fashion through digitization and automation is no doubt revolutionary concept for fashion players. And there are so many brands which are transforming their processes to take maximum benefits from this concept. Through automation, you can’t say this thing that mass production will again shift and run in the West in next-decade. But you will see many players who will return and collect the benefits of this concept.

Why Lean Manufacturing is Essential for Apparel Industry

Lean Manufacturing

The Lean Manufacturing is not a new word for us. Being a textile professional, every one of us has direct or indirect relation with textile manufacturing. The lean manufacturing is basically an operational strategy which supports the production from all aspects. By following its unique techniques and methods, the manufacturer can get an optimal production without any waste. So, in simple words, we can say that lean is a manufacturing without waste. The lean manufacturing concept was derived from Toyota production system which basic motive was to increase the value-added work by minimizing waste and reducing incidental work. The lean manufacturing basic concept is to put half efforts of the labor, half of the manufacturing space, half of the tools investment and the engineering hours for developing a new product in a half time.

Lean Manufacturing Concept:

As I described earlier that lean manufacturing philosophy is mostly derived from Toyota production system. With the help of lean manufacturing, a small automobile company named Toyota could reduce its waste and improve overall customer-value. The steady growth of Toyota from small company to globally renowned is an undoubted success of this system. The emphasis of lean manufacturing is utilizing fewer resources to produce the value added product.

Lean Manufacturing Vs Conventional Production System:

There is no doubt that lean manufacturing has totally changed the concept of the production system. As its techniques are conceptually different from the conventional system.  Although there are so many points which can differentiate both systems yet I have selected some points to understand the same in a better way:

Lean Manufacturing Vs Conventional Production System:

There is no doubt that lean manufacturing has totally changed the concept of the production system. As its techniques are conceptually different from the conventional manufacturing system.  Although there are so many points which can differentiate both systems yet I have selected some points to understand the same in a better way:

Conventional Manufacturing

Lean Manufacturing

 

The day to day production problems are normally view or treat as problems in conventional system.

In lean manufacturing, problems are normally view as opportunities for future improvement. By the help of which, there is a better chance to enhance new or value added features into the current product.
In traditional production system, the production is normally driving by sales forecast team or people. In lean system, it’s also one of the main motive of the production team to avoid surplus stock. So, this is why, the production is only driving by customer’s demand (like JIT system).
Work in progress (WIP) is a normal thing or part of production operation in conventional production system. Whereas in lean production system, the WIP is symbol that the process is requiring some improvements. And it is also considers as waste which need to improve on priority basis.
The top or in some cases tactical management level is authorize to change the process of production. And they normally don’t bother to involve operational staff in decision making process. Everyone is looking for the ways to improve the process/system. So, anyone from the production team can come up with suggestion to improve the product value in lean system.
In conventional production process, the standard work procedures only define in papers. But there is no any practical implications exist on the production floor. In lean manufacturing, everyone is normally following the standard procedure which describes in SOP. And it keeps following until or unless new or an improve version introduces or implements.
This system focuses more on the people’s training. And it totally relies on the people not to make mistakes. On the other hand, the lean manufacturing focuses on the system improvements. Once the system improves then it prevents people not to commit any mistake in day to day production matters.
In traditional or conventional production system, if the production process is working smoothly. Then no one bothers to intercept it for further improvements and things are running on same pattern years to years. In this way of production, if experts feel that with some necessary changes, they can improve the production system. Then they don’t wait for any happening/incident. They simply intercept the smooth system and implement the necessary changes to get a better production with quality.
In conventional production system, the product design lasts for a long period of time. In lean manufacturing, there research and development work is going on continues basis. This is why the product design and shape is changing by the passage of time.
In traditional production system, the quality department is built separately and they are responsible for the product quality parameters. The operational worker are note responsible for it. In this advance manufacturing system, all the workers are responsible for the quality of the product. The TQM and JIT systems are best examples of this.

 Some Other Factors:

The above comparison study is not over yet here.  As there are so many other benefits which a company can enjoy while adopting the lean manufacturing system. Even you can eliminate the following deadly waste blunders which you commit while following the conventional manufacturing system. The lean system identified the same as follows:

Some Other Factors:

The above comparison study is not over yet. As there are so other benefits which a company can enjoy while adopting the lean manufacturing system. Even you can eliminate the following deadly waste blunders which you commit while following the conventional manufacturing system. The lean system identified the same as follows:

  • Defects
  • Extra Processing cost
  • Transportation
  • Motion
  • Waiting
  • Over Production (Inventory)

Before the lean system, the defects or goods rejection percentage is uncontrollable. And due to this, the company has to produce extra (which causes extra processing & over production) to meet the exact order quantity. And sometime, this extra production drags the company towards extra cost and transportation for procurement of extra material for excessive goods. In short, a bad system pulls the financial cost of the produced product on break even or sometime even on negative side.

Lean Production in Apparel Industry:

Although the lean manufacturing concept was initiated by the Toyota motors yet it doesn’t fix for automobile industry only. This system has too much flexibility and can easily adopt into other manufacturing industries like apparel industry. By adopting this system, one can not only reduce its cost but also increase its turnover systematically. Its state-of-the-art system can continuously eliminate the non value-added activities which lead the company towards ultimate process cost saving.  In today’s competitive apparel market, where every upcoming order is requiring more competitive or low price.

So, it’s a normal practice of every manufacturer to revisit its product material sourcing cost and other factory overheads. So for this, the manufacturer has to cut down its material cost from scratch. After cutting the material cost, the next step is to get best competitive cost of its in house production. And for this, they have to check each and every factor which boosts the production cost surprisingly. And there is no doubt in it that rejection rate plays a vital role in the product cost. It can drag the company from profit to loss and vice versa. If a company controls this factor by adopting such method which is not only cost effective but production-friendly too. Then, the chances are really bright that the company can not only easily compete the market. But they can even earn better than previously.

Lean Manufacturing Implementation:

The lean manufacturing system is no doubt an ultimate solution to get the value-added product with minimum cost. This is why, the strength of textile manufacturing concern is increasing by every passing day. If you are closely observe the numbers of lean manufacturing oriented units in textile industry. Then you would realize that thousands of textile units are already adopting its techniques and methods. And now they are enjoying its benefits in terms of productivity and savings.